Bank Reconciliation Bank Reconciliation StatementsStatements
Chapter 8Chapter 8
© © LubyLuby & & O’DonoghueO’Donoghue (2005)(2005)
TerminologyTerminology
Current accountCheque clearingBank overdraftDirect debitStanding orderCredit transferDishonoured chequeBank statement
Comparison of recordsComparison of records
DR Cash Book CR
Bank € Bank €
1 March Balance b/d 2,500
1 March Sales a/c 5,000
€7500.00€5000.00Lodgement1 March
€2500.00Balance Forward1 March
BalanceCreditDebitTransaction detailsDate
BusinessBusiness
BankBank
The need for a bank The need for a bank reconciliationreconciliation
A bank statement will be received from the bank.The balance on the bank statement should be compared with the balance on the bank account in the ledger.The two balances are not likely to be the same:
Timing differencesItems on the statement not in the ledger accountsErrors
A reconciliation is carried out to verify that the balances are correct.
Reasons for differencesReasons for differences
Items that are in the bank statement but are not in the cash book
Automatic payments through the banking systemBank chargesDishonoured cheques
Items that are recorded in the cash book but not appearing in the bank statement
Un-presented chequesUn-cleared lodgements
ApproachApproach
Step 1Step 1 Each item in the bank statement needs to be traced to
the cash book in order to identify all items that appear in the bank statement but are not in the cash book. All such items should then be entered in the cash book and a new updated balance calculated.
Step 2Step 2 Each item in the cash book should be traced to the bank
statement so as to identify bank deposits and cheques drawn that are not appearing on the bank’s statement because the former are awaiting clearance and the latter are yet to be presented to the bank for payment. The bank reconciliation would look as follows.
Bank reconciliation statementBank reconciliation statement
Bank Reconciliation StatementBalance per bank statement xxx
Add: Lodgements not on statement xxx
Less: Unpresented cheques (xxx)
Balance per corrected cash book xxx
You are required to 1. Update the cash book 2. Prepare the bank
reconciliation statement
Example 1Example 1Cash Book
1 Aug Balance 1,200 5 Aug Cheque 201 525
10 Aug Lodgement 25 150 12 Aug Cheque 202 750
22 Aug Lodgement 26 225 21 Aug Cheque 203 1,250
25 Aug Lodgement 27 1,500 26 Aug Cheque 204 260
31 Aug Lodgement 28 1,750 29 Aug Cheque 205 1,150
31 Aug Balance c/d 890
4,825 4,825
31-Aug Balance b/d 890
11550Bank Charges31 Aug
165125Direct Debit (Ins)31 Aug
290260Cheque 20426 Aug
5501,250Cheque 20325 Aug
1,8001,500Lodgement 2726 Aug
300225Lodgement 2623 Aug
75750Cheque 20212 Aug
825150Lodgement 2511 Aug
675525Cheque 2016 Aug
1,200Balance1 Aug
BalanceCreditDebitParticularsDate
Preliminary workCompare and match each item on the bank statement with the cash book
Cash Book
1 Aug Balance 1,200 5 Aug Cheque 201 525
10 Aug Lodgement 25 150 12 Aug Cheque 202 750
22 Aug Lodgement 26 225 21 Aug Cheque 203 1,250
25 Aug Lodgement 27 1,500 26 Aug Cheque 204 260
31 Aug Lodgement 28 1,750 29 Aug Cheque 205 1,150
31 Aug Balance c/d 890
4,825 4,825
31-Aug Balance b/d 890
11550Bank Charges31 Aug
165125Direct Debit (Ins)31 Aug
290260Cheque 20426 Aug
5501,250Cheque 20325 Aug
1,8001,500Lodgement 2726 Aug
300225Lodgement 2623 Aug
75750Cheque 20212 Aug
825150Lodgement 2511 Aug
