PPT : Bank Reconciliation Statement | Accountancy Class 11 - Commerce PDF Download

 Page 1


Bank Reconciliation
Page 2


Bank Reconciliation
Introduction
 The objective of a bank reconciliation is to
reconcile the difference between:
– the cash book balance, i.e. the business' record of
their bank account, and
– the bank statement balance, i.e. the bank's record of
the bank account.
 The debits and credits are reversed in bank
statements because the bank will be recording
the transaction from its point of view, in
accordance with the business entity concept.
Page 3


Bank Reconciliation
Introduction
 The objective of a bank reconciliation is to
reconcile the difference between:
– the cash book balance, i.e. the business' record of
their bank account, and
– the bank statement balance, i.e. the bank's record of
the bank account.
 The debits and credits are reversed in bank
statements because the bank will be recording
the transaction from its point of view, in
accordance with the business entity concept.
Reasons to Prepare a Bank
Reconciliation Statement
 The cash book records all transactions with
the bank. The bank statement records all the
bank's transactions with the business.
 The contents of the cash book should be
exactly the same as the record provided by
the bank in the form of a bank statement, and
therefore the business' records should
correspond with the bank statement.
Page 4


Bank Reconciliation
Introduction
 The objective of a bank reconciliation is to
reconcile the difference between:
– the cash book balance, i.e. the business' record of
their bank account, and
– the bank statement balance, i.e. the bank's record of
the bank account.
 The debits and credits are reversed in bank
statements because the bank will be recording
the transaction from its point of view, in
accordance with the business entity concept.
Reasons to Prepare a Bank
Reconciliation Statement
 The cash book records all transactions with
the bank. The bank statement records all the
bank's transactions with the business.
 The contents of the cash book should be
exactly the same as the record provided by
the bank in the form of a bank statement, and
therefore the business' records should
correspond with the bank statement.
 This is in fact so, but with three important conditions:
– The ledger account maintained by the bank is the opposite way
round to the cash book. This is because the bank records
balances from their perspective. Therefore if a client has a
positive bank balance the bank would display this as a credit
balance because they have a liability to pay it back to the client.
If the client is overdrawn this would be shown as a debit
because the bank are owed a repayment from the client.
– Timing differences must inevitably occur. A cheque payment is
recorded in the cash book when the cheque is dispatched. The
bank only records such a cheque when it is paid by the bank,
which may be several days later.
– Items such as interest may appear on the bank statement but
are not recorded in the cash book as the business is unaware
that they have arisen.
Page 5


Bank Reconciliation
Introduction
 The objective of a bank reconciliation is to
reconcile the difference between:
– the cash book balance, i.e. the business' record of
their bank account, and
– the bank statement balance, i.e. the bank's record of
the bank account.
 The debits and credits are reversed in bank
statements because the bank will be recording
the transaction from its point of view, in
accordance with the business entity concept.
Reasons to Prepare a Bank
Reconciliation Statement
 The cash book records all transactions with
the bank. The bank statement records all the
bank's transactions with the business.
 The contents of the cash book should be
exactly the same as the record provided by
the bank in the form of a bank statement, and
therefore the business' records should
correspond with the bank statement.
 This is in fact so, but with three important conditions:
– The ledger account maintained by the bank is the opposite way
round to the cash book. This is because the bank records
balances from their perspective. Therefore if a client has a
positive bank balance the bank would display this as a credit
balance because they have a liability to pay it back to the client.
If the client is overdrawn this would be shown as a debit
because the bank are owed a repayment from the client.
– Timing differences must inevitably occur. A cheque payment is
recorded in the cash book when the cheque is dispatched. The
bank only records such a cheque when it is paid by the bank,
which may be several days later.
– Items such as interest may appear on the bank statement but
are not recorded in the cash book as the business is unaware
that they have arisen.
Differences between the Bank
Statement and the Cash Book
 When attempting to reconcile the cash book
with the bank statement, there are three
differences between the cash book and bank
statement:
– unrecorded items
– timing differences
– errors