Bank Reconciliation Statement (Copy)

3. Verification of Accounting Records

3.3 Bank Reconciliation

Purpose and Use of a Bank Statement

• A bank statement is a periodic statement issued by the bank that shows all transactions affecting a business’s bank account.
• It includes:
  • Deposits received
  • Withdrawals made (e.g. cheques, bank transfers)
  • Bank charges
  • Bank interest
  • Direct debits
  • Standing orders
  • Credit transfers
  • Errors made by the bank
• It is used by businesses to:
  • Compare with their own cash book (bank column)
  • Identify differences and make adjustments
  • Detect errors or missing entries
  • Reconcile the balances

Common Reasons for Differences Between Cash Book and Bank Statement

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course

Updating the Cash Book (Bank Column)

When a business receives its bank statement, it must update its cash book for all items that have not yet been recorded in the books.

Step-by-Step Process:

1. Compare the cash book (bank column) and the bank statement.
2. Identify items that appear in the bank statement but not yet in the cash book.
3. Enter missing items in the cash book:
   • Bank charges (credit side)
   • Interest received (debit side)
   • Direct debits (credit side)
   • Standing orders (credit side)
   • Credit transfers (debit side)
   • Dividends received (debit side)
   • Bank interest paid (credit side)
   • Corrections of previous errors

Examples:

• Bank charges of $50 not recorded
  Entry:
  Credit Bank column of Cash Book → $50
• Interest received from bank $20
  Entry:
  Debit Bank column of Cash Book → $20
• Insurance paid by standing order $100
  Entry:
  Credit Bank column of Cash Book → $100
• Dividend received by bank transfer $150
  Entry:
  Debit Bank column of Cash Book → $150

Purpose of a Bank Reconciliation Statement

A bank reconciliation statement is prepared to:

• Reconcile the updated bank balance in the cash book with the balance shown on the bank statement.
• Explain all the timing differences and errors causing the mismatch.

Format of Bank Reconciliation Statement

Two possible formats:

1. Starting with Bank Statement Balance:

Bank Reconciliation Statement as at [Date]

Balance as per bank statement                          xxx
Add: Uncredited deposits                               xxx
Less: Unpresented cheques                              (xxx)
Add/Less: Bank errors                                  ±xxx
Adjusted balance (should match updated cash book)      xxx

2. Starting with Cash Book Balance:

Bank Reconciliation Statement as at [Date]

Balance as per cash book (bank column)                 xxx
Add: Unpresented cheques                               xxx
Less: Uncredited deposits                              (xxx)
Add/Less: Bank errors                                  ±xxx
Adjusted balance (should match bank statement)         xxx

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course

Key Terms

• Unpresented Cheques:
  • Cheques issued by the business that have not yet been cleared by the bank.
  • They appear in the cash book but not in the bank statement.
• Uncredited Deposits:
  • Cheques or cash deposited into the bank by the business but not yet processed by the bank.
  • They appear in the cash book but not in the bank statement.
• Bank Errors:
  • Mistakes made by the bank such as entering a wrong amount or misposting.

Example Scenario

Bank Statement Balance: $3,000
Uncredited Deposit: $500
Unpresented Cheque: $800
Bank error (understated deposit): $200

Bank Reconciliation Statement (Starting with Bank Statement Balance):

Bank Reconciliation Statement as at 31 March 2025

Balance as per bank statement                      3,000  
Add: Uncredited deposit                              500  
Add: Bank error (understated deposit)               200  
                                                    -----
                                                    3,700  
Less: Unpresented cheque                            (800)  
                                                    -----
Adjusted cash book balance                          2,900

Common Questions and Their Purpose

Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course