675525Cheque 2016 Aug
1,200Balance1 Aug
BalanceCreditDebitParticularsDate
Identify items on the bank statement omitted from the cash book and any errors made
Cash Book
1 Aug Balance 1,200 5 Aug Cheque 201 525
10 Aug Lodgement 25 150 12 Aug Cheque 202 750
22 Aug Lodgement 26 225 21 Aug Cheque 203 1,250
25 Aug Lodgement 27 1,500 26 Aug Cheque 204 260
31 Aug Lodgement 28 1,750 29 Aug Cheque 205 1,150
31 Aug Balance c/d 890
4,825 4,825
31-Aug Balance b/d 890
Date Particulars Debit Credit Balance
1 Aug Balance 1,200
6 Aug Cheque 201 525 675
11 Aug Lodgement 25 150 825
12 Aug Cheque 202 750 75
23 Aug Lodgement 26 225 300
26 Aug Lodgement 27 1,500 1,800
25 Aug Cheque 203 1,250 550
26 Aug Cheque 204 260 290
31 Aug Direct Debit (Ins) 125 165
31 Aug Bank Charges 50 115
Update the cash bookAdjust the cash book additional items that appeared on the bank statement and for any errors found
Cash Book
1 Sept Balance b/d 890 1 Sept Direct debit 125
1 Sept Bank charges 50
1 Sept Balance c/d 715
890 890
1 Sept Balance b/d 715
This is part 1 of question answeredThis is part 1 of question answered
Carry out the bank reconciliationIdentify outstanding items from the cash book not appearing on the bank statement use these in the reconciliation
Cash Book
1 Aug Balance 1,200 5 Aug Cheque 201 525
10 Aug Lodgement 25 150 12 Aug Cheque 202 750
22 Aug Lodgement 26 225 21 Aug Cheque 203 1,250
25 Aug Lodgement 27 1,500 26 Aug Cheque 204 260
31 Aug Lodgement 28 1,750 29 Aug Cheque 205 1,150
31 Aug Balance c/d 890
4,825 4,825
31-Aug Balance b/d 890
Bank Reconciliation
Balance as per bank statement 115
Add outstanding lodgements
Lodgement number 28 1,750
Less un-presented cheques
Cheque number 205 (1,150)
Balance as per cash book (corrected) 715
Part 2 of Part 2 of question question answeredanswered
Cash Book1-Jan Balance 3,560 5-Jan Cheque 3050 225
10-Jan Lodgement 104 890 12-Jan Cheque 3051 19522-Jan Lodgement 105 720 21-Jan Cheque 3052 2,10025-Jan Lodgement 106 3,110 26-Jan Cheque 3053 18031-Jan Lodgement 107 199 29-Jan Cheque 3054 2,250
31-Jan Balance c/d 3,5298,479 8,479
31-Jan Balance b/d 3,529
Date Particulars Debit Credit Balance
1-Jan 5,130
4-Jan 1,120 4,010
5-Jan Cheque 3050 225 3,785
6-Jan Cheque 3049 450 3,335
11-Jan Lodgement 104 890 4,225
12-Jan Cheque 3051 195 4,030
23-Jan Lodgement 105 720 4,750
26-Jan Lodgement 106 3,210 7,960
26-Jan Cheque 3052 2,100 5,860
28-Jan Cheque 3053 180 5,680
Direct Debit 175 5,505
Bank Charges 75 5,43031-Jan31-Jan
BalanceCheque 3048
Example 2Example 2
You are required to 1. Update the cash book 2. Prepare the bank
reconciliation statement
Opening balances disagree
Preliminary workCompare and match each item on the bank statement with the cash book
Cash Book
1-Jan Balance 3,560 5-Jan Cheque 3050 225
10-Jan Lodgement 104 890 12-Jan Cheque 3051 195
22-Jan Lodgement 105 720 21-Jan Cheque 3052 2,100
25-Jan Lodgement 106 3,110 26-Jan Cheque 3053 180
31-Jan Lodgement 107 199 29-Jan Cheque 3054 2,250
31-Jan Balance c/d 3,529
8,479 8,479
31-Jan Balance b/d 3,529
Date Particulars Debit Credit Balance
1-Jan 5,130
4-Jan 1,120 4,010
5-Jan Cheque 3050 225 3,785
6-Jan Cheque 3049 450 3,335
11-Jan Lodgement 104 890 4,225
12-Jan Cheque 3051 195 4,030
23-Jan Lodgement 105 720 4,750
26-Jan Lodgement 106 3,210 7,960
26-Jan Cheque 3052 2,100 5,860
28-Jan Cheque 3053 180 5,680
Direct Debit 175 5,505
