BANK RECONCILIATION

STATEMENT
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Hello!
I am Puan Suryani
Let’s learn chapter 7 together!
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LEARNING OUTCOMES

At the end of this chapter, the students should be able

to:
✘ Explain the purpose of preparing bank reconciliation
statement.
✘ Identify the reasons for the differences between cash
book and bank statement.
✘ Prepare the adjusted cash book.
✘ Prepare bank reconciliation statement.
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A business that maintaining a current

account in bank (financial institution), will
expect that the ending balance appeared
in the bank statement to be the same as
the balance recorded in its cash book.
But this is rarely happened. Thus, business
need to do analysis to explain the
differences.
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What is bank
reconciliation
statement?
✘ A statement to reconcile Place your screenshot here

between the amount reported

in Cash Book kept by business
and the Bank Statement
provided by the bank.

✘ It is prepared monthly.
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The format of bank reconciliation

statement
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The purpose of bank reconciliation

statement
✘ To identify any errors in cash book and bank statement
that can affect the financial reporting.
✘ To provide explanation of the differences of balances
between the accounting record in cash book and the bank
balance provided in bank statement.
✘ Serve as internal control tool in preventing and detecting
fraud.
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What is Cash Book?

✘ Records all cash receipt and cash
payment transactions

✘ It is presented in two column; debit Place your screenshot here

side to record inflow of cash and

credit side for outflow of cash

✘ It is also classified as books of

prime entry/journal, a substitute to
cash receipt and cash payment
journal
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What is Bank Statement?

✘ Document prepared by the bank for its client
showing of all transactions for client’s bank
account over a given period, usually monthly.

✘ The statement includes transaction such as

deposits, withdrawals, charges, as well as the Place your screenshot here
beginning and ending balance for the period.

✘ To the bank, the client is like a creditor. Thus,

bank will credit the client’s bank account
for any cash inflow, which opposite to the
debit entry made in cash book by the client
(business)
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DIFFERENCES BETWEEN BANK

STATEMENT &
BANK ACCOUNT BALANCE
1. Items HAVE BEEN RECORDED IN THE CASH
BOOK but have yet be recorded by the
bank
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Examples:

Uncredited cheques/ Unpresented cheque

uncredited lodgement
Money comes in the form of Cheques issued by business for
cheques received by business payment and already entered in
and recorded in cash book but the cash book but not yet
has not appear in bank recorded in the Bank
statement. Statement.

Reason: the cheque has not yet Reason: the receiver of the
processed and recognized by cheques may not present it to
the bank. the bank for clearance.
2. Items HAVE BEEN RECORDED IN THE BANK
STATEMENT but have yet to be recorded by
the business
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Examples:

Direct Debit Standing order Credit transfer

an arrangement an instruction to the an amount paid by
made with the bank bank by an account someone directly into
that allows a third holder (business) to the business bank
party to transfer make regular fixed account.
money from business payments to a
account on agreed particular person or
organization at given
dates, for amount
dates.
owed by business
such as insurance,
car installments, fees
and subscriptions.
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Examples (cont.):

Bank charge Dishonored cheque Interest revenue on

Fees charged by the A cheque that a bank Current Account
bank for cheque will not honor (decline Earnings given by the
books and services to pay) upon bank to business
provided for the presentation for based on balance of
business. clearance by the cash in the bank
business. account.
The fees are charged The interest is credited
It may be due to
directly in the directly to business’
insufficient funds in
business’ bank bank account.
the account on which
account.
the cheque was
drawn.
3. Errors
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Types of error:

Errors made by the bank Errors made by the

Example of error: the bank had business
wrongly debited the business
bank statement for a cheque Example of error: A transaction
payment of another bank’s is debited to the cash book
client. instead of being credited.

Action: the amount must be Action: adjust the cash book to

subtracted in bank correct the error
reconciliation statement to
agree with the balance as per
bank statement.
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PROCEDURE TO PREPARE A BANK

RECONCILIATION STATEMENT
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i. First, match the entries recorded in bank statement with those in cash book by
ticking items that appear in both records.
ii. Next, transfer all untick items that appeared in the bank statement, to the cash
book since these items are not recorded by the business yet.
iii. While items that left untick in the cash book will be treated as uncredited or
unpresented cheque in the bank reconciliation later.
iv. Make correction for any errors made by the business, in the cash book
v. Finally, find the adjusted cash book balance.

Start the bank reconciliation with the adjusted cash book

balance to agreed with balance as per bank statement.
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Let’s follow this illustration:

Required:
a. Update the Cash Book.
b. Prepare the Bank
Reconciliation Statement as at
31 August 2021
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The closing balance in the cash book and in the
bank statement is not the same. Thus, follow the
following steps:

i. First, match the entries recorded in bank

statement with those in cash book.
ii. Next, transfer all untick items that appeared in
the bank statement to the cash book since
these items are not recorded by the business
yet.
iii. While items untick in the cash book will be
treated as uncredited or unpresented cheque
in the bank reconciliation later.
iv. Make correction for any errors made by the
business, in the cash book
v. Find the adjusted cash book balance.
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Solution (a): Updated cash book

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Solution (b): Bank reconciliation statement

Steps:

i. Start the bank reconciliation

with the updated cash book
balance.
ii. Adjust for the unpresented
cheques, uncredited
cheques and error made by
the bank, to agree with the
balance as per bank
statement.
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Thanks!
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