BANK RECONCILIATION STATEMENT

BANK RECONCILIATION STATEMENT

BANK RECONCILIATION STATEMENT

WEEK: 1

Contents:

Bank statement

This is a statement prepared periodically and swent by the bank to an account holder showing the transaction between the customer and the bank within a period of time.

Purpose of bank statement

  • To reduce the incidenceof fraud to its minimum.
  • To inform the customer of the transactions that takes place.
  • Helps the customer to know the position of his finance with the bank.
  • To provide the customer with a continuos and permanent record of his account.

Cash book:  this is a book of original entry into which cash received and paid are recorded.

bank reconciliation statement: this is a statement prepared by a current account holder for the purpose of finding out the differences between the cash book and the bank statement balances in order to reconcile and harmonise the balances.

IMPORTANCE OF BANK RECONCILIATION STATEMENT

  • It acts as a check on the accuracy of entries made in the book.
  • It verifies the accuracy of balances of cash book and cheque book.
  • It helps to detect and rectify any error.
  • It helps to update the cash book by discovering some entries not yet recorded.

Reasons for disagreement between the cash book and the bank statement.

The following are reasons for disagreement between the cash book and the bank statement:

  • Unpresented cheques: these are the cheques issued out to some people but which are yet to be presented to the bank for collection as at reconciliation date.

Effects: cash book will show lower balance

Bank statement will show greater balance.

Action required: add to the balance as per cash book.

Subtract from balance as per bank statement.

  • Dishonoured cheques: these are cheques lodged or deposited into a bank but were rejected by the bank. Banks can reject cheques for the following reasons:
  • Irregular signature
  • Insufficient fund in the account.
  • Alteration of the cheque.
  • Difference between words and figures.
  • Wrong amount.

Effects: cash book will show the greater balance.

Bank statement will show lower balance

Action required: Subtract from the balance as per cash book.

add to balance as per bank statement.

  • Uncredited cheques: these are cheques which have been received and entered in the cash book and logded  in trhe bank but have not been entered on the credit of the customer’s bank statement as at the date of reconciliation.

Effects: cash book will show the greater balance.

Bank statement will show lower balance

Action required: Subtract from the balance as per cash book.

add to balance as per bank statement.

  • Bank charges: these are charges paid by the customers ti their bank for services rendered to them by the bank.

Effects: cash book will show the greater balance.

Bank statement will show lower balance

Action required: Subtract from the balance as per cash book.

add to balance as per bank statement.

  • Standing order: this is an instruction given by an account holder to the bank to make regular payment on his behalf.

Effects: cash book will show the greater balance.

Bank statement will show lower balance

Action required: Subtract from the balance as per cash book.

add to balance as per bank statement.

  • Credit transfer: these are cheques or cash received directly by the bank on behalf of the firm, without notifying them until they receives the bank statement.

Effects: cash book will show lower balance

Bank statement will show greater balance.

Action required: add to the balance as per cash book.

Subtract from balance as per bank statement.

  • Dividend: this is part of the profit distributable to shareholders of an organization. This will be paid directly into the bank account of such shareholders.

Effects: cash book will show lower balance

Bank statement will show greater balance.

Action required: add to the balance as per cash book.

Subtract from balance as per bank statement.

ASSIGNMENT: PREPARE A TABLLE SHOWING ALL THE ITEMS THAT CAN CAUSE DISCREPANCIES BETWEEN A CASH BOOK AND A BANK STATEMENT, SHOWING HOW EACH WILL BE TREATED.

 WEEK : 2

ELEMENTARY TREATMENT OF BANK RECONCILIATION STATEMANT

Three basic METHODS CAN BE USED for the presentation of BANK RECONCILIATION STATEMENT. These are:

  • Preparation of bank reconciliation statement: starting with the balance as per cash book.
  • Preparation of bank reconciliation statement: starting with the balance as per bank statement.
  • Adjustment of the cashbook and preparation of the bank reconciliation statement.

METHOD ONE: STARTING WITH THE CASH BOOK BALANCE

When the cash book balance is used, the format looks this way:

Example one:

On 31st July 1993, gbadegeshin’s cash book showed a debit balance of N4,000. His bank statement showed a balance of N4,270. On comparism, the following were found:

  • Issued amounting to N 2,500 has not been presented for payment.
  • The bank rejected cheques amounting to N140.
  • Standing order of N700 to a club was not taken into consideration.
  • A customer, Segun paid N170 directly into the bank without any notice to the firm.
  • Bank charges of N160 were entered in the bank statement only.
  • A dividend of N250 was paid directly into the bank and not recorded in the cash book.
  • Cheques for N1,650 were entered into the cash bookand paid to the bank but had not been cleared thus not credited.

You are required to prepare a bank reconciliation statement for the month of July, 1993.

Example 2: Using the same question as above:

    TREATMENT OF OVERDRAFT

Overdraft occurs when the customer has withdrawn more than what he has in  his account. The cash book will show a credit balance. The procedure needed to reconcile will be a complete opposite of that needed when the account is not overdrawn.

EXAMPLE 3:

On 31st December 1999, the cash book of a trader shawed a balance of N478(OD) while his bank statement showed a balance of N402(OD). It was discovered that the following transactions were responsible for the discrepancies between the two balances:

  • Cheques issued amounting to N77had not been presented for payment.
  • Uncredited cheques N119.
  • A standing order with the bank for a subscription for insurance premium N57 was not considered.
  • Bank charges amounted to N30.
  • Dividends of N205 collected and credited by the bank did not appear in the cash book.

You are required to prepare the bank reconciliation statement.                 

ASSIGNMENT:  ON 31st October, 2009 elente cash book showed a debit balance of N4,780His bank statement showed a balance of N4,020 On comparism, the following were found:

  • Issued amounting to N 3,500 had not been presented for payment.
  • The bank rejected cheques amounting to N200.
  • Standing order of N700 to a club was not taken into consideration.
  • A customer, Segun paid N70 directly into the bank without any notice to the firm.
  • Bank charges of N10 were entered in the bank statement only.
  • A dividend of N50 was paid directly into the bank and not recorded in the cash book.
  • Cheques for N1,650 were entered into the cash bookand paid to the bank but had not been cleared thus not credited.

You are required to prepare a bank reconciliation statement for the month of July, 1993.