Prepare bank reconciliations
Contents
Introduction 3
The reconciliation process 3
Feedback to activities 23
This learning guide is based on the following resource:Textbook
Duncan A (2006) Introductory Accounting, National Core Accounting Publications, Bondi
Note
A new edition of this textbook was being published at the same time as this resource.
Where possible, we have provided a second Key to resources to this new edition.
Key to resources
Resource / Textbook (2006 edition)1 / Chapter 14 ‘Bank reconciliations’, section 14.1
2 / Chapter 14, section 14.2
3 / Chapter 14, section 14.3 ‘Preparing the Bank Reconciliation Statement’
Resource / Textbook (2007 edition)
1 / Chapter 11 ‘Bank reconciliations’, section 11.1
2 / Chapter 11, section 11.2
3 / Chapter 11, section 11.3 ‘Preparing the Bank Reconciliation Statement’
Introduction
/ Go to Resource 1The records of the business as recorded in the bank ledger account, or documentation supporting the bank ledger account, will usually not agree with the banks records of the business as shown on the bank statement. A reconciliation is then needed to find out why.
It is vitally important to understand the comments under the heading ‘The opposite nature of transactions and balances in bank and business records’.
When the bank issues a statement it is issued from the bank’s point of view. A credit balance indicates a liability of the bank. A debit balance indicates an asset of the bank.
The reconciliation process
/ Now go to Resource 2Section 14.2 details the reconciliation process and the types of differences that may be met.
Note that the types of differences can be:
· amounts appearing in the business records but not on the bank statement
· amounts appearing on the bank statement but not in the business records.
/ Now go to Resource 3In the steps in section 14.3 ‘Preparing the Bank Reconciliation Statement’, note that there is reference to cash receipts and cash payments journals. You may not have met this terminology in your studies.
Refer to chapter 7 for examples of both.
Instead of recording all transactions in the general journal a business may record receipts of cash (cash sales, receipts from Accounts Receivable etc) into a cash receipts journal and all payments made by cheque (cash purchases, payments to Accounts Payable etc) into a cash payments journal. At the end of the month the totals of the journals are posted into the bank ledger account. Consider the example below.
HLuong has an opening balance of cash at bank of $5000. For the month of June 20x7 her cash receipts journal disclosed:
Cash receipts journal of H Luong – Folio CR1
Date20x7 / Rec. no / Drawer and/or particulars / Bank
$
June 21 / 101 / Sales / 350
23 / 102 / Accounts receivable / 780
28 / 103 / Rent income / 1200
30 / 104 / Sales / 650
Total for month / 2980
Her cash payments journal disclosed:
Cash payments journal of HLuong – Folio CP1
Date20x7 / Cheque no. / Payee and/or particulars / Bank
$
June 22 / 12567 / Inventory / 340
24 / 12568 / Accounts payable / 770
26 / 12569 / Electricity / 560
29 / 12570 / Inventory / 490
Total for month / 2160
Required: Show how the cash at bank ledger account would appear on June 30 20x7.
Cash at bank
20x7June 1 / Opening balance / 5000 / 20x7
June 30 / Payments / 2160
30 / Receipts / 2980 / Balance c/d / 5820
7980 / 7980
July 1 / Balance b/d / 5820
In step 2 of preparing the bank reconciliation statement note especially the comment always to check from the bank statement to the cash records. Also note the formats of the bank reconciliation statement. Always start with the balance as per the bank statement. In format no.1 it is a credit balance and in format no. 2 a debit balance.
Check the examples given for Good Hope Enterprises, Bad Vibes Enterprises and Good & Bad Newsagency.
The example for LGel should also be checked. Note that the totals given in the first paragraph for the cash receipts and cash payments journals is before any adjustments.
The example given for Jeune de Winner is the more typical sort of bank reconciliation exercise. The solution however does not follow the formats previously given in the example for LGel. The cash receipts, cash payments journals and the cash at bank ledger account that form part of the workings for the solution for Jeune de Winner are set out below in the previously given format.
