Bank Reconciliation 235

12 Bank Reconciliation
Introduction
In this chapter we will discuss an important procedure that a business should
carry out to protect its cash. This procedure is known as a bank
reconciliation.

A bank reconciliation is the checking, at regular intervals of time, for example,

monthly, of the cash records of a business against the records of the business
maintained by the bank.

Bank Statement
A bank statement is a document prepared by the bank that lists the banking
transactions of a business for a period of time.

When a business carries out a bank reconciliation it will use a bank statement.
The bank statement records the deposits and withdrawals made by a
business, any bank charges and the balance remaining in the bank account
after each transaction. A bank statement will be sent to the business at
regular intervals of time, for example, monthly.

Example

The WA Stationery Store has arranged to receive a bank statement each month.

Set out on below is an extract of the bank statement sent to the business in
early February, 2018. This bank statement sets out the cash transactions of the
business, which the bank is aware of, for the month of January 2018.

Bank Statement (extract)

Date Particulars Debit Credit Balance
2018
1 JAN BALANCE FORWARD 1,400 CR
3 JAN Deposit 374 1,774 CR
9 JAN 114 780 994 CR
13 JAN Dividend Alpha Ltd 330 1,324 CR
14 JAN Deposit 773 2,097 CR
24 JAN 116 429 1,668 CR
27 JAN Deposit 814 2,482 CR
27 JAN 117 528 1,954 CR
31 JAN Cheque Account Fee 24 1,930 CR
236 Accounting 1

Example continued

A bank statement is set out in a three column ledger format. The three
column format has the usual debit and credit sides of a ledger account plus an
additional “balance” column to record the amount remaining in the ledger
account after each transaction. The last entry in the balance column, $1,930
CR or credit, is the cash balance at the end of the month. Deposits are clearly
labelled and the withdrawals are identified by their cheque numbers.

The transactions recorded in a bank statement are set out from the bank's
viewpoint. From the bank’s viewpoint, a deposit is a loan, a liability, and is
recorded as a credit entry in the bank statement. A payment by cheque, a
withdrawal, is a reduction in this liability and is recorded as a debit entry in the
bank statement.

Reasons for Differences in Business and Bank Records

Differences can occur between the final balance of the bank statement and
the final balance of the cash at bank ledger account. The possible reasons for
these differences are set out below.

1 Some cash inflows recorded in the cash receipts journal and deposited
with the bank may not be entered on the bank statement covering that
period of time. These receipts are known as deposits not credited.

2 Cheques issued by the business and entered in the cash payments

journal but not yet presented to the bank for payment. These payments
are known as unpresented cheques. For example, VIP Couriers has a
business bank account with the Commerce Bank. On 31 March 2017 VIP
Couriers sent a cheque to a creditor. The details of this cheque were
recorded in the March cash payments journal. The creditor did not
receive the cheque until 3 April 2017. On 1 April 2017 the Commerce
Bank sent a bank statement to VIP Couriers. This statement did not
include an entry for the cheque in transit.

3 A bank will usually charge a fee for any service that it provides to a
business. A bank does not send out a bill demanding payment. Instead,
a bank withdraws money from the account of the business. When the
business receives its bank statement it will see an entry for a bank
charge on the statement and that money has been withdrawn from its
account. The business will make an appropriate entry in its cash
payments journal.

4 The bank will charge the business interest if the balance of the account is
in overdraft.

5 A bank may have been instructed to make one or a series of payments to

a creditor from the bank account of the business or to pay regular
expenses, such as, insurance. These payments are known as payments
by authority. A business will make an entry in the cash payments journal
after inspecting the bank statement and confirming that the payment has
been made.
 Bank Reconciliation 237

Reasons for Differences in Business continued

6 A cheque received from a debtor and entered into the cash receipts
journal may have been dishonoured after being deposited with the
bank. An entry dishonouring the cheque will appear on the bank
statement and the business will have to adjust its records.

7 A business can arrange to have money owing to it paid directly into its
bank account. For example, a business can arrange to have an amount
owing from a customer paid directly into its bank account instead of
receiving a cheque from this customer.

8 Bank errors are occasionally made. Incorrect amounts can be debited

or credited in a bank account or transactions can be entered in the
wrong customer's account. For example, a deposit that should have
been entered into account number 18933 was entered into account
number 18934.

9 Errors can also be made by the business. Incorrect amounts can be

recorded into the cash journals or an incorrect amount can be posted to
the cash at bank ledger account.

