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Bank Reconciliation Statement | O Level Accounting 7707 & IGCSE Accounting 0452 | Detailed Free Notes To Score An A Star (A*)

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  • There are two sources of information regarding the transaction in a business’s bank account
    • The cash book that is maintained by the business
    • The bank statement that is maintained by the bank
  • There can be items that are present in one of the two, which can make the final balances disagree
  • Bank Reconciliation statement is created to ensure that the cash book and bank statement balances are the same as each other
  • IMPORTANT NOTE
    • What is debited in the cash book, is credited in the bank statement
      • Cash book shows our amounts at bank as our asset
      • For the bank, the amount we have given them is a liability
    • Similarly, items that are credited in cash book, are debited in bank statement
  • Items that are already in bank statement, but we need to add them to the adjusted cash book we create before creating the BRS is as follows
    • Direct debit – bank pays to creditors on demand- these are paid OUT of the business
      • Bank debits the account
      • Cash book should credit the account
    • Credit transfers paid electronically through direct deposit – these are paid by debtors TO the business.
      • Bank credits the account
      • Cash book should debit the account
    • Standing Order – regular payment each month such as of salaries – are paid OUT of the account
      • Bank debits the account
      • Cash book should credit the account
    • Bank charges – bank charges for operating the account, these are paid OUT of the account
      • Bank debits the account
      • Cash book should credit the account
    • Dividends
      • If these are dividends received to the business through its investment in other businesses
        • Bank will credit it
        • Cash book needs to debit it
      • If it is dividends we have paid from the bank
        • Bank will debit it
        • Cash book needs to credit it
    • Bank Interest
      • Bank can charge interest on loans
        • If it charges interest, bank will debit it
        • Cash book will debit it
      • If bank gives interest
        • Bank will credit it
        • Cash book will debit it
  • There are also items that are already in the cash book, hut have to be added to the bank reconciliation statement
    • Unpresented cheques
      • Cheques we already gave to the creditor but they have not cashed it
        • It is credited in the cash book
        • Must be debited in the BRS
    • Uncredited Cheques
      • Cheques we have received from debtors or customers
        • These are already debited in cash book
        • Must be credited in BRS
  • Steps
    • First we create the adjusted cash book
      • The cash book balance becomes the balance B/D
      • We do the entries mentioned above
      • Then, we transfer the C/D balance to the BRS
  • BRS
    • We start with the balance of adjusted cash book
    • We add unpresented cheques
    • We subtract uncredited cheques
    • We reach the balance per bank statement
  • It should be the same as the actual balance per bank statement
Hunain Zia

Hunain Zia has previously achieved considerable success in the high-school educational stream, gaining a massive 154 Total A Grades and 7 Major Distinctions, a process in which he broke/ set 11 different world records, including the most A grades ever achieved, most subjects ever appeared in, most distinctions, gaining distinctions across two separate boards (Pearson Edexcel and CAIE) within the same year/ ever, and even 19 hours of constant examination. All records stand intact today. Hunain pursued his Honors Accounting Degree from the prestigious Bentley University, and then completed an LLB (in Honors) from University of London. Currently, he manages multiple social and commercial projects, has founded digital streams and works tirelessly in the education sector.

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