Exam code:0452 & 0985
Purpose of a bank reconciliation statement
What is the purpose of a bank reconciliation statement?
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If the balance on the bank statement is different to the bank balance in the cash book, then the business produces a bank reconciliation statement
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This is a statement which explains why the balances are different
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The cash book can be updated with missing transactions that are on the bank statement
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However, the business cannot update the bank statement with missing transactions that are in the cash book
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A bank reconciliation statement is needed to show these
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It contains details of any:
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Unpresented cheques
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Uncredited deposits
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Errors
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Preparing a bank reconciliation statement
How do I prepare a bank reconciliation statement?
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STEP 1
Update the cash book using the bank statement-
Calculate the updated balance
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STEP 2
Start the bank reconciliation statement with the balance shown on the bank statement-
Make sure you check whether the balance represents money in the bank or the amount that the bank account is overdrawn
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A debit balance on the bank statement represents an overdraft
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STEP 3
Add any uncredited deposits-
These are the debit entries in the cash book that are missing from the bank statement
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If there is more than one, then
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Add these amounts together in the left column of the bank reconciliation statement
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Put the total in the right column
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Add the total to the balance shown on the bank statement
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STEP 4
Add any bank errors that have decreased the balance on the bank statement-
Total these together with the previous entries
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STEP 5
Subtract any unpresented cheques-
These are the credit entries in the cash book that are missing from the bank statement
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If there is more than one, then:
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Add these amounts together in the left column of the bank reconciliation statement
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Put the total in the right column
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Subtract the total from the current amount in the right column in the statement
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STEP 6
Subtract any bank errors that have increased the balance on the bank statement-
Total these together with the previous entries
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STEP 7
Check that this amount is equal to the bank balance shown in the cash book-
If the balance is negative, then the cash book should have a credit balance
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Examiner Tips and Tricks
Compare the cash book and the bank statement. If a transaction appears on both of them, then put a tick next to the transaction in the cash book and on the bank statement. Then you just need to use the unticked entries in the cash book to complete a bank reconciliation statement.
Can I start the bank reconciliation statement with the balance shown in the cash book?
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You can create the bank reconciliation statement using the reverse order:
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Start with the balance shown in the cash book
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Add the unpresented cheques
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Subtract the uncredited deposits
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Check that it is equal to the balance shown on the bank statement
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Examiner Tips and Tricks
Always double-check whether the balance is positive or negative. This is the main reason why students lose marks in an exam!
Worked Example
Leo is a sole trader. On 31 March 2024, his bank statement showed that his business bank account was $345 overdrawn. On the same date, his cash book showed a credit balance of $395. Leo identified that some transactions were entered into his cash book but did not appear on his bank statement. These transactions are shown in the following extract of the cash book.
Extract of Cash Book (Bank columns)
|
Date |
Details |
$ |
Date |
Details |
$ |
|
Mar 9 |
Jacob |
500 |
Mar 5 |
Pru |
200 |
|
29 |
Commission receivable |
300 |
23 |
Wages |
750 |
Leo also noticed an error on his bank statement. A cheque paid for $100 for office expenses had been mistakenly processed twice by the bank.
Prepare the bank reconciliation statement for Leo at 31 March 2024.
Answer
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Leo’s business bank account is overdrawn
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So the bank reconciliation statement will start with a negative amount
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The debit entries are the uncredited deposits
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Their total will need to be added to the bank statement balance
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The credit entries are the unpresented cheques
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Their total will need to be subtracted from the bank statement balance
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The error has caused his bank balance to be lower than it should be
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Therefore, the amount of the bank error will need to be added to the bank statement balance
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The cash book has a credit balance
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Therefore this is a negative amount
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Leo
Bank Reconciliation Statement at 31 March 2024
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$ |
$ |
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Balance on bank statement |
(345) |
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Add: |
Uncredited deposits |
||
|
Jacob |
500 |
||
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Commission receivable |
300 |
||
|
Bank error |
100 |
900 |
|
|
555 |
|||
|
Less: |
Unpresented cheques |
||
|
Pru |
200 |
||
|
Wages |
750 |
(950) |
|
|
Balance in cash book |
(395) |
||
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