Advantages of Regular Bank Reconciliations

1 Regular bank reconciliations provide a check on the accuracy of the
cash records of the business and the bank's records and help to
discourage or detect fraud and to uncover errors.

2 Regular bank reconciliations explain the reasons for differences

between the final balance of the cash at bank ledger account and the
final balance of the bank statement.

The Bank Reconciliation Process

A series of examples will be used to demonstrate how the bank reconciliation
process is carried out.
 238 Accounting 1

Example

Below are the cash records of the WA Stationery Store for the month of
January 2018. The cash journals have not yet been totalled:

Cash at Bank
2018
Jan 1 Balance b/d 1,400

Cash Receipts Journal

Date Details Bank Accounts Sales GST Other
Receivable Payable Receipts
2018
Jan 3 Sales 374 340 34
14 A Haskett 773 773
27 Sales 814 740 74
31 K Davey 680 680

Cash Payments Journal

Cheque Accounts GST Other Payments
Date Payee Bank
Number Payable Credits Amount Details
2018
Jan 2 M Bolin 114 780 780
11 Channel 6 115 143 13 130 Advertising
22 Synergy 116 429 39 390 Electricity
25 Telstra 117 528 48 480 Telephone
31 B Mutar 118 287 287

If the totals of the cash receipts and cash payments journals were transferred
to the cash at bank ledger account, the apparent balance at the end of the
month would be $1,874 debit:

Cash at Bank
2018 2018
Jan 1 Balance b/d 1,400 Jan 31 Payments 2,167
31 Receipts 2,641 Balance c/d 1,874
4,041 4,041
Feb 1 Balance b/d 1,874
 Bank Reconciliation 239

Example continued

This $1,874 cash at bank balance compares with the $1,930 final balance in
the bank statement shown on page 52 and in the bank statement extract
below.

Bank Statement (extract)

31 JAN Cheque Account Fee 24 1,930 CR

It is necessary to carry out a bank reconciliation to explain why this difference

exists.

Steps in the Bank Reconciliation Process

Step 1

The opening balance of the bank statement is compared to the opening

balance of the cash at bank ledger account.

In this example, the opening balance of both records is the same, $1,400. If
they are different then the previous bank reconciliation statement entries will
have to be checked against the current bank statement. This situation is
covered in the example starting on page 72.

Step 2

The cash receipts journal entries are checked against the corresponding
entries in the credit column of the bank statement.

A tick is placed beside the entries that are common to both records. These
ticks should be made in both sets of records.

An asterisk is placed next to any entry that appears in the cash receipts
journal but not in the bank statement.
240 Accounting 1

Step 2 continued

Any entries that have not been ticked off in the credit column of the bank
statement are circled.

Cash Receipts Journal

Date Details Bank Accounts Sales GST Other
Receivable Payable Receipts
2018
Jan 3 Sales 374 340 34
14 A Haskett 773 773
27 Sales 814 740 74
31 K Davey 680 680

Statement of Account
Oz Bank Account Number
PERTH WA 6000 684539
ABN 98 134 452 467
WA Stationery Store Page Number
47 Industry Street 31
PERTH WA 6000

Date Particulars Debit Credit Balance

2018
1 JAN BALANCE FORWARD 1,400 CR
3 JAN Deposit 374 1,774 CR
9 JAN 114 780 994 CR
13 JAN Dividend Alpha Ltd 330 1,324 CR
14 JAN Deposit 773 2,097 CR
24 JAN 116 429 1,668 CR
27 JAN Deposit 814 2,482 CR
27 JAN 117 528 1,954 CR
31 JAN Cheque Account Fee 24 1,930 CR

Step 3

A dividend is a share of the profits of a company.

The circled entry in the credit column of the bank statement shows that a
$330 dividend from Alpha Limited has been paid directly into the bank
account of the WA Stationery Store.
 Bank Reconciliation 241

Step 3 continued

The dividend received is entered in the cash receipts journal. The cash
receipts journal is then totalled.

Bank Statement (extract)

13 JAN Dividend Alpha Ltd 330 1,324 CR

Cash Receipts Journal

Date Details Bank Accounts Sales GST Other
Receivable Payable Receipts
2018
Jan 3 Sales 374 340 34
14 A Haskett 773 773
27 Sales 814 740 74
31 K Davey 680 680
Dividend 330 330
$2,971 $1,453 $1,080 $108 $330

Step 4

The cash payments journal entries are checked against the corresponding
entries in the debit column of the bank statement.

