BANK RECONCILIATION STATEMENT

RECONCILIATION STATEMENT

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 customers 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.