Cash receipts journal / Cash payments journal$ / $
20x7
June 4 / Accounts receivable – BJohnson / 200 / 20x7
June 10 / Wages chq 101 / 500
6 / Sales / 300 / Petty cash 102 / 100
14 / Sales / 250 / 15 / Purchases 103 / 950
19 / Accounts receivable – Mrs. Smith / 300 / 16 / Accounts payable – T Smith 104 / 100
30 / Sales / 180 / 18 / Accounts payable – B Mitchell 105 / 150
26 / Direct deposit – MLees / 100 / 20 / Accounts payable – N Voigt 106 / 200
Total for month / 1330 / 24 / Drawings 107 / 100
28 / Accounts payable – B Cummings 108 / 50
8 / Dishonoured cheque / 50
30 / Bank charges (2+1+27) / 30
Total for month / 2230
The cash at bank ledger account would appear as:
Cash at bank
20x7June 1 / Opening balance / 1700 / 20x7
June 30 / Payments / 2230
30 / Receipts / 1330 / Balance c/d / 800
3030 / 3030
July 1 / Balance b/d / 800
Part (b) of the example, the bank reconciliation statement, is correct as shown.
Note in this exercise that the previous month’s reconciliation was given. This should be ticked off first and any item still outstanding identified. Any items still outstanding will form part of the current month’s reconciliation. Note also that the previous month’s reconciliation closes with the balance as per the cash at bank ledger account. This figure is the opening amount in the cash at bank ledger account for the current reconciliation. In the Jeune de Winner example the opening balance is debit $1700.This figure is incorrectly described as ‘after posting these journals, her cash at bank shows’; the correct wording is before.
/ Activity 1Note: Feedback is at the end of this document.
The following information relates to the business of DLewis.
Bank reconciliation as at 31 March 20x7
$Credit balance as per bank statement / 1018
Add: Outstanding deposit / 2763
2763
3781
Less: Unpresented cheques / 1537
41263 / 105
41269 / 394
41272 / 1038
Debit balance as per bank account / 2244
Cash journals of DLewis
Date / Receipt / Amount / Date / Cheque no / Amount
20x7
April 7 / Receipts / 1348 / 20x7
April 1 / 41273 / 148
15 / Receipts / 350 / 4 / 41274 / 481
22 / Receipts / 909 / 5 / 41275 / 237
30 / Receipts / 1664 / 8 / 41276 / 101
13 / 41277 / 324
41278 / 79
41279 / 647
19 / 41280 / 1029
Safe Bank
Account Name: DLewis Statement of Account
Account No: 4567
Date / Transaction / Debits / Credit / Balance20x7
April 1 / Balance brought forward / 1018 Cr
Deposit / 2 763 / 3 781 Cr
3 / 41272 / 1 038 / 2 743 Cr
5 / 41273 / 148 / 2 595 Cr
6 / 41275 / 237 / 2 358 Cr
7 / Deposit / 1 348 / 3 706 Cr
11 / 41276 / 101 / 3 605 Cr
14 / 41279 / 647 / 2 958 Cr
16 / Deposit / 350 / 3 308 Cr
21 / 41277 / 324 / 2 984 Cr
22 / Dishonoured cheque – M.Lee / 375 / 2 609 Cr
23 / Deposit / 909 / 3 518 Cr
24 / Transfer – Insurance payment / 196 / 3 322 Cr
26 / Interest on deposit / 100 / 3 422 Cr
29 / ATM – Cash drawings / 100 / 3 322 Cr
30 / Bank charges / 14 / 3 308 Cr
Required:
(a) Complete the cash journals.
(b) Complete the Cash at Bank Ledger Account as at April 30.
(c) Prepare a Bank Reconciliation statement as at 30 April 20x7.
Correction of errors found as a result of a bank reconciliation
In the course of completing a bank reconciliation errors may be found in:
· the cash records of the business—that is, the bank statement is correct
· the bank statement—that is, the business cash records are correct.
Errors in the cash records of a business will have to be corrected by the business. Errors may be adjusted in a number of ways, however it is recommended that the incorrect entry be withdrawn in total and the correct entry reinstated. Errors made by the bank will have to be corrected by the bank. Any bank errors will form part of the reconciliation until such times asthe error is corrected.
In the following example for A Kumar the bank statement is correct. The error is in the business records.
Example: A Kumar
Using the information provided for A Kumar, prepare the following:
· cash at bank ledger account
· bank reconciliation statement.
Note: Assume bank statement contains correct figures.
