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Lecture Notes Bank Reconciliation Statement

The document discusses bank reconciliation statements, including their importance, components, and the steps to prepare one. It provides an example of reconciling a bank statement with a company's books, calculating adjustments, and identifying any discrepancies between the reconciled balance and balance in the company's books.

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Syed Azlan Shah LU
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
84 views

Lecture Notes Bank Reconciliation Statement

The document discusses bank reconciliation statements, including their importance, components, and the steps to prepare one. It provides an example of reconciling a bank statement with a company's books, calculating adjustments, and identifying any discrepancies between the reconciled balance and balance in the company's books.

Uploaded by

Syed Azlan Shah LU
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Lecture Notes: Bank Reconciliation Statement

I. Introduction
● Bank Reconciliation Statement (BRS) is a vital tool used in accounting to reconcile the
differences between the balance as per the bank statement and the balance as per the
2
company's books.
● It ensures accuracy in financial records by identifying discrepancies such as outstanding
1
checks, deposits in transit, bank charges, and interest.
II. Importance of Bank Reconciliation
● Accuracy: Ensures that the company's financial records accurately reflect its financial
position.
● Fraud Detection: Helps in detecting unauthorized transactions or errors in the bank
statement.
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● Cash Management: Assists in managing cash flow by identifying outstanding checks and
deposits.
III. Components of a Bank Reconciliation Statement
. Balance as per Bank Statement: The ending balance reported by the bank on a particular
date.
. Balance as per Company's Books: The ending balance of the company's cash account in
its general ledger.
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. Items Adjusting the Balance as per Bank Statement:
○ Outstanding Checks: Checks issued by the company but not yet cleared by the
2
bank.
○ Deposits in Transit: Deposits made by the company but not yet recorded by the
1
bank.
○ Bank Charges: Fees charged by the bank for various services.
○ Interest Earned: Interest earned on the company's account.
. Items Adjusting the Balance as per Company's Books:
○ NSF Checks: Checks received by the company but returned by the bank due to
insufficient funds.
○ Bank Errors: Errors made by the bank in recording transactions.
○ Interest Earned: Interest earned on the company's account.
IV. Steps to Prepare a Bank Reconciliation Statement
. Start with the Bank Statement Balance: Begin with the ending balance reported by the
bank.
. Add or Deduct Items from the Bank Statement: Adjust for outstanding checks, deposits
in transit, bank charges, and interest earned.
4
. Start with the Company's Books Balance: Begin with the ending balance of the
company's cash account.
3
. Add or Deduct Items from the Company's Books: Adjust for NSF checks, bank errors,
and interest earned.
. Compare Adjusted Balances: Ensure that the adjusted balances match. Any discrepancies
indicate errors that need to be investigated.
. Make Necessary Adjustments: Rectify errors or discrepancies identified during the
reconciliation process.
. Prepare the Bank Reconciliation Statement: Summarize the adjustments made and
reconcile the balances.
V. Conclusion
● Bank Reconciliation Statement is a crucial tool for ensuring the accuracy of financial
records.
● By reconciling differences between the bank statement and the company's books,
organizations can identify errors, prevent fraud, and manage cash flow effectively.
Example :
Paradise Tour operators bank statement shows a balance of $20,000, while their books indicate a
balance of $19,500. Upon further examination, the following information is gathered:
. Outstanding checks total $1,200.
. Deposits in transit amount to $800.
. Bank charges for the month total $50.
. Interest earned on the account is $30.
. The company received a NSF check from a customer in the amount of $200.
. Bank errors amount to $100.
Calculate the following:
a) The adjusted balance for outstanding checks and deposits in transit.
b) The net adjustment for bank charges and interest earned.
c) The net adjustment for NSF checks and bank errors.
d) The reconciled bank balance after considering all adjustments.
e) Determine if the company's books are in agreement with the reconciled bank balance. If not,
identify the discrepancy and its potential impact on the company's financial records.

Solution:
Given information:
Bank statement balance = $20,000
Company's books balance = $19,500
Company's books balance = $19,500
. Adjustments for outstanding checks and deposits in transit:
○ Outstanding checks = $1,200
○ Deposits in transit = $800
○ Adjusted balance = $20,000 (bank statement balance) - $1,200 (outstanding
checks) + $800 (deposits in transit) = $20,600
. Adjustments for bank charges and interest earned:
○ Bank charges = $50
○ Interest earned = $30
○ Net adjustment = $30 (interest earned) - $50 (bank charges) = -$20
. Adjustments for NSF checks and bank errors:
○ NSF check = $200
○ Bank errors = $100
○ Net adjustment = $100 (bank errors) - $200 (NSF check) = -$100
. Reconciled bank balance after considering all adjustments:
. Bank statement balance + Adjustments = $20,000 + (-$20) + (-$100) = $19,880
. Comparison with company's books:
. Reconciled bank balance = $19,880
. Company's books balance = $19,500
. Discrepancy = $19,880 - $19,500 = $380Since the reconciled bank balance ($19,880)
does not match the company's books balance ($19,500), there is a discrepancy of $380.
This could indicate errors in recording transactions or unaccounted for items in the
company's financial records, potentially impacting the accuracy of financial reporting.
Further investigation is needed to identify and rectify the discrepancy.

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