Content

- The purpose of the bank reconciliation statement.

- The definition of the bank reconciliation statement.

- Reasons for difference between the cash book and the bank
statement.

- Nature of the cash book and the bank statement.

- Drawing up a bank reconciliation statement.
- Example
- Exercise
 1. THE PURPOSE OF THE BANK
RECONCILIATION STATEMENT

• Due to the timing difference, omissions and

errors made by the bank or the firm itself, the
balances of the bank statement and the bank
account in the cash book rarely agree.
• Bank reconciliation statements can be used to
explain the reasons for the differences and to
identify errors and omissions in both
documents, so that corrections can be made as
soon as possible.
Back to the content
 2. THE DEFINITION OF THE BANK
RECONCILIATION STATEMENT

• The bank balances as shown in the cash

book and the bank statement seldom
agree.There are various reasons for
this.A statement is used to reconcile the
two balances.

Back to the content

 3. REASONS FOR DIFFERENCES
BETWEEN THE CASH BOOK AND THE
BANK STATEMENT.

• Uncredited items
– They are deposits paid into the bank.These
items occurred too close to the cut-off date of
the bank statement and so do not appear on
the statement.They will appear on the next
statement.
• Unpresented cheques
– They are cheques issued by the firm that
have not yet been presented to its bank for
payment.
• Standing orders
– They are standing instructions from the firm
to the bank to make regular payments.

Back
• Direct debits
– They are payments made directly through
the bank.
• Bank charges
– They are charges made by the bank to the
company for banking services used.

Back
• Dishonoured cheques
– They are cheques deposited but subsequently
returned by the bank due to the failure of
the drawer to pay.
• Credit transfers/direct credits
– They are collections from customers directly
through the bank.

Back
• Interest allowed by the bank
– They are interest received for deposits or
fixed deposits.

Back to the content

 4. NATURE OF THE CASH BOOK AND
THE BANK STATEMENT.

• The balance in the cash book is an asset

to the company,therefore:

Cash book

(A debit (A credit
represents an represents a
increase) decrease)

Next
• The balance as per the bank statement is
a liability to the bank,therefore:

Bank statement
Dr. Cr. Balance
(represents (represents (represents
decreases) increases) the amount
owed to
the clients)
Back to the content
 5. DRAWING UP A BANK
RECONCILIATION STATEMENT
• To reconcile the bank statement with the corrected cash
book
Check the Update the Prepare the
bank statement cash book bank
and the cash with any reconciliation
book to see the omissions statement.
items which and errors
have been made by the
omitted. itself.

Back to the content

A company’s cash book and bank statement for December 1996
appear as follows:
Cash Book(bank column)
1996 $ 1996 $
Dec 1 Balance b/d 2800 Dec 8 K.Wong 1600
3 W.Lee 1000 20 C.Kwok 700
10 T.Cheung 2000 29 M.Tang 100
30 S.Sin 1400 31 Balance c/d 4800
7200 7200
 Bank Statement
Dr Cr Balance
1996 $ $ $
Dec 1 Balance 2800
3 Cheque deposit 1000 3800
8 Cheque 76343 1600 2200
10 Cheque deposit 2000 4200
11 Dishonoured cheque 2000 2200
11 Service charge 30 2170
12 Autopay—Rent 250 1920
20 Cheque 76344 700 1220
31 Bank interest 50 1270
31 Credit transfer ---Commission received 300 1570
31 Balance 1570
Back
 Cash Book(bank column)
1996 $ 1996 $
Dec 1 Balance b/d 2800 Dec 8 K.Wong * 1600
3 W.Lee * 1000 20 C.Kwok * 700
10 T.Cheung * 2000 29 M.Tang 100
30 S.Sin 1400 31 Balance c/d 4800
7200 7200
Uncredited item Unpresented cheque

“*” are those appear both in the cash book and the bank statement. Back
 Bank Statement
Dr Cr Balance
1996 $ $ $
Dec 1 Balance 2800
3 Cheque deposit * 1000 3800
8 Cheque 76343 * 1600 2200
10 Cheque deposit * 2000 4200
11 Dishonoured cheque 2000 2200
11 Service charge 30 2170
12 Autopay—Rent 250 1920
20 Cheque 76344 * 700 1220
31 Bank interest 50 1270
31 Credit transfer ---Commission received 300 1570
31 Balance 1570
Bank charge
Direct debit Back
The corrected cash book and the bank reconciliation as at 31
December 1996 would appear as follows:
Cash Book(bank column)
1996 $ 1996 $

Dec 31 Balance b/d 4800 Dec 31 T.Cheung—

31 Commission Dishonoured cheque 2000

Received 300 31 Bank chrges 30

31 Rent 250
31 Balance c/d 2870
31 Bank interest 50
5150
Back
 Bank Reconciliation Statement as at 31 December 1996
$
Corrected balance in hand as per cash book 2870
Add Unpresented cheque 100
2970
Less Bank deposit not yet entered on bank statement 1400
Balance in hand as per Bank Statement 1570

Back to the content

The following are extracts from the cash book and the
bank statement 2000,and you are required to:
(a) Write the cash book up to date,and the new balance
as on 31 December 2000,and
(b) Draw up a bank reconciliation as on 31 December
2000.
 Cash Book
2000 $ 2000 $
Dec 1 Balance b/d 1740 Dec 8 A Dai 349
7 T Ma 88 15 R Sun 33
22 J Li 73 28 G So 115
31 K Woo 249 31 Balance c/d 1831
31 M Poon 178
2328 2328

Back
 Bank Statement
2000 Dr Cr Balance
$ $ $
Dec 1 Balance b/f 1740
7 Cheque 88 1828
11 A Dai 349 1479
20 R Sun 33 1446
22 Cheque 73 1519
31 Credit transfer:J Wong 54 1573
31 Bank charges 22 1551

Back
 Cash Book
2000 $ 2000 $
Dec 31 Balance b/d 1831 Dec 31 Bank charges 22
31 J.Wong 54 31 Balance c/d 1863
1885 1885

Back
 Bank Reconciliation Statement as on 31 December 2000

$
Balance per cash book 1863
Add Unpresented cheque 115
1978
Less Bankings not yet on bank statement
(249+178) 427
Balance per bank statement 1551

Back
Back to the content