Bank reconciliation
WE WILL look at the bank reconciliation today. Below are some terms and their definition, and a worked example. Pay keen attention to the principles applied.
TERMS & DEFINITIONS
■ Bank reconciliation: This is a calculation to compare the cash book balance with the bank statement balance.
■ Bank reconciliation statement: Is prepared to show whether or not there are errors in either the bank columns of the cash book, or the bank statement issued by the bank.
■ Dishonoured cheque: This is a worthless cheque, meaning there is not money in the bank account to cover the value of the cheque, or there may be other reasons why the bank refuses to cash the cheque.
■ Unpresented cheque: A cheque that is paid out to a creditor but has not yet gone through the bank account.
■ Cash book balance b/d: This is the amount brought forward as the opening balance.
■ Cash book balance c/d: This is the closing balance in the cash book at the end of an accounting period
■ Standing order: The bank pays directly from the firms account to a creditor, e.g., for rent mortgage.
■ Bank overdraft: The bank gives permission to the member to withdraw more money than ia in the bank account.
■ Credit transfer: A direct deposit made by the debtor to the creditors bank account.
FORMAT: BANK RECONCILIATION STATEMENT WORKED EXAMPLE 11.1
Question:
Lyn James’ cash book (bank columns only) for the month of September 2018 as follows:
The following bank statement for September was received in the first week of October 2018.
You are required to: a. Bring the cash book up to date, starting with the balance at September 30, 2018.
b. Prepare a statement under the correct title, to reconcile the difference between the amended cash book balance and the balance in the bank statement on September 2018.
c. State the amount of the balance that would appear in the balance sheet on September 30, 2018.
SOLUTION
Example 11.1. a. Cash book
b. Bank reconciliation statement as at September 30, 2018. c. The amount that would appear in the balance sheet on September 30, 2018, $4,800.
MULTIPLE-CHOICE QUESTIONS
Choose the most appropriate response for each multiple-choice question:
1. A bank overdraft is best described as:
A. Having more receipts than payments.
B. A firm having paid more out of its bank account than it has put in it.
C. A firm having bought too many goods.
D. A firm wasting its money on managers’ socials.
2. Bank reconciliation statement is provided by: A. Owners of the business
B. Auditors
C. Accountant of the business
D. Bankers
3. In adjusting the cash balance, which of the following is taken into account:
A. Errors of last month corrected in the bank statement.
B. Mistakes in the cash book.
C. Salaries paid to the bank.
D. Interest credited in the bank statement.
4. A cheque paid by you, but not yet passed through the banking system is:
A. Dishonoured cheque.
B. A credit transfer.
C. A standing order.
D. An unpresented cheque.
5. A bank reconciliation statement is drawn to reconcile: A. The bank statement.
B. Cash book with bank account column of cash book. C. Cash book and ledgers.
D. Cash as bank account with bank statement.
6. Overdraft in the bank statement is highlighted by: A. Credit balance
B. Debit balance
C. Nil balance
D. Debit and credit balance
Recommended multiple-choice question response: 1 B 2 C
3 A 4 D
5 D 6 B
This is all we have time for today, but always bear in mind, you must get up each morning with renewed determination if you want to go to bed with full satisfaction. Never let what you cannot do stand in the way of what you can. When the bank column has a debit balance, it means there is money in the bank. However, it there is a credit balance, it means that there is an overdraft.