A tick is placed beside the entries that are common to both. Again, the
ticks should be made in both sets of records.

An asterisk is placed next to any entry that appears in the cash payments
journal but not in the bank statement.
 242 Accounting 1

Step 4 continued

Any entries that have not been ticked off in the debit column of the bank
statement are circled.

Cash Payments Journal

Cheque Accounts GST Other Payments
Date Payee Bank
Number Payable Credits Amount Details
2018
Jan 2 M Bolin 114 780 780
11 Channel 6 115 143 13 130 Advertising
22 Synergy 116 429 39 390 Electricity
25 Telstra 117 528 48 480 Telephone
31 B Mutar 118 287 287

Bank Statement (extract)

Date Particulars Debit Credit Balance

2018
1 JAN BALANCE FORWARD 1,400 CR
3 JAN Deposit 374 1,774 CR
9 JAN 114 780 994 CR
13 JAN Dividend Alpha Ltd 330 1,324 CR
14 JAN Deposit 773 2,097 CR
24 JAN 116 429 1,668 CR
27 JAN Deposit 814 2,482 CR
27 JAN 117 528 1,954 CR
31 JAN Cheque Account Fee 24 1,930 CR

Step 5

The circled entry in the debit column of the bank statement is a $24 bank fee.
A bank will automatically subtract bank fees from the business bank account.
The bank fees are a cash outflow and must be entered in the cash payments
journal. The cash payments journal is then totalled.
 Bank Reconciliation 243

Step 5 continued

Bank Statement (extract)

31 JAN Cheque Account Fee 24 1,930 CR

Cash Payments Journal

Cheque Accounts GST Other Payments
Date Payee Bank
Number Payable Credits Amount Details
2018
Jan 2 M Bolin 114 780 780
11 Channel 6 115 143 13 130 Advertising
22 Synergy 116 429 39 390 Electricity
25 Telstra 117 528 48 480 Telephone
31 B Mutar 118 287 287
Oz Bank 24 24 Bank Fee
$2,191 $1,067 $100 $1,024

Step 6

The cash receipts and cash payments journal totals are posted to the cash at
bank ledger account. This account is then balanced off:

Cash at Bank
2018 2018
Jan 1 Balance b/d 1,400 Jan 31 Payments 2,191
31 Receipts 2,971 Balance c/d 2,180
4,371 4,371
Feb 1 Balance b/d 2,180

Step 7

The final balance of the cash at bank ledger account of $2,180 debit does not
agree with the final balance of the bank statement of $1,930 credit.

A bank reconciliation statement must be prepared to explain why there is this

apparent difference.
244 Accounting 1

Step 7 continued

After writing a heading for the bank reconciliation statement, the starting point
is the final balance of the bank statement:

WA Stationery Store
Bank Reconciliation Statement
as at 31 January 2018
Final balance of the bank statement 1,930

Step 8

The entry in the cash receipts journal marked with an asterisk, the $680
received on 31 January 2018, is a deposit not credited:

Cash Receipts Journal

Date Details Bank Accounts Sales GST Other
Receivable Payable Receipts
2018
Jan 3 Sales 374 340 34
14 A Haskett 773 773
27 Sales 814 740 74
31 K Davey 680 680
Dividend 330 330
$2,971 $1,453 $1,080 $108 $330

A deposit not credited is a receipt that a business knows about but the bank
was not aware of at the time the bank statement was prepared. When the
bank learns about this transaction it will add this deposit to the final balance of
the bank statement. We will do the same.

WA Stationery Store
Bank Reconciliation Statement
as at 31 January 2018
Final balance of the bank statement 1,930
Add deposit not credited 680
2,610
 Bank Reconciliation 245

Step 9

The entries marked with asterisks in the cash payments journal, cheque
number 115, for $143, and cheque number 118, for $287, are unpresented
cheques:

Cash Payments Journal

Cheque Accounts GST Other Payments
Date Payee Bank
Number Payable Credits Amount Details
2018
Jan 2 M Bolin 114 780 780
11 Channel 6 115 143 13 130 Advertising
22 Synergy 116 429 39 390 Electricity
25 Telstra 117 528 48 480 Telephone
31 B Mutar 118 287 287
Oz Bank 24 24 Bank Fee
$2,191 $1,067 $100 $1,024

Unpresented cheques are payments that a business has made but the bank
was not aware of when the bank statement was prepared.

