Bank Reconciliation Statement (Copy)
Cheat Sheet: 3.3 Bank Reconciliation
O Level and IGCSE Accounting – Quick Revision
What is Bank Reconciliation?
- A bank reconciliation compares the cash book balance with the bank statement balance.
- Differences arise due to timing, omissions, or errors.
Purpose of Bank Reconciliation
| Purpose |
|---|
| Ensure the business’s records match the bank’s |
| Detect and correct errors or omissions |
| Identify unpresented cheques and uncredited deposits |
| Prevent and detect fraud |
| Assist in accurate reporting of cash at bank |
Key Documents
| Document | Description |
|---|---|
| Cash Book | Business’s record of cash and bank transactions |
| Bank Statement | Bank’s record of the business’s account from the bank’s perspective |
Common Causes of Differences
| Reason | Effect |
|---|---|
| Unpresented cheques | Cheques issued by the business but not yet cleared by the bank |
| Uncredited deposits | Amounts received by the business but not yet processed by the bank |
| Bank charges | Fees charged by bank, not yet entered in the cash book |
| Bank interest | Interest paid/received by bank, not yet in the cash book |
| Standing orders | Fixed payments made automatically by bank |
| Direct debits | Variable amounts deducted by third parties via the bank |
| Credit transfers | Incoming payments directly credited by customers |
| Dividends | Earnings from investments received into the bank |
| Errors | Mistakes in the cash book or bank statement |
Updating the Cash Book (Before Reconciliation)
Adjust cash book for:
- Bank charges
- Interest paid/received
- Standing orders
- Direct debits
- Credit transfers
- Dividends received
- Corrections of errors (e.g. wrong amounts)
Format: Adjusted Cash Book Example
| Date | Details | Debit ($) | Credit ($) |
|---|---|---|---|
| 01 Jan | Bank Charges | 25 | |
| 01 Jan | Interest Received | 40 | |
| 01 Jan | Standing Order (Rent) | 500 | |
| Balance c/d | 2,000 |
Bank Reconciliation Statement Format
After updating the cash book, reconcile with the bank statement.
Bank Reconciliation Statement (Example Format)
As at 31 Dec 20XX
| Item | Amount ($) |
|---|---|
| Balance as per updated cash book | 2,000 |
| Add: Unpresented cheques | 600 |
| Less: Uncredited deposits | 300 |
| Add/Less: Bank errors (if any) | ± XX |
| Balance as per bank statement | 2,300 |
Worked Example
Scenario:
- Cash book balance: $5,000
- Bank charges not recorded: $100
- Direct debit (electricity): $250
- Cheque issued but not yet presented: $400
- Cheque received not yet credited: $300
- Interest received (not yet recorded): $50
Step 1: Adjusted Cash Book
| Transaction | Adjustment ($) |
|---|---|
| Bank Charges | –100 |
| Direct Debit | –250 |
| Interest Received | +50 |
| Adjusted Balance | = 5,000 – 100 – 250 + 50 = $4,700 |
Step 2: Bank Reconciliation Statement
| Item | Amount ($) |
|---|---|
| Adjusted cash book balance | 4,700 |
| Add: Unpresented cheque | 400 |
| Less: Uncredited deposit | 300 |
| Balance as per bank statement | = 4,800 |
Summary Table
| Step | Action |
|---|---|
| 1. Obtain bank statement | Check all items against cash book |
| 2. Update cash book | Record missing entries (charges, debits, errors) |
| 3. Identify timing differences | Unpresented cheques, uncredited deposits |
| 4. Prepare reconciliation | Use updated cash book balance to reconcile differences |