Bank Charges 75 5,43031-Jan31-Jan
BalanceCheque 3048
As the opening balances disagree, you need to identify items relating to last month and reconcile opening balances
Date Particulars Debit Credit Balance
1-Jan 5,130
4-Jan 1,120 4,010
5-Jan Cheque 3050 225 3,785
6-Jan Cheque 3049 450 3,335
11-Jan Lodgement 104 890 4,225
12-Jan Cheque 3051 195 4,030
23-Jan Lodgement 105 720 4,750
26-Jan Lodgement 106 3,210 7,960
26-Jan Cheque 3052 2,100 5,860
28-Jan Cheque 3053 180 5,680
Direct Debit 175 5,505
Bank Charges 75 5,43031-Jan31-Jan
Balance
Cheque 3048
3,560Opening balance cash book
1,570Add unpresented cheques (1,120 + 450)
5,130Opening balance statement
€
Opening reconciliation
Identify items on the bank statement omitted from the cash book and any errors made
Cash Book
1-Jan Balance 3,560 5-Jan Cheque 3050 225
10-Jan Lodgement 104 890 12-Jan Cheque 3051 195
22-Jan Lodgement 105 720 21-Jan Cheque 3052 2,100
25-Jan Lodgement 106 3,110 26-Jan Cheque 3053 180
31-Jan Lodgement 107 199 29-Jan Cheque 3054 2,250
31-Jan Balance c/d 3,529
8,479 8,479
31-Jan Balance b/d 3,529
Date Particulars Debit Credit Balance
1-Jan 5,130
4-Jan 1,120 4,010
5-Jan Cheque 3050 225 3,785
6-Jan Cheque 3049 450 3,335
11-Jan Lodgement 104 890 4,225
12-Jan Cheque 3051 195 4,030
23-Jan Lodgement 105 720 4,750
26-Jan Lodgement 106 3,210 7,960
26-Jan Cheque 3052 2,100 5,860
28-Jan Cheque 3053 180 5,680
Direct Debit 175 5,505
Bank Charges 75 5,43031-Jan31-Jan
BalanceCheque 3048
ErrorError€100 €100 short short in cash in cash bookbook
Update the cash bookAdjust the cash book additional items that appeared on the bank statement and for any errors found
Cash Book
31-Jan Balance b/d 3,529 31-Jan Direct Debit 175
31-Jan Correction to 31-Jan Bank charges 75
Lodgement 106 100 31-Jan Balance c/d 3,379
3,629 3,629
31-Jan Balance b/d 3,379
Carry out the bank reconciliationIdentify outstanding items from the cash book not appearing on the bank statement use these in the reconciliation
Cash Book
1-Jan Balance 3,560 5-Jan Cheque 3050 225
10-Jan Lodgement 104 890 12-Jan Cheque 3051 195
22-Jan Lodgement 105 720 21-Jan Cheque 3052 2,100
25-Jan Lodgement 106 3,110 26-Jan Cheque 3053 180
31-Jan Lodgement 107 199 29-Jan Cheque 3054 2,250
31-Jan Balance c/d 3,529
8,479 8,479
31-Jan Balance b/d 3,529
3,379Balance as per cash book (corrected)
(2,250)Cheque 3054
Less un-presented cheques
199Lodgement 107
Add outstanding lodgements
5,430Balance as per bank statement
€
Bank Reconciliation Statement
Example 3Example 3Cash Book
1 Feb Balance b/d 500 3 Feb Cheque 19560 1,1607 Feb Lodgement 715 2,230 3 Feb Cheque 19561 5414 Feb Lodgement 716 3,100 3 Feb Cheque 19562 3,38021 Feb Lodgement 717 1,870 16 Feb Cheque 19563 2928 Feb Lodgement 718 2,150 17 Feb Cheque 19564 4,22028 Feb Lodgement 719 650 23 Feb Cheque 19565 1,68028 Feb Balance c/d 400 23 Feb Cheque 19566 37
23 Feb Cheque 19567 34010,900 10,900
1 Mar Balance b/d 400
(2,364)39Bank charges28 Feb(2,325)1,680Cheque 1956525 Feb
(645)290Cheque 1956325 Feb(355)98Dishonoured cheque24 Feb(257)1,770Lodgement 71722 Feb
(2,027)4,220Cheque 1956419 Feb2,193 225DD Telecom19 Feb2,418 3,100Lodgement 71614 Feb(682)45Cheque 195619 Feb(637)13Bank interest8 Feb(650)2,230Lodgement 7157 Feb
(2,880)3,380Cheque 195625 Feb500 Opening balance1 Feb
BalanceCreditDebitDateBank Statement
You are required to 1. Update the cash book 2. Prepare the bank