When the bank finds out about these payments it will subtract these payments
from the final balance of the bank statement. We will do the same.

WA Stationery Store
Bank Reconciliation Statement
as at 31 January 2018
Final balance of the bank statement 1,930
Add deposit not credited 680
2,610
Less unpresented cheques
number 115 143
number 118 287 430
Final balance of the cash at bank account $2,180

The amount remaining after the unpresented cheques have been subtracted
is equal to the final balance of the cash at bank account.

The bank reconciliation process has now been completed.

 246 Accounting 1

Accounting for a Bank Overdraft

In the following example the final balance of the bank statement is a debit
balance, that is, a bank overdraft. A bank overdraft is a loan that enables
a business to withdraw more money from its bank account than has been
deposited in the account.

Example

Below are the cash records of Urgent Couriers for the month of March 2017.

Cash at Bank
2017
Mar 1 Balance b/d 1,600

Cash Receipts Journal

Date Details Bank Accounts Fees GST Other
Receivable Payable Receipts
2017
Mar 2 Fees 209 190 19
17 Fees 528 480 48
22 P McDonald 850 850
27 R Lane 370 370
31 A Bellamy 460 460

Cash Payments Journal

Cheque GST Other Payments
Date Payee Bank Telephone
Number Credits Amount Details
2017
Mar 2 Auto Brakes 1944 407 37 370 Repairs
12 Optus 1945 814 740 74
15 Oz Clean 1946 242 22 220 Cleaning
16 Channel 8 1947 264 24 240 Advertising
27 Best Fuel 1948 550 50 500 Petrol
31 Office Land 1949 198 18 180 Stationery

Interest 180 180 Interest expense

 Bank Reconciliation 247

Example continued

Below is the relevant bank statement of the business:

Statement of Account
Industry Bank
PERTH WA 6000
ABN 31 467 249 248

Urgent Couriers Page Number Account Number

3 Delivery Road
FREMANTLE WA 6060 11 381618

Date Particulars Debit Credit Balance

2017
1 MAR BALANCE FORWARD 1,600 DR
2 MAR Deposit 209 1,391 DR
11 MAR 1944 407 1,798 DR
13 MAR DEBIT INT TO 28 FEB 180 1,978 DR
17 MAR Deposit 528 1,450 DR
19 MAR 1946 264 1,714 DR
22 MAR Deposit 850 864 DR
25 MAR 1945 814 1,678 DR
27 MAR Deposit 370 1,308 DR
31 MAR 1948 550 1,858 DR

Required

Carry out the bank reconciliation process for March 2017.

 248 Accounting 1

Solution

Step 1

The bank reconciliation process is carried out in the same way as before.

The cash receipts journal entries are checked against the bank statement credit
column entries.

The items that appear in both the cash receipts journal and the bank statement
are ticked off.

The deposit not credited of $460 is identified and the cash receipts journal is
totalled:

Cash Receipts Journal

Date Details Bank Accounts Fees GST Other
Receivable Payable Receipts
2017
Mar 2 Fees 209 190 19
17 Fees 528 480 48
22 P McDonald 850 850
27 R Lane 370 370
31 A Bellamy 460 460
$2,417 $1,680 $670 $67

Bank Statement (extract)

Date Particulars Debit Credit Balance
2017
1 MAR BALANCE FORWARD 1,600 DR
2 MAR Deposit 209 1,391 DR
11 MAR 1944 407 1,798 DR
13 MAR DEBIT INT TO 28 FEB 180 1,978 DR
17 MAR Deposit 528 1,450 DR
19 MAR 1946 264 1,714 DR
22 MAR Deposit 850 864 DR
25 MAR 1945 814 1,678 DR
27 MAR Deposit 370 1,308 DR
31 MAR 1948 550 1,858 DR
 Bank Reconciliation 249

Step 2

The cash payments journal entries are checked against the bank statement
debit column entries.

