By Nancy Keong

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
represents an
increase)

(A credit
represents a
decrease)
Next

 The balance as per the bank statement is

a liability to the bank,therefore:

Bank statement
Dr.
Cr.
(represents
decreases)

(represents
increases)

Balance
(represents
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
bank statement
and the cash
book to see the
items which
have been
omitted.

Update the
cash book
with any
omissions
and errors
made by the
itself.

Prepare the
bank
reconciliation
statement.

Back to the content

A companys 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

1000

20 C.Kwok

700

10 T.Cheung

2000

29 M.Tang

100

30 S.Sin

1400

31 Balance c/d

4800

3 W.Lee

7200

7200

Bank Statement
1996

Dr

Cr

Balance

Dec 1 Balance

2800

3 Cheque deposit
8 Cheque 76343

1000
1600

10 Cheque deposit
11 Dishonoured cheque

3800
2200

2000

4200

2000

2200

11 Service charge

30

2170

12 AutopayRent

250

1920

20 Cheque 76344

700

1220

31 Bank interest
31 Credit transfer ---Commission received
31 Balance

50

1270

300

1570
1570

Back

Cash Book(bank column)

1996
Dec 1 Balance b/d
3 W.Lee
10 T.Cheung
30 S.Sin

$
2800

1996
Dec 8 K.Wong

1600

700

* 1000

20 C.Kwok

* 2000

29 M.Tang

100

31 Balance c/d

4800

1400
7200

Uncredited item

7200
Unpresented cheque

* are those appear both in the cash book and the bank statement.

Back

Bank Statement
1996

Dr

Cr

Dec 1 Balance

$
2800

3 Cheque deposit
8 Cheque 76343

Balance

* 1000
* 1600

10 Cheque deposit

2200
* 2000

11 Dishonoured cheque

3800

4200

2000

2200

11 Service charge

30

2170

12 AutopayRent

250

1920

* 700

1220

20 Cheque 76344
31 Bank interest

31 Credit transfer ---Commission received

31 Balance
Direct debit

Bank charge

50

1270

300

1570
1570

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

Received

Dec 31 T.Cheung
Dishonoured cheque

31 Commission
300

31 Bank chrges
31 Rent

31 Bank interest

50

31 Balance c/d

2000
30
250
2870
5150

Back

Bank Reconciliation Statement as at 31 December 1996

$
Corrected balance in hand as per cash book
Add Unpresented cheque

2870
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 8 A Dai

349

Dec 1 Balance b/d

1740

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

Dec 31 Balance b/d

1831

31 J.Wong

54
1885

2000

Dec 31 Bank charges

22

31 Balance c/d

1863
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)
Balance per bank statement

427
1551

Back

Back to the content