1. Bank Reconciliation
• Purpose
• Bank Statement & Cashbook
• Reasons of Difference between cashbook and bank statement
• Reconciling errors
• Preparing Bank Reconciliation
Statements.
Learning objectives

2. The purpose of the bank
reconciliation statement
 Due to the timing difference, omissions and errors
made by the bank or the firm itself.
 The balance of the bank statement and the bank
account in the cash book rarely agree.
 Bank reconciliation statements can be used
 To explain the reasons for the differences and to
identify errors and omissions in both documents, so
that corrections can be made as soon as possible.

3. Bank Statement
6-3
Bank Statement – A statement listing different types of activity that have taken
place during the month.
 Debit: decreases the account —
 Credit: increases the account +

4. Nature of the bank book and bank
statement
Cash Book (bank column only)
Debit represents an increase Credit represents an decrease
Bank Statement
Dr Cr Balance
(represent
decrease)
(represent
increase)
(represent
The
amount
Payable to
the clients)

5. 12–5

6. Bank Reconciliation
6-6
 Reconciles the difference between the bank statement and
the bank book (cash book).
Differences in timing
Transactions not entered in bank book
Bank book Bank Statement

7. Reconciling bank book with
bank statement
6-7
Bank Statement Balance
+EFT (electronic funds transfer)
+Interest earned
+Notes collected
+Direct deposit
-ATM withdrawals
-Automatic withdrawals
-Online fees
-Automatic payments
-Overdrafts
-Service charges
-Stop payments
+/-Book errors
Cashbook Balance
+Deposit in transit
-Outstanding checks
+/-Bank errors

8. Reasons for differences between the
cash book balance and the bank statement
balance
1. Uncredited items
They are deposits paid into the bank. These items
occurred too close to the cut-off date of the bank
statement and so do not appear on the statement. They
will appear on the next statement.
Banking made shown in the cash book
But not on the bank statement

9. 2. Unpresented cheques
They are cheques issued by the firm that have not yet been
presented to its bank for payment.
3. Standing orders
They are standing instructions from the firm to the bank to make
regular payments.
4. Direct debits
Payments made directly through the bank.
5. Bank charges
Charges made by bank to company for banking services used.

10. 6. Dishonoured cheques
They are cheques deposited but subsequently returned by the
bank due to the failure of the drawer to pay.
7. Credit transfers / direct credits
They are money received from customers directly through the
banking system.
8. Interest allowed by the bank
They are interest received for deposits or fixed deposits.

11. Reconciling a bank statement
Step 1. Identify outstanding cheques
Step 2. Identify deposits in transit.
Step 3. Analyze bank statement for transactions not recorded in bank
book.
Step 4. Check for recording errors in cheques, deposits, addition, or
subtraction.
Step 5. Compare the adjusted balances; if different, repeat Steps 1-4.
5 Steps

12. Bank Reconciliation - Step 1
Deposits in Transit:
Late period deposits
not yet reflected on
bank statement
Trace deposits on bank statement to books.
Identify deposits in transit. Add to bank
balance.

13. Example of
Reconciliation
Balance per statement, June 30 $ 3,308.59
Add: Deposit in transit 642.30
Bank Statement Adjustments: Deposits
13

14. Bank Reconciliation - Step 2
Outstanding
cheques: Cheques
written but not yet
presented to bank
Trace cheques cleared by bank to books.
Identify outstanding cheques. Subtract from
bank balance.

15. Example of Reconciliation
Bank Statement Adjustments:
Cheques Outstanding
Balance per statement, June 30 $3,308.59
Add: Deposit in transit 642.30
Deduct: Outstanding cheques:
Cheque No. 496 $ 79.89
Cheque No. 501 213.20
Cheque No. 502 424.75 (717.84)
Adjusted balance, June 30 $3,233.05
15

16. Bank Reconciliation - Step 3
Credit memoranda:
Interest earned,
customer notes collected
List all other additions (credit memoranda)
shown on the bank statement. Add to
book balance.

17. Example of Reconciliation
Balance per books,June 30 $ 2,895.82
Add:
Note collected $500.00
Interest on note 50.00
Interest earned 15.45
Recording error, #498 54.00
619.45
Cash Account Adjustments:
Credit Memoranda
17

18. List all other subtractions (debit memoranda)
shown on the bank statement. Subtract from
book balance.
Bank Reconciliation - Step 4
Debit memoranda:
NSF checks, service
charges, etc.

19. Example of Reconciliation
Cash Account Adjustments:Debit Memoranda
Balance per books, June 30 $ 2,895.82
Add: Note collected $500.00
Interest on note 50.00
Interest earned 15.45
Recording error, #498 54.00
619.45
Deduct: NSF check $245.72
Collection fee – note 16.50
Service charge 20.00
(282.22)
Adjusted balance, June 30 $ 3,233.0519

20. Bank Reconciliation - Step 5
Identify errors made by the bank or
the company in recording
transactions during the period.