The items that appear in both the cash payments journal and the bank
statement are ticked off:

Cash Payments Journal

Cheque GST Other Payments
Date Payee Bank Telephone
Number Credits Amount Details
2017
Mar 2 Auto Brakes 1944 407 37 370 Repairs
12 Optus 1945 814 740 74
15 Oz Clean 1946 242 22 220 Cleaning
16 Channel 8 1947 264 24 240 Advertising
27 Best Fuel 1948 550 50 500 Petrol
31 Office Land 1949 198 18 180 Stationery

Bank Statement (extract)

Date Particulars Debit Credit Balance
2017
1 MAR BALANCE FORWARD 1,600 DR
2 MAR Deposit 209 1,391 DR
11 MAR 1944 407 1,798 DR
13 MAR DEBIT INT TO 28 FEB 180 1,978 DR
17 MAR Deposit 528 1,450 DR
19 MAR 1946 264 1,714 DR
22 MAR Deposit 850 864 DR
25 MAR 1945 814 1,678 DR
27 MAR Deposit 370 1,308 DR
31 MAR 1948 550 1,858 DR

The unpresented cheques for $242 and $198 and the $180 of interest on
overdraft (DEBIT INT TO 28 FEB) are identified.
 250 Accounting 1

Step 2 continued

The cash payments journal is updated with the $180 of interest on overdraft
and the journal is totalled:

Cash Payments Journal

Cheque GST Other Payments
Date Payee Bank Telephone
Number Credits Amount Details
2017
Mar 2 Auto Brakes 1944 407 37 370 Repairs
12 Optus 1945 814 740 74
15 Oz Clean 1946 242 22 220 Cleaning
16 Channel 8 1947 264 24 240 Advertising
27 Best Fuel 1948 550 50 500 Petrol
31 Office Land 1949 198 18 180 Stationery
Industry Interest
Bank 180 180 Expense
$2,655 $740 $225 $1,690

Step 3

The cash journal totals are posted to the cash at bank ledger account:

Cash at Bank
2017 2017
Mar 31 Receipts 2,417 Mar 1 Balance b/d 1,600
Balance c/d 1,838 31 Payments 2,655
4,255 4,255
Apr 1 Balance b/d 1,838
 Bank Reconciliation 251

Step 4

The bank reconciliation statement is prepared. As with the previous

example, the starting point is the final balance of the bank statement.
The letters "DR" are added to identify this balance as an overdraft:

Urgent Couriers
Bank Reconciliation Statement
as at 31 March 2017
Final balance of the bank statement 1,858 DR

Step 5

The final balance of the bank statement is a debit balance or an overdraft.

When the bank becomes aware of the deposit not credited of $460 it will
subtract this deposit from the balance of the money owing to the bank.
Therefore, we will do the same:

Urgent Couriers
Bank Reconciliation Statement
as at 31 March 2017
Final balance of the bank statement 1,858 DR
Less deposit not credited 460
1,398

Step 6

When the bank becomes aware of the unpresented cheques it will pay out
these cheques and increase the overdraft balance of the business. Therefore,
in the bank reconciliation statement, the unpresented cheques are added:

Urgent Couriers
Bank Reconciliation Statement
as at 31 March 2017
Final balance of the bank statement 1,858 DR
Less deposit not credited 460
1,398
Add unpresented cheques
number 1946 242
number 1949 198 440
Final balance of the cash at bank account $1,838 CR

The bank reconciliation process is now complete.

252 Accounting 1

Payments by Authority
A payment by authority occurs when a bank makes a payment or a regular
series of payments on behalf of a business. For example, a business, rather
than sending a cheque, can arrange to have its plant and equipment lease
(rental) charges paid directly from its bank account.

A payment by authority or a standing order payment as it is also known,

appears as an unticked entry in the debit column of the bank statement and is
recorded in the cash payments journal in the same way as bank charges.

Example

Steelcraft has an insurance policy with We Insure. Steelcraft has arranged

with its bank for a series of $66 monthly payments to be made to We Insure
directly from its bank account.

The bank statement of Steelcraft for November 2016 contains an entry for one
of these payments:

Statement of Account
Industry Bank
PERTH WA 6000
ABN 31 467 249 248

Steelcraft Page Number Account Number

Iron Road
PERTH WA 6000 73 437893
Date Transaction Details Debit Credit Balance
2016
1 NOV BALANCE FORWARD 2,900 CR
1 NOV Deposit 680 3,580 CR
3 NOV We Insure 66 3,514 CR
18 NOV 117946 297 3,217 CR
24 NOV Deposit 910 4,127 CR
30 NOV 117947 385 3,742 CR

GST has been charged on the $66 We Insure direct payment. The GST paid
can be calculated by dividing the total payment by 11. That is, $66 divided by
11 will give the GST paid of $6.
 Bank Reconciliation 253