reconciliation statement
Preliminary workCompare and match each item on the bank statement with the cash book
Cash Book1 Feb Balance b/d 500 3 Feb Cheque 19560 1,1607 Feb Lodgement 715 2,230 3 Feb Cheque 19561 5414 Feb Lodgement 716 3,100 3 Feb Cheque 19562 3,38021 Feb Lodgement 717 1,870 16 Feb Cheque 19563 2928 Feb Lodgement 718 2,150 17 Feb Cheque 19564 4,22028 Feb Lodgement 719 650 23 Feb Cheque 19565 1,68028 Feb Balance c/d 400 23 Feb Cheque 19566 37
23 Feb Cheque 19567 34010,900 10,900
1 Mar Balance b/d 400
(2,364)39Bank charges28 Feb(2,325)1,680Cheque 1956525 Feb
(645)290Cheque 1956325 Feb(355)98Dishonoured cheque24 Feb(257)1,770Lodgement 71722 Feb
(2,027)4,220Cheque 1956419 Feb2,193 225DD Telecom19 Feb2,418 3,100Lodgement 71614 Feb(682)45Cheque 195619 Feb(637)13Bank interest8 Feb(650)2,230Lodgement 7157 Feb
(2,880)3,380Cheque 195625 Feb500Opening balance1 Feb
BalanceCreditDebitDateBank Statement
Identify items on the bank statement omitted from the cash book and any errors made
Cash Book1 Feb Balance b/d 500 3 Feb Cheque 19560 1,1607 Feb Lodgement 715 2,230 3 Feb Cheque 19561 5414 Feb Lodgement 716 3,100 3 Feb Cheque 19562 3,38021 Feb Lodgement 717 1,870 16 Feb Cheque 19563 2928 Feb Lodgement 718 2,150 17 Feb Cheque 19564 4,22028 Feb Lodgement 719 650 23 Feb Cheque 19565 1,68028 Feb Balance c/d 400 23 Feb Cheque 19566 37
23 Feb Cheque 19567 34010,900 10,900
1 Mar Balance b/d 400
(2,364)39Bank charges28 Feb(2,325)1,680Cheque 1956525 Feb
(645)290Cheque 1956325 Feb(355)98Dishonoured cheque24 Feb(257)1,770Lodgement 71722 Feb
(2,027)4,220Cheque 1956419 Feb2,193 225DD Telecom19 Feb2,418 3,100Lodgement 71614 Feb(682)45Cheque 195619 Feb(637)13Bank interest8 Feb(650)2,230Lodgement 7157 Feb
(2,880)3,380Cheque 195625 Feb500 Opening balance1 Feb
BalanceCreditDebitDateBank Statement
Error €100 overError €100 over
Error €9 overError €9 over
Error €261 shortError €261 short
Update the cash bookAdjust the cash book additional items that appeared on the bank statement and for any errors found
Cash Book
1 Mar Error cheque 19561 9 1 Mar Balance b/d 400
1 Mar Bank interest 13 1 Mar Error cheque 19563 261
1 Mar Balance c/d 1,101 1 Mar Error lodge 717 100
1 Mar DD Telecom 225
1 Mar Dishonoured cheque 98
1 Mar Bank charges 39
1,123 1,123
1 Mar Balance b/d 1,101
Carry out the bank reconciliationIdentify outstanding items from the cash book not appearing on the bank statement use these in the reconciliation
Cash Book1 Feb Balance b/d 500 3 Feb Cheque 19560 1,1607 Feb Lodgement 715 2,230 3 Feb Cheque 19561 5414 Feb Lodgement 716 3,100 3 Feb Cheque 19562 3,38021 Feb Lodgement 717 1,870 16 Feb Cheque 19563 2928 Feb Lodgement 718 2,150 17 Feb Cheque 19564 4,22028 Feb Lodgement 719 650 23 Feb Cheque 19565 1,68028 Feb Balance c/d 400 23 Feb Cheque 19566 37
23 Feb Cheque 19567 34010,900 10,900
1 Mar Balance b/d 400
(1,101)Balance as per cash book (corrected)(1,537)340Cheque 19566
37Cheque 195651,160Cheque 19560
Less unpresented cheques2,800650Lodgement 719
2,150Lodgement 718Add outstanding lodgements
(2,364)Balance as per bank statement€
Bank Reconciliation Statement
Advantages of bank Advantages of bank reconciliationsreconciliations
It confirms the accuracy of the bank figure in the
company’s records.
It can help in identifying errors and fraud within the
company.
It can help identify errors made by the bank.