Bank Reconciliation

State whether each item affects

Bank statement only | Cash book only | Both

Outstanding cheque
➛ Bank statement only

Bank charges
➛ Cash book only

Direct customer deposit
➛ Cash book only

Deposit in transit
➛ Bank statement only

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.


Step 1 Adjust Cash Book

Cash book balance ➧ 5,000
Less: Bank charges ➧ 100
Adjusted cash book balance = 4,900

Step 2 Bank Reconciliation Statement

Balance as per bank statement ➧ 4,500
Add: Deposits in transit ➧ 1,200
Less: Outstanding cheques ➧ 800
Adjusted bank balance = 4,900

Balances agree

Indicate where the error occurred

A cheque issued was recorded twice in the cash book.
➛ Cash book error

Bank charged monthly service fees not recorded in books.
➛ Cash book item | not yet recorded

Customer deposited money directly into the bank.
➛ Cash book item

Deposit recorded in books but not yet by bank.
➛ Bank statement timing difference

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?

Because of
➛ Outstanding cheques
➛ Deposits in transit
➛ Bank charges not recorded in the cash book

Which items must be adjusted in the cash book?
➛ Bank charges | 150

Prepare a bank reconciliation statement.

Balance as per bank statement ➧ 10,500
Add: Deposits in transit ➧ 700
Less: Outstanding cheques ➧ 2,200
Adjusted bank balance ➧ 9,000


Cash book balance ➧ 12,000
Less: Bank charges ➧ 150
Adjusted cash book balance ➧ 11,850

The balances do not agree, indicating missing information or an error.

This highlights the importance of identifying all reconciling items.

What is the purpose of bank reconciliation?
➛ To ensure bank and cash records are accurate and agree.

Name one cause of difference between bank and book balances.
➛ Outstanding cheques | Deposits in transit | Bank charges.

What are outstanding cheques?
➛ Cheques issued but not yet cleared by the bank.

Which items require cash book adjustment?
➛ Bank charges, direct deposits, interest, errors.

Bank reconciliation helps detect errors and fraud.
➛ True

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