Bank Reconciliation

Module 3:
Cash, Receivables, Payables

Duration:
45-60 minutes

Level:
Beginner to Diploma-Level

➛ Explain the purpose of bank reconciliation.

➛ Identify reasons why bank and cash balances differ.

➛ Distinguish between bank-side and book-side items.

➛ Prepare a simple bank reconciliation statement.

➛ Record necessary cash book adjustments.

➛ Bank Reconciliation
➛ Cash Book
➛ Bank Statement
➛ Deposits in Transit
➛ Outstanding Cheques
➛ Bank Charges
➛ Direct Deposit
➛ Errors

A bank reconciliation compares

➛ The cash book balance
➛ The bank statement balance

The goal is to ensure both records are accurate and agree.

Differences arise because

➛ Timing differences
➛ Bank charges not yet recorded
➛ Customer deposits made directly to the bank
➛ Outstanding cheques
➛ Errors in recording

Items added to bank balance
➛ Deposits in transit

Items deducted from bank balance
➛ Outstanding cheques

Items adjusted in the cash book
➛ Bank charges
➛ Direct deposits
➛ Interest credited
➛ Errors

1. Compare bank statement with cash book
2. Identify reconciling items
3. Adjust the cash book
4. Prepare the reconciliation statement
5. Confirm adjusted balances match

Bank Reconciliation Statement

➛ Balance as per bank statement
➛ Add | Deposits in transit
➛ Less | Outstanding cheques
➛ Adjusted bank balance

State whether each item affects

Bank statement only | Cash book only | Both

➛ Outstanding cheque
➛ Bank charges
➛ Direct customer deposit
➛ Deposit in transit

Cash book balance | 5,000
Bank statement balance | 4,500

Additional information
Outstanding cheques | 800
Deposits in transit | 1,200
Bank charges | 100

Task
Identify reconciling items and prepare a bank reconciliation statement.

Indicate where the error occurred

1. A cheque issued was recorded twice in the cash book.
2. Bank charged monthly service fees not recorded in books.
3. Customer deposited money directly into the bank.
4. Deposit recorded in books but not yet by bank.

A business owner notices the cash book shows 12,000 while the bank statement shows 10,500.

Further details
➛ Outstanding cheques | 2,200
➛ Deposits in transit | 700
➛ Bank charges | 150

Questions

➛ Why are the balances different?

➛ Which items must be adjusted in the cash book?

➛ Prepare a bank reconciliation statement.

➛ What is the purpose of bank reconciliation?

➛ Name one cause of difference between bank and book balances.

➛ What are outstanding cheques?

➛ Which items require cash book adjustment?

➛ True or False | Bank reconciliation helps detect errors and fraud.

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Answers ➧ Here

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Petty Cash Systems ➧ Here