Week 13 Bank Reconciliation Learning Objectives 1 Purpose

Week 13 Bank Reconciliation Learning Objectives 1. Purpose of preparing a bank reconciliation statement 2. Identify main causes for the differences between the bank statement balance and the cash book balance 3. Update cash book and prepare the bank reconciliation statement P 3

CURRENT (CHECKING) ACCOUNTS • Almost all businesses have current (checking) accounts with banks • There are various reasons: Ø Keep money in bank is one way to facilitate the safekeeping of cash. To control cash, it is a good business practice to deposit each days cash receipt into bank on the following working day and to make all payment by cheques Ø The control of cash is further strengthened if money is kept in the bank because bank records all deposits of cash and cheques received from firm. Ø Keeping money in the bank helps the business that needs to have a current account with the bank for overdraft facilities.

BANK STATEMENT 1. Balance in the account brought forward from previous bank statement 2. A debit column generally the cheques written out by firm(depositor) and actually paid out by bank (cheques issued by depositors but not cleared by bank will obviously not be shown in bank statement) 3. A credit column showing all the cash and cheque deposited by the firm into the bank Eg : pg 300

CAUSES OF DIFFERENCES BETWEEN CASH BOOK AND BANK STATEMENT • Normally when bank statement balance is compared with the cash book balance for the same period time, it is unlikely that the ending balances will be the same

CAUSES OF DIFFERENCES BETWEEN CASH BOOK AND BANK STATEMENT • Causes of differences : 1. Unpresented cheques These cheques paid out to the creditors of business thus recorded in cash book. However, the creditors have not yet presented to the bank, thus not yet recorded in bank statement. 2. Uncredited cheques (outstanding deposits) These are cash deposits or cheques received by business and have been deposited into bank thus recorded in cash book. However, not yet recorded by bank in bank statement. Eg: deposit after 2 pm Friday as being banked in the next day

3. Bank charges May take forms such as interest charges, charges for cheque books and etc thus recorded in bank statement but not in cash book 4. Bank or credit transfers Cash deposits or cheques received by the bank on behalf of the business thus recorded in bank statement but not in cash book Eg: Dividends received by companies paying to business 5. Standing orders Instructions given by business to the bank to make regular payments on its behalf to its creditors thus recorded in bank statement but not in cash book Eg: Insurance expenses

PURPOSE OF PREPARATION BANK RECONCILIATION STATEMENT • Usually prepare to reconcile between the bank balance as recorded in bank statement and the balance in cash book

DISHONOURED CHEQUES • From time to time, cheques made out by the firm may be dishonoured by the bank when presented for clearing. This means the bank will not pay the person presenting the cheques that have been issued to them by the business. 1. The business has issued a cheque for an amount exceeding the amount it has in the bank. Business has exceeded the limit of its credit facilities with the bank. Called insufficient funds. 2. Cheques are presented on a date past the valid time period. 3. Cheques are not properly written out in terms of wordings or figures or dates or signatures.

OVERDRAFT • Overdraft facility may be granted to a business by the bank for business purposes. The firm is allowed to issue cheques amounting to more than what it has in the bank