Bank reconciliation statement is a method of clearing out ambiguities
Keep in mind that the cash we give to a bank is a liability for the bank. So when the liability increases, the bank account is credited.
(to simplify, bank book is opposite of cash book)
omissions from cashbook (Debit side) because of non availbility of source documents, we donot enter the transactions on the debit side of cashbook. There can be three types of omission:
- Credit transfer
When a debtor deposits directly into the business’s bank account, it wil appear on the credit side of the bank account because liability of the bank is increasing and will not be recorded on the debit side of the cash book becasue of non availbility of source document.
- Divident on investment
Dividents are profit on shares. Sometimes business invests money in shares so the divident they receive is directly deposited to their bank account. The amount is credited to the bank account but goes un recorded n the debit side of cashbook.
- Interest on deposits
Sometimes businesses open fixed deposit accounts in bank, and receive interests on the primary amount. The amount they receive is sometimes credited to their business account directly and thus goes unrecorded in their cashbook.
Omissions from credit side of cash book. There are 4 types of such omissions:
- Standing order
It is a fixed amount of money paid by bank to the creditors e.g you order the bank to pay your insurance at begining of each month and the bank does so without informing you.
- Direct debit
It is a variable amount paid by the bank to creditors, but in this case creditors goes to the bank to collect the money.
- Bank charges
These are charges paid to bank for the servies they provide e.g ATM ,etc.
- Dishonoured cheques
Sometimes cheques a business receive as payments bounce back or are dishonoured because the other party does not have that amount of money in their bank account. Such cheques go unrecorded in the cashbook.
Omissions from the bank statement (Debit side)
- Unpresented cheques
A cheque which has been sent but has not yet gone through the bank account of the receiver. Suppose we paid a cheque to Mr.Daniyal’s on 30th september, he banked it on 31st september. But the cheque wont appear on the bank statements till 2nd October.
(unpresented cheques are added to cash book while adjusting)
Omissions from bank statement credit side
- Bank lodgement not yet credited
We received a cheque on 30th september and banked it on 31st septmeber. The cheque wont appear on our bank statement till 2nd february.
(bank lodgements are subtracted from the cash book while adjusting)
In case of bank overdraft , (shown by credit balance in the cashbook) the adjustments are the same but the opening and closing balance are negative.
Take into account the following example:
Balance as per cashbook 678
Un-presented cheques 256
Cheques received but not credited 115
Credit transfers entered as bank on the bank
statement but no entered the cashbook 56
Cash at bank as per bank statement 875
- Draw up the bank reconciliation statement from the following data
Balance as per cashbook $678
Add un-presented cheques $256 $934
Less bank lodgement / uncredited cheques $115
Less credit transfers $56 $875
BALANCE AS PER BANK STATEMENT : $875