Advanced Level

Bank Reconciliation Statements

A. Purpose of a bank reconciliation

It should be prepared regularly as part of the internal control system of the business to check:
a) the accuracy of the cash book
b) the accuracy of the bank statement
c) that undue delay is not occurring between payments, receipts and their clearance by the
bank
d) to discover payments made and items received by the bank not entered in the cash book

B. Reasons for differences in bank statement and cash book

a) The causes of difference will be fall into one of the following classes:
b) Items (not consisting of errors) which appear in the bank statement but which are not in
the cash book, e.g., dishonoured cheques or bills, interest and bank charges, standing
order (an order made to the bank to make a regular payment), dividends or interest
income credited direct to the bank and payments by customers which are paid direct to
the bank.
c) Items (not consisting of errors) which appear in the cash book but which do not appear in
the bank statement. These are confined to outstanding cheques and outstanding deposits.
d) Errors made in the compilation of the cash book or the bank statement.

C. Two forms of bank reconciliation are in common usage:

1) The bank balance is reconciled to the balance in the depositor’s records (or the balance in
the depositor’s records to the bank balance)
2) Both the bank balance and the balance per depositor’s records are reconciled to a correct
balance.
Question 1
The cash book of J.Jones showed a balance at the bank of $570 in hand on 31 January 19X1.
At the same date, the bank statement balance of J.Jones’ account was $446 overdrawn. The
difference was accounted for as follows:
1) Cheques for $1 555 sent to creditors on 30 January were not paid by the bank until 8
February.
2) Cheques amounting to $2 520 paid into the bank on 31 January were not credited by the
bank until 1 February.
3) A standing order for a charitable subscription of $60 had been paid by the bank on 21
January but no entry had been made in the cash book.
4) A cheque paid by J.Jones for rent on 15 January for $345 had been entered in his cash
book as $354.
Prepare the bank reconciliation statement.
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 Advanced Level

Question 2
Kay Rogan’s Cash Book at 30th November 1982 showed an overdrawn position of £3,630
which did not match with her bank statement. Detailed examination of the two records revealed the
following:
(a) The debit side of the cash book had been undercast by £300.
(b) A cheque for £1,560 in favour of Z Suppliers Ltd., had been omitted by the bank from its
statement, the cheque having been debited to another customer’s account.
(c) A lodgement of £1080 on 30th November had not been credited by the bank.
(d) Interest amounting to £228 had been debited by the bank but not entered in the cash book.

Required:
i. Reconcile the balance of the cash book and bank statement to the corrected bank balance.
Question 3
Hay has received his bank pass sheets for the year to 30 September 1993. At the date, his
balance at the bank amounted to £14,130 whereas his own cash book showed a balance of £20,000.
His accountant investigated the matter, and discovered the following discrepancies:

(a) Hay had brought down his opening cash book balance of £6,585 as a debit balance instead
of as a credit balance.
(b) Hay had entered a payment of £560 in his cash book as £650.
(c) Cheques drawn by Hay in July 1993 had not been presented to the bank.
(d) One of Hay’s customers had agreed to settle their debts £450 by direct debit though
nothing was entered in the cash books yet. Unfortunately, the bank had credited the direct
debit to another customer’s account.
Required:
i. Make any necessary entries in the cash book as at 30 September 1993.
ii. Prepare a bank reconciliation statement as at 30 September 1993.

Question 4
Leslie, a sole trader, received a bank statement for the month of May as follows:
May Dr. Cr. Balance
1 Opening balance 85
3 123456 150 65 O/D
9 123450 42 107 O/D
14 Sundry credit 210 103
18 Interest 24 79
20 Sundry credit 350 429
22 123457 220 209
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 Advanced Level

23 123448 100 109

24 Standing order – rent 10 99
25 Sundry credit 531 630
26 Credit transfer – Mills 25 655
28 423460 100 555
30 123459 405 150
31 Closing balance 150
For the corresponding period, Leslie's own records contained the following bank account:
Bank
May $ May $
14 Cheque from G. Smith 210 1 Balance b/d 57
20 Cash Sales 350 3 Electricity 123456 150
25 Cheque from F Jones 410 22 Wages 123457 222
25 Cheque from R Black 121 23 Purchases 123458 415
31 Cheque from W Wayne 196 30 Rent 123459 405
31 Balance c/d 9 31 Purchases 123460 47
1 296 1 296

Required:
Prepare the bank reconciliation statement as at 31 May 1993 from the cash book and the bank
statement to the corrected bank balance.

Workings: (reconciliation of beginning balances of cash book and bank statement)

The beginning balance of the bank statement $ 85

Less: Unpresented cheques – last month (42+100) 142

The beginning balance of the cash book (57) O/D

Exercise 5 (This example is the continuation of Previous exercise)

Leslie continued his business in June 1993 and his bank account was given as follows:

Bank
June $ June $
1 Cheque from A Smith 190 1 Balance b/d 16
15 Cheque from B Roy 100 9 Rates 123462 230
16 Cash Sales 450 19 Purchases 123463 505
30 Cheque from X York 110 29 Wages 123464 120
30 Cheque from Z Rock 301 30 Balance c/d 280
1 151 1 151

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 Advanced Level

The corresponding bank statement for the month of June 1993 was:

June Dr. Cr. Balance

1 Opening balance 150
1 Sundry credit 196 346
1 Sundry credit 190 536
3 Adjustment 100 636
9 123462 230 406
25 Sundry credit 550 956
29 123464 120 836
30 Closing balance 836

Additional information:
It was found that the details for the cheques received on 30th June 1993 were:

Drawer of the cheque Date on the cheque Amount

X York 15th December 1992 $110
Z Rock 15th July 1993 301

You are required to:

a) Update and correct the cash book on 30th June 1993.
b) Draw up a bank reconciliation statement at 30th June 1993.
c) Are there any irregularities to be reported after the reconciliation?

Exercise Six
Kay Rogan’s Cash Book at 30th November 1982 showed an overdrawn position of £3,630
although her bank statement showed only £2,118 overdrawn. Detailed examination of the two
records revealed the following:
(a) The debit side of the cash book had been undercast by £300.
(b) A cheque for £1,560 in favour of Z Suppliers Ltd., had been omitted by the bank from its
statement, the cheque having been debited to another customer’s account.
(c) A cheque for £182 drawn in payment of the telephone account had been entered in the
cash book as £128 but was shown correctly on the bank statement.
(d) A cheque for £210 from A. brooks having been paid into the bank was dishonoured and
shown as such on the bank statement although no entry relating to the dishonour had been
made in the cash book.
(e) The bank had debited a cheque for £126 to Kay’s account in error; it should have been
debited by them to Ray Kogan’s account.
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 Advanced Level

(f) A dividend of £90 on Kay’s holding of Ordinary Shares has been paid direct to her bank
account and no entry made in the cash book.
(g) Cheques totaling £1260 drawn on 29th November had not been presented for payment
(h) A lodgement of £1080 on 30th November had not been credited by the bank.
(i) Interest amounting to £228 had been debited by the bank but not entered in the cash book.

Required:
1. Make any necessary entries in the cash book.
2. Prepare a statement reconciling Kay Rogan’s corrected cash book with her bank statement
at 30th November 1982.