Example continued

The $66 total payment is recorded in the bank column of the cash payments
journal, the $6 GST payment is recorded in the GST credits column and the
$60 insurance payment is recorded in the “other payments” column as prepaid
insurance:

Cash Payments Journal

Cheque Accounts GST Other Payments
Date Payee Bank
Number Payable Credits Amount Details
2016
Nov 14 Channel 5 117946 297 27 270 Advertising
22 Synergy 117947 385 35 350 Electricity
31 We Insure 66 6 60 Prepaid
Insurance
$748 $68 $680

The remainder of the bank reconciliation process is as before.

Dishonoured Cheques
A cheque is dishonoured when the bank on which the cheque is drawn
refuses to pay the proceeds of the cheque into the payee's account.

A cheque will be dishonoured if there is not enough money in the drawer's

account (the account of the business that issued the cheque) to pay out
the cheque or if the account is in overdraft, where the payment of the
cheque would take the account balance over the overdraft limit arranged
with the bank.

A dishonoured cheque will originally have been recorded on a bank

statement as a deposit. Therefore, an entry cancelling the dishonoured
cheque will appear on the bank statement as a debit entry.

A business can cancel a dishonoured cheque by making a negative entry

in the cash receipts journal (an entry in brackets). This negative entry will
cancel out the positive entry made in the cash receipts journal when the
cheque was originally received.
 254 Accounting 1

Example

On 1 July 2018 Commerce Traders sold goods to Inept Traders for $400.

On 7 July 2018 Commerce Traders received a cheque from Inept Traders

for $390 and allowed them a discount of $10. The cheque received was
entered in the cash receipts journal:

Cash Receipts Journal

Discount Accounts GST Other
Date Details Bank
Allowed Receivable Payable Receipts
2018
Jul 7 Inept Traders 390 10 400

Commerce Traders was subsequently informed that the cheque received from
Inept Traders had been dishonoured. The July 2018 bank statement received
by Commerce Traders includes an entry recording the dishonoured cheque:

Bank Statement (extract)

Date Particulars Debit Credit Balance
2018
1 JUL BALANCE FORWARD 4,510 CR
4 JUL 117327 215 4,295 CR
7 JUL Deposit 390 4,685 CR
13 JUL Returned Cheque
Inept Traders 390 4,295 CR
22 JUL Deposit 701 4,996 CR
31 JUL 117325 228 4,768 CR

The dishonoured cheque was treated as a negative entry in the cash

receipts journal:

Cash Receipts Journal

Date Details Bank Discount Accounts GST Other
Allowed Receivable Payable Receipts
2018
Jul 7 Inept Traders 390 10 400
31 Inept Traders (DC) (390) (10) (400)

The remainder of the bank reconciliation process is as before.

 Bank Reconciliation 255

Previous Bank Reconciliation Statement

When a business prepares its second ever bank reconciliation statement, it
will have to make use of its first bank reconciliation statement. Any deposits
not credited or unpresented cheques recorded on this first statement must be
identified. The same process will be required for all subsequent bank
reconcilations.

Example

In this example we will prepare the bank reconciliation statement for the WA
Stationery Store for February 2018.

The bank reconciliation statement of this business for January 2018 was
prepared earlier in this chapter and is set out below:

WA Stationery Store
Bank Reconciliation Statement
as at 31 January 2018
Final balance of the bank statement 1,930
Add deposit not credited 680
2,610
Less unpresented cheques
number 115 143
number 118 287 430
Final balance of the cash at bank account $2,180

The cash records of the business for February 2018 are set out below:

Cash at Bank
2018
Feb 1 Balance b/d 2,180

Cash Receipts Journal

Accounts Sales GST Other
Date Details Bank
Receivable Payable Receipts
2018
Feb 14 K Brodine 850 850
23 Sales 528 480 48
28 P Kemp 150 150
 256 Accounting 1

Example continued

Cash Payments Journal

Cheque Accounts GST Other Payments
Date Payee Bank
Number Payable Credits Amount Details
2018
Feb 2 D Leitch 119 830 830
13 Image Makers 120 154 14 140 Marketing
19 Prime Realty 121 539 49 490 Prepaid
Rent
27 H Klomp 122 698 698

February 2018 bank statement:

