Bank Recon

Bank Reconciliation Statements
At the end of each month the bank should send a copy of the business account
in the bank books, known as the bank statement, which be compared by the
cash book in the business books checking for any errors or difference between
them.
 Explain why items are recorded on the opposite side of the cash
book to that on which they appear on the bank statement.
The bank statement is a copy of the business as it appears in the books of the
bank. Which is from the point of view of the bank, And the bank deal with the
business as a trade payables to the bank.
On the other side the bank column in the cash book is prepared from the
business point of view and the business views the bank as a trade receivable.
A bank statement is issued by the bank at the end of each month and will
contain details of the money paid out and into the firm's account.
In order to be able to understand the terms used in a bank statement some
important terms need to be defined:
1- Bank Overdraft  When we have paid more out of our bank account than
we have paid into it. In this situation the firm will owe the bank the
difference in the balance.
2- Direct Debit  An agreement by the firm for a creditor to automatically

draw out a variable amount of money from its bank account. For example,
at the end of each month a firm might set up a direct debit which gives the
mobile phone supplier the power to draw out enough money to pay the
monthly charges for phone calls.
3- Standing Order  An agreement by the firm for a creditor to automatically

draw out a fixed amount of money from it's bank account. For example, a firm
may set up a standing order for it's insurance company to take out a fixed sum
of money from it account over an agreed time period.
1- Drawer  The person writing the cheque and using it for payment.
2- Payee The person to whom a cheque is paid.
Unpresented Cheques, Bank Lodgements and Dishonoured Cheques
When a firm pays a creditor by cheque it will usually take a period of time
IGCSE – Accounting 0452
before the amount is deducted from the balance in your account. The following
diagram explains why this occurs:
The three possible terms that might be used to describe this time delay are:
1-Unpresented Cheque  A cheque paid by your firm to a creditor which has

not yet cleared through the banking system.
2- Bank Lodgement  A cheque received by your firm from a debtor which has
not yet cleared through the banking system.
3- A Dishonoured Cheque  When a cheque is received from a customer and

paid into the bank, it is recorded on the debit side of the cash book. It is also
shown on the bank statement as a banking by the bank. However, at a later date
it may be found that his bank will not pay us the amount due on the cheque.
Therefore the bank has failed to honour the cheque.
A Bank Reconciliation Statement
Obviously when an accountant pays or receives a cheque he/she will

immediately record it on the credit or debit side of the Cash Book bank colums.
However very often cheques will not clear through the banking system until at
least five days after they have been written and as a result there is often a time
delay between when the money is recorded in the Cash Book and when it
actually leaves or enters the firm's bank account. This time delay often means
that the bank statement balance at the end of the month and the bank balance
brought down in the Cash Book will be different. As a result accountants use a
system to verify that the difference between the bank statement and the bank
balance in the Cash Book is a result of a time delay and not an accounting error.
This system is called a Bank Reconciliation Statement.
Where the closing balances differ between the Bank Statement and Cash
Book
Where there is a difference between the closing balances in the Bank Statement
and the Cash Book the following two steps must always be followed:
1- Update the Cash Book  Check the bank statement for transactions that
have not been entered in the cash book.
2- A Bank Reconciliation Statement  A reconciliation of the difference

between the remaining balance must be performed using an agreed format. This
statement will prove that the different balances between the two business
documents are a result of a time delay and not an accounting error.

The credit and debit entries on a bank statement
Obviously the bank statement that the firm receives at the end of the month is
prepared by the bank's accountant and as a result from their point of view the
business in question is a creditor of money. This is because they owe the firm
the amount shown in the final balance as the end of the month. Consequently
debit and credit entries are reversed in the bank statement. This means that on
the Bank Statement a debit entry is shown for money leaving your account and
a credit entry is shown for money entering your account.
Practical example of a Bank Reconciliation Statement
The following is the bank account in the cash book of a business for
the month of September:
Dr Cash book ( bank column) Cr
$ $
Sep. 1 Bal. b/d 8300 Sep. 5 Suppliers & Co. 3090 √
Sep. 8 Cash sales 2100√ Sep. 11 Wheels garages 416 √
Sep.19 A. Ali 984 √ Sep.20 Wages 1640 √
Sep.29 Enni Co. (B) 627 Sep.28 Brite light (B) 772
Sep.30 Cosi Bros. 42 √ Sep.29 Ojay Co. (B) 100
Sep.30 Bal. c/d 6035
‫ــــــــــــــــ‬ ‫ـــــــــــــــ‬
12053 12053
‫ـــــــــــــــــ‬ ‫ــــــــــــــــــ‬
Oct. 1 Bal. b/d 6035
The Crystal Bank - Anytown Branch Bank Statement

