Bank Reconciliation Statements (PDF)

BANK RECONCILIATION STATEMENTS (Handout) Bank Reconciliation Statement – a statement showing a comparison between the cashbook balance and the balance as per the bank statement. Reasons for bank reconciliation To prove that although the balances in the cashbook and...

BANK RECONCILIATION STATEMENTS (Handout) Bank Reconciliation Statement – a statement showing a comparison between the cashbook balance and the balance as per the bank statement. Reasons for bank reconciliation To prove that although the balances in the cashbook and on the bank statements are different and they can be reconciled (i.e. make to agree). Definition of Bank Statements ✔​ Copies issued by a bank to a costumer showing details of money paid into and out of the account at the bank. ✔​ A copy of our account, as kept by a bank, which shows items paid into and out of the account at the bank. Items that may be on the Bank Statement but not in the Cash Book ▪​ Bank charges: Fees charged by the bank for operating the account. ▪​ Credit transfer (also referred to as Bank Giro): a method used by businesses to pay creditors, wages and salaries through the banking system. ▪​ Standing order: Instructions given by a business or by an individual to a bank to pay specified amounts at given dates. ▪​ Direct Debits: Where the business gives permission for an organization to collect amounts owing direct from their bank account. This method is often used to pay mortgages, insurance premiums, credit cards, utility bills. ▪​ Interest received: When interest on account is paid by the bank to the a\c holder. ▪​ Dishonoured Cheques/Returned cheques: cheques deposited to our a\c but which are worthless, as there may not be enough cash in the drawer’s bank account to clear the cheque or there may be signature problems. ▪​ Errors: mistakes in calculation or entries. Items that may be in the Cash Book but not on the Bank Statement ▪​ Uncredited Cheques/Late lodgement/Unrecorded deposit Cheques banked by us but not acknowledged on this month’s bank statement.  ▪​ Unpresented cheques/Outstanding Cheque A cheque paid to a worker or supplier but which has not yet passed through the banking system Steps involved in preparing a bank reconciliation statement: 1.​ Compare the bank statement with the cashbook. 2.​ Identify all entries that are not common to both. 3.​ Use items found in the bank statement but not in the cashbook to update the cashbook. (standing order, CR transfer/trader’s credit, bank charges) 4.​ Use items found in the cashbook but not in the bank statement to reconcile the updated cashbook balance with the balance as per bank statement. Formats ​ Starting with the updated cash book balance Bank Reconciliation Statement as at 31 December 2016 ​ ​ ​ ​ ​ $ Balance as per updated cash book​ ​ ​ ​ ​ XXX Add unpresented cheque​ ​ ​ ​ ​ ​ XXX ​ ​ ​ ​ ​ ​ ​ ​ XXX Less Late Lodgments​ ​ ​ ​ ​ ​ ​ ​ (XXX) Balance as per bank statement​ ​ ​ ​ ​ ​ XXX ​ Starting with the balance as per bank statement Bank Reconciliation Statement as at 31 December 2009 ​ ​ ​ ​ ​ $ Balance as per bank statement​ ​ ​ ​ ​ ​ XXX Add Late Lodgement​ ​ ​ ​ ​ ​ ​ ​ XXX ​ ​ ​ ​ ​ ​ ​ ​ XXX Less Unpresented cheque​ ​ ​ ​ ​ (XXX) Balance as per updated cash book XXX Bank Overdrafts A bank overdraft is a facility provided by the bank where they will continue to make payments from a current account even though there are insufficient funds to cover the payment. This is a short-term loan, on which the bank charges interest on a day-to-day basis. When there is a bank overdraft (shown by a credit balance in the cash book), the adjustments needed for reconciliation are opposite to those needed for a debit balance. On a bank statement an overdraft is often shown with the letters O/D following the amount; or else it is shown as a debit balance, indicated by the letters ‘Dr’ after the amount.