A Kumar
Bank reconciliation as at 31st October 20x8
$Credit balance as per bank statement / 1220
Add: Outstanding deposit / 554
1774
Less: Unpresented cheques
Cheque number: / $
234 / 630
238 / 210
239 / 100
240 / 105 / 1045
Debit balance as per bank ledger account / 729
Cash receipts journal / Cash payments journal
20x8 / $ / 20x8 / Cheque no. / $
Nov 4 / Receipt / 765 / Nov 2 / 241 / 47
11 / Receipt / 1300 / 8 / 242 / 1205
18 / Receipt / 1242 / 12 / 243 / 3420
23 / Receipt / 923 / 13 / 244 / 123
30 / Receipt / 1126 / 17 / 245 / 1687
27 / 246 / 230
29 / 247 / 1100
Community Bank
Statement of account – A Kumar
Date / Details / Dr / Cr / Balance / Dr/Cr20x8
Nov 1 / Balance b/fwd / 1220 / Cr
Deposit / 554 / 1774 / Cr
2 / Cheque no: 238 / 210 / 1564 / Cr
5 / Cheque no: 234 / 630 / 934 / Cr
Deposit / 765 / 1699 / Cr
6 / Cheque no: 241 / 47 / 1652 / Cr
Cheque no: 240 / 105 / 1547 / Cr
10 / Cheque no: 242 / 1205 / 342 / Cr
12 / Deposit / 1300 / 1642 / Cr
15 / Direct deposit / 1000 / 2642 / Cr
16 / Cheque no: 243 / 3420 / 778 / Dr
Cheque no: 244 / 123 / 901 / Dr
19 / Deposit / 1224 / 323 / Cr
24 / Deposit / 923 / 1246 / Cr
26 / Cheque no: 245 / 1687 / 441 / Dr
30 / Bank charges / 22 / 463 / Dr
Solution: A Kumar
A Kumar
Bank reconciliation as at 31st October 20x8
$Credit balance as per bank statement / 1220
Add: Outstanding deposit / 554 / √
1774
Less: Unpresented cheques
Cheque number: / $
234 / 630 / √
238 / 210 / √
239 / 100 / u/p
240 / 105 / √ / 1045
Debit balance as per bank ledger account / 729
Cash receipts journal / Cash payments journal
20x8 / $ / 20x8 / Cheque no. / $
Nov 4 / Receipt / 765 / √ / Nov 2 / 241 / 47 / √
11 / Receipt / 1300 / √ / 8 / 242 / 1205 / √
18 / Receipt / 1242 / √ / 12 / 243 / 3420 / √
23 / Receipt / 923 / √ / 13 / 244 / 123 / √
30 / Receipt / 1126 / o/s / 17 / 245 / 1687 / √
18 / Receipt / (1242) / √ / 27 / 246 / 230 / u/p
Receipt / 1224 / √ / 29 / 247 / 1100 / u/p
15 / Direct deposit / 1000 / √ / 30 / Bank charges / 22 / √
6338 / 7834
Highlands Bank
Statement of account – A Kumar
Date / Details / Dr / Cr / Balance / Dr/Cr20x8
Nov 1 / Balance b/fwd / 1220 / Cr
Deposit / 554 / √ / 1774 / Cr
2 / Cheque no: 238 / 210 / √ / 1564 / Cr
5 / Cheque no: 234 / 630 / √ / 934 / Cr
Deposit / 765 / √ / 1699 / Cr
6 / Cheque no: 241 / 47 / √ / 1652 / Cr
Cheque no: 240 / 105 / √ / 1547 / Cr
10 / Cheque no: 242 / 1205 / √ / 342 / Cr
12 / Deposit / 1300 / √ / 1642 / Cr
15 / Direct deposit / 1000 / √ / 2642 / Cr
16 / Cheque no: 243 / 3420 / √ / 778 / Dr
Cheque no: 244 / 123 / √ / 901 / Dr
19 / Deposit / 1224 / √ / 323 / Cr
24 / Deposit / 923 / √ / 1246 / Cr
26 / Cheque no: 245 / 1687 / √ / 441 / Dr
30 / Bank charges / 22 / √ / 463 / Dr
Cash at bank
20x8 / 20x8Nov 1 / Balance b/d / 729 / Nov 30 / Payments / 7834
30 / Receipts / 6338
Balance c/d / 767
7834 / 7834
Dec 1 / Balance b/d / 767
Bank reconciliation statement
as at November 30 20x8
Add: Outstanding deposit – 30-11-20x8 1126 / 1126
663
Less: Unpresented cheques: / 1430
239 / 100
246 / 230
247 / 1100
Credit balance as per bank account / (767)
Note that the receipt on the 18th November has been correctly recorded by the bank on the 19th November as $1224. In the solution the $1242 has been withdrawn (brackets) in the cash receipts journal and $1224 reinstated.
/ Activity 2Note: Feedback is at the end of this document.
Using information for R McLeod, prepare the following:
· cash at bank ledger account
· bank reconciliation statement.
Note: assume that the figures on the bank statement are accurate.