Statement of Account
Oz Bank Account Number
PERTH WA 6000 684539
ABN 98 134 452 467
WA Stationery Store Page Number
47 Industry Street 32
PERTH WA 6000

Date Particulars Debit Credit Balance

2018
1 FEB BALANCE FORWARD 1,930 CR
1 FEB Deposit 680 2,610 CR
8 FEB 119 830 1,780 CR
11 FEB WIN Insurance 440 1,340 CR
14 FEB Deposit 850 2,190 CR
19 FEB 121 539 1,651 CR
23 FEB Deposit 528 2,179 CR
27 FEB 120 154 2,025 CR
28 FEB 118 287 1,738 CR
 Bank Reconciliation 257

Steps in the Bank Reconciliation Process

Step 1

The January 2018 bank reconciliation statement entries are checked against
the bank statement entries for February 2018.

The deposit not credited on 31 January, of $680, has appeared in the

February bank statement and is ticked off in both records.

The unpresented cheque, number 118, for $287, has also been entered in the
February bank statement and is ticked off in both records. The other
unpresented cheque, number 115, for $143, has not been recorded in the
February bank statement and, therefore, is still an unpresented cheque. An
asterisk is placed next to this cheque. This cheque will be carried forward into
the February bank reconciliation statement:

WA Stationery Store
Bank Reconciliation Statement
as at 31 January 2018
Final balance of the bank statement 1,930
Add deposit not credited 680
2,610
Less unpresented cheques
number 115 143
number 118 287 430
Final balance of the cash at bank account $2,180

Bank statement (extract)

Date Particulars Debit Credit Balance
2018
1 FEB BALANCE FORWARD 1,930 CR
1 FEB Deposit 680 2,610 CR
8 FEB 119 830 1,780 CR
11 FEB WIN Insurance 440 1,340 CR
14 FEB Deposit 850 2,190 CR
19 FEB 121 539 1,651 CR
23 FEB Deposit 528 2,179 CR
27 FEB 120 154 2,025 CR
28 FEB 118 287 1,738 CR
 258 Accounting 1

Step 2

The other steps in the bank reconciliation process are the same as before.
The cash journals are checked against the bank statement and the
deposit not credited and the unpresented cheques are identified. In
addition, the cash payments journal is updated with the payment by
authority to WIN Insurance of $440. The journals are then totalled:

Date Particulars Debit Credit Balance

2018
1 FEB BALANCE FORWARD 1,930 CR
1 FEB Deposit 680 2,610 CR
8 FEB 119 830 1,780 CR
11 FEB WIN Insurance 440 1,340 CR
14 FEB Deposit 850 2,190 CR
19 FEB 121 539 1,651 CR
23 FEB Deposit 528 2,179 CR
27 FEB 120 154 2,025 CR
28 FEB 118 287 1,738 CR

Cash Receipts Journal

Date Details Bank Accounts Sales GST Other
Receivable Payable Receipts
2018
Feb 14 K Brodine 850 850
23 Sales 528 480 48
28 P Kemp 150 150
$1,528 $1,000 $480 $48

Cash Payments Journal

Cheque Accounts GST Other Payments
Date Payee Bank
Number Payable Credits Amount Details
2018
Feb 2 D Leitch 119 830 830
13 Image Makers 120 154 14 140 Marketing
19 Prime Realty 121 539 49 490 Prepaid
Rent
27 H Klomp 122 698 698
28 WIN Insurance 440 40 400 Prepaid
Insurance
$2,661 $1,528 $103 $1,030
 Bank Reconciliation 259

Step 3

The cash journals are posted into the general ledger and the cash at bank
account is prepared:

Cash at Bank
2018 2018
Feb 1 Balance b/d 2,180 Feb 28 Payments 2,661
28 Receipts 1,528 Balance c/d 1,047
3,700 3,700
Mar 1 Balance b/d 1,047

Step 4

The bank reconciliation statement is prepared. The deposit not credited of

$150 and the unpresented cheques, number 115, for $143, from January, and
number 122, for $698, from February, are included in the bank reconciliation
statement:

WA Stationery Store
Bank Reconciliation Statement
as at 28 February 2018
Final balance of the bank statement 1,738
Add deposit not credited 150
1,888
Less unpresented cheques
number 115 143
number 122 698 841
Final balance of the cash at bank account $1,047

When the WA Stationery Store prepares its March 2018 bank reconciliation
statement it will have to refer back to the February 2018 bank reconciliation
statement.