21. Bank Reconciliation - Step 6
Use the information collected in Steps 1 -
5 to prepare the bank reconciliation.
Bank Reconciliation
Balance per bank $$$
:
Adjusted balance $$$
Balance per books $$$
:
Adjusted balance $$$
Adjusted
balances
for book
and bank
must
agree

22. Bank Reconciliation
Adjusting Entries
Bank Reconciliation
Balance per bank $$$
:
Adjusted balance $$$
Balance per books $$$
:
Adjusted balance $$$
Book
adjustments
are the basis
for
adjusting
entries

23. Bank Reconciliation Adjusting Entries
Dr. Cr.
Accounts Receivable 245.72
Collection Fee Expense 16.50
Rent Expense - Lockbox 20.00
Cash 337.23
Notes Receivable 500.00
Interest revenue 65.45
Supplies 54.00
To record bank reconciliation adjustments.

24. Example 1

25. Cash book(Bank column)
2016 $
Dec 1 Bal b/f 2800
3 W Lee 1000
10 T Cheung 2000
30 S Sin 1400
2016 $
Dec 8 K Wong 1600
20 C Kwok 700
29 M Tang 100
31 Bal c/f 4800
7200 7200
Bank Statement
2016 Dr Cr Balance
$ $
Dec 1 Balance 2800
3 Cheque deposit 1000 3800
8 Cheque 76343 1600 2200
10 Cheque deposit 2000 4200
11 Dishonoured cheque 2000 2200
11 Service charges 30 2170
12 Autopay-rent 250 1920
20 Cheque 76344 700 1220
31 Bank interest 50 1270
31 Credit transfer-commission received 300 1570
31 Balance 1570
Uncredited
items
Unpresented cheque
Bank charges
Direct debit
Question:

26. Cash Book (Bank Column)
2016 $ 2016 $
31 Commission Rec. 300
31 Bank Interest 50
5,150
Dec 31 Balance b/f 4,800 Dec 31 T. Cheung –
Dishonoured cheque 2,000
31 Bank charges 30
31 Rent 250
31 Balance c/f 2870
5,150
•Identify the items which have been omitted in the cash book
Answer:

27. Bank Reconciliation Statement as at 31 Dec 2016
$
Corrected balance in hand as per Cash Book
Unpresented cheques 100
Bank deposits not yet entered on Bank Statement 1400
Balance in hand as per Bank Statement
2870
1570
Add
Less
2970
•Only adjusted caused by timing difference

28. Two steps :
1. Check the bank statement and the cash book
to identify the items which have been omitted.
2. Prepare the bank reconciliation statement.
To reconcile the bank statement with the
Unadjusted cash book

29. Transaction Effect on cash book Effect on Pass book
Cash Deposit Bank Dr
Cash CR
Cash Deposits DR
XYZ CR
Interest on
deposits
Bank Dr
Interest on income CR
Interest Expense DR
XYZ CR
Payment though
cheque
Accounts payable DR
Banks CR
XYZ DR
Cash Deposits Cr
Unpresented
cheques
Above effect in pending
Bank Dr
Account Payable Cr
Above effect in pending
Bank Charges Bank Charges Dr
Bank CR
Interest Expense DR
XYZ CR
Dishonored
Cheques
Accounts Receivable Dr
Banks CR

30. Begin with the unadjusted cash book balance
and end with the bank statement balance
Bank Reconciliation Statement as at XXXX
$ $
Balance in hand as per Cash Book x
Add Credit transfers x
Bank interest x
Unpresented cheques x
Wrong credits by the bank x x
x
Less Standing orders / direct debits x
Bank charges x
Dishonored cheques x
Bank deposits not yet entered on Bank Statement x
Wrong debits by the bank x x
Balance in hand as per Bank Statement x
Amount received on bank statement
But not on bank statement
Timing difference
Bank error

31. Example 2
The facts are the same as Example 1, but
the cash book was not updated.

32. Bank Reconciliation Statement as at 31 Dec 2016
$ $
Balance in hand as per Cash Book 4,800
Add Credit transfers 300
Bank interest 50
Unpresented cheques 100 __450
5,250
Less Bank charges 30
Dishonoured cheques 2,000
Bank deposits not yet entered on Bank Statement 1,400
Direct debit 250 3,680
1,570
Answer:

33. • Errors corrected within the current
accounting period
-As the error has been corrected by the bank within
current accounting period, no adjustment is needed.

34. Bank Statement
Dr Cr Balance
1996 $ $
Dec 1 Balance 240
1 Cheque 54321 520 280 O/D
2 Credit 2,000 1,720
8 Cheque 54232 1,600 120
20 Cheque 10674 300 180 O/D
20 Adjsutment 300 120
Example 3 :
No adjustment
should be made

35. • Errors not corrected within the current
accounting period
Example 4 :
• An amount of $1,000 which should be
credited into the owner’s personal account
was wrongly credited by the bank to the
company’s bank account. The balance of the
cash book is $4,000 and the balance of the
bank statement was $5,000 at 31 Dec 2016

36. Bank Reconciliation Statement as at 31 Dec 2016
$
Balance in hand as per Cash Book 4,000
Add wrong credit by the bank 1,000
5,000
•As it is an error made by the bank, no adjustment is needed in the
company’s cash book
Answer: