Chapter 15 - Bank Reconciliation Statement

The records kept by the bank and the cash book should be identical since the cash book is prepared from counterfoils, which are duplicates of the original documents from which the bank draws up the bank statement. Amounts withdrawn from the bank account by cheque should appear on the bank column of the cash book and on the debit side of the bank statement. Cheques deposited, on the other hand, should appear on the debit side in the bank column of the cash book and credit column of the bank statement. However, these may not always agree. 

A bank reconciliation statement is prepared to make sure that the entries in the bank column of the trader’s cash book are the same as those recorded by the bank in its ledger. A bank reconciliation statement is prepared to reconcile the cash book balance with the bank statement balance. The main reasons why the cash book balance differs from the bank statement are:

Transactions recorded in the cash book but do not appear on the bank statement:

• Uncredited cheques (lodgements)

These are cheques deposited by the trader but not yet credited by the bank. Lodgements made by the trader on the day the bank statement is produced by the bank may not yet be recorded on the statement. These are added to the bank statement balance in the bank reconciliation statement.

• Unpresented cheque

These are cheques issued by the trader but not yet presented at the bank for payment. These cheques are already credited by the trader in the bank column of the cash book. These are deducted from the bank statement balance in the bank reconciliation statement.

Transactions appearing on the bank statement but are not recorded in the cash book.

• Bank charges 

These are made by the bank to cover the cost of maintaining the drawer’s account. It is an amount charged by the bank for the services provided. It is credited to the amended cash book.

• Standing order 

These are payments made automatically by the bank on behalf of the trader. It is generally a fixed amount each month. It is credited to the amended cash book.

• Direct debit 

These are payments made by the bank on behalf of customers. The authority to withdraw money from the account is given to the payee. The amounts withdrawn from the accounts are generally variable. For example utility bills payments varies each month. It is credited to the amended cash book.

• Dishonoured cheque 

These are cheques received by the trader which has returned unpaid. This may be because of insufficient fund in drawer’s account to honour (pay) the cheque. It is credited to the amended cash book.

• Credit transfer 

These are amounts paid into an account directly through the bank system instead of by issuing a cheque. For example, Interest received/ Dividend received. It is debited to the amended cash book.

• Interest on overdraft 

This is charged by the bank when the account of a trader is overdrawn. It is credited to the amended cash book.

*Balance at start and at end can be either debit OR credit not both.

Worked Example 1

Peter Dlamini’s Cash Book (bank column) had a debit balance of $515 on 30 April 2003. This did not agree with the bank statement of the same date, which showed a balance of $290.

The Cash Book was checked against the bank statement and the following differences were found:

1. Cheques totalling $620 issued to credit suppliers had not been presented to the bank for payment.
2. An amount of $950 paid into the bank did not appear on the bank statement.
3. Cash sales deposited into the bank amounting to $390 had been omitted from the Cash Book.
4. The bank had received $150 by credit transfer (bank giro) from Klerk for Dlamini’s account. Dlamini had not been advised.
5. A cheque for $315 received from Joseph had been paid into the bank but it had now been returned unpaid. No action has been taken by Dlamini.
6. The following transaction by the bank had not been recorded in the Cash Book: Bank charges $120

Worked Example 2

Vigo’s cash book (bank columns) showed the following entries.

The following bank statement was received by Vigo.

1. Calculate the cash book balance on 31 July. Prepare and update the cash book. Bring down the balance.
2. Prepare a bank reconciliation statement to reconcile the adjusted cash book balance with the bank statement balance at 31 July 2004.
3. Explain how the cash book is both a book of prime entry and a ledger account.

Step 1

Eliminate any difference(s) or previous cheque(s) numbers in balance at start

Step 2

Open Amended cash book and bank reconciliation statement and record balance at end

Step 3

Eliminate similar figures

Debit in cash book against credit/ receipts in bank statement

Credit in cash book against debit/ payments in bank statement

Step 4

Record figures not eliminated

Debit in cash book – Uncredited cheque

Credit in cash book – Unpresented cheque

Debit in bank statement posted to credit of amended cash book

Credit in bank statement posted to debit of amended cash book

Step 5

Close amended cash book and bank reconciliation statement

Part (a)

Part (b)

Part (c)

The cash book is the book of original entry for cash and bank transactions, recorded from source documents like cheques and receipts. A cash book contains ledger accounts for cash and bank.