Bank Reconciliation Statement

Bank reconciliation Statement The purpose of the bank reconciliation is to explain any difference between the bank balance appearing in the cash book of a business and the balance appearing on the bank statement provided by the bank. The bank statement is a copy of the account of the business as it appears in the books of the bank. This is obviously from the viewpoint of the bank. The customer’s account will have a credit balance if there is money in the account, as this is the amount the bank owes the customer (a liability of the bank). Where the customer has an overdraft, the account will show a debit balance as this is the amount the customer owes the bank (as asset of the bank). The bank statement must be compared with the bank account in the cash book .If the balances differ it is necessary to reconcile them, that is , explain why differences have arisen .

Reasons for differences between cash book and bank statement (1) Items in the cash book but not in the bank

statement: These are usually due to differences in the time at which items are recorded. These timing differences are often due to – (a) Cheque not yet presented, which are cheques that have been paid by the business and credited in the cash book, but which do not appear on the bank statement. It will be some time before these cheques pass through the banking system and are deducted from the business’s bank account .Until these cheques are debited by the bank; the cash book will show a lower balance than that shown on the bank statement.

(b) Amounts not yet credited, which are cheques and others amounts which have been paid into the bank and debited in the cash book, but which do not appear on the bank statement. These items may not be recorded by the bank for a day or so. Until these items re credited by the bank, the ash will show a higher balance than that shown on the bank statement.

2. Items in the bank statement but not in the cash book A. Amounts received by the bank which have been paid d directly into the business’s bank account. These include standing orders and credit transfers when a person has instructed their account of the business. Interest or dividend received may also be paid directly into the business’s bank account. B . Amounts paid by the bank to other people. These include credit transfers, standing orders and direct debits which the business has instructed the bank to pay directly from the bank account of the business C. bank charges and bank interest which the bank has taken from the business account to cover the costs of running the account and for any interest on load or overdrafts the business may gave D. dishonored cheques these are cheques paid into the bank but which have been returned as the drawer of the cheque did not have sufficient funds to cover the cheqeue E . Bank error