Principles of Accounting: Preparation of bank reconciliation statement

////Principles of Accounting: Preparation of bank reconciliation statement

Principles of Accounting: Preparation of bank reconciliation statement

ZIMSEC O Level Principles of Accounts Notes: Preparation of bank reconciliation statement

  • We have already looked at what bank reconciliation statements are and why we need them
  • Here we will look at steps required to prepare them and their format
  • First it must be pointed out that the Bank Column in the Cash Book like all of the business’s assets have a debit balance
  • From the bank’s perspective however the bank account has a credit balance
  • When the business makes a deposit or receives are transfer
  • It’s account is credited by the bank
  • Crediting an account increases its bank balance i.e. the amount the bank owes/ or is holding on behalf of the business
  • When the business makes a withdrawal or makes a transfer
  • Its bank account is debited by the bank
  • Debiting an account reduces the business’s bank balance i.e. the amount the bank owes/ or is holding on behalf of the business
  • A bank statement balance is frequently shown as a positive balance on the bank statement
  • For now we will assume the business has a normal balance:
  • This means a debit bank balance from the business’s perspective as shown in the cash book
  • and a credit balance as shown on the bank statement

Steps to prepare a bank statement

  • First the business must obtain a copy of the current bank statement
  • These days it simply means downloading the statement via the bank’s online banking portal
  • It might also means obtaining it at the bank, receiving it via email etc
  • However it is obtained the business must have an up to date bank statement before the whole process begins
  • Next the business must update its cash book to record items that we did not know about
  • These include:
    • Dishonored cheques i.e. cheques given to us by debtors but