as at the 30th September
Date Debit Credit balance

Sep.1 Balance 8300
Sep.8 Cash cheque 2100 √ 10400
Sep.10 Suppliers & Co 3090 √ 7310
Sep.15 Wheels garages 416 √ 6894
Sep.19 cheque 984 √ 7878
Sep.20 cash 1640 √ 6238
Sep.30 cheque 42 √ 6280
Sep.30 Bank charge 200 6080
Bank interest 84 5996
Step One - Update the Cash Book  Transactions (a) & (b) appear on the
bank statement but have not been entered in the Cash Book. The updated Cash
Book would appear as follows:
Dr Cash book ( bank column) Cr

$ $
Sep. 1 Bal. b/d 8300 Sep. 5 Suppliers & Co. 3090
Sep. 8 Cash sales 2100 Sep. 11 Wheels garages 416
Sep.19 A. Ali 984 Sep.20 Wages 1640
Sep.29 Enni Co. (B) 627 Sep.28 Brite light (B) 772
Sep.30 Cosi Bros. 42 Sep.29 Ojay Co. (B) 100
‫ــــــــــــــــ‬ ‫ـــــــــــــــ‬
12053 12053
‫ـــــــــــــــــ‬ ‫ــــــــــــــــــ‬
Oct. 1 Bal. b/d 6035 Sep.30 Bank charge 200
Sep.30 Bank interest 84
‫ـــــــــــــــ‬ ‫ــــــــــــــ‬
6035 6035
‫ــــــــــــــــ‬ ‫ــــــــــــــ‬
Oct. 1 Bal. b/d 5751
Step 2 - Prepare a Bank Reconciliation Statement A statement reconciling

the different balances that still remain after the Cash Book has been updated
needs to be drawn up to prove that the difference is a result of a delay in time
and not an accounting error. To perform this we check which items have been
entered in the Cash Book but do not appear in the Bank Statement.
Bank Reconciliation Statement as at the 30th September
Method 1 : start with balance as per cash kook update finally will arrive to balance in
bank statement
$
Balance as per cash book 5,751
Add
Unpresented Cheques 
Brite Lite co. 772
Ojay Co. 100
6,623
Less
Bank Lodgements 
 Enni Co. 627
5,996
A useful tip for working out whether a transaction should be entered as an

addition or subtraction in the Bank Reconciliation Statement is to think the
‎ ash Book. In other words:
opposite of the entry in the C
A. Debit Transactions in the Cash Book add to income  They are
subtracted in the Bank Reconciliation ‎Statement.
B. Credit Transaction in the Cash Book minus from the firm's income
 They are added in the Bank Reconciliation Statement.
Errors in cash book Corrected in the cash book

- Errors in bank statement Corrected in reconciliation
Method 1 : start with balance in bank statement finally will arrive to balance as per cash
kook update
Balance as bank statement 5,996

Add
Bank Lodgements 
Enni Co. 627
Less
Unpresented Cheques 
Brite Lite co. 772
Ojay Co. 100
6,623
5,751

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Bank Reconciliation Statements

2- Direct Debit  An agreement by the firm for a creditor to automatically

3- Standing Order  An agreement by the firm for a creditor to automatically

1-Unpresented Cheque  A cheque paid by your firm to a creditor which has

3- A Dishonoured Cheque  When a cheque is received from a customer and

Obviously when an accountant pays or receives a cheque he/she will

2- A Bank Reconciliation Statement  A reconciliation of the difference

documents are a result of a time delay and not an accounting error.

The Crystal Bank - Anytown Branch Bank Statement

Date Debit Credit balance

Dr Cash book ( bank column) Cr

Step 2 - Prepare a Bank Reconciliation Statement A statement reconciling

Bank Reconciliation Statement as at the 30th September

A useful tip for working out whether a transaction should be entered as an

Errors in cash book Corrected in the cash book

Balance as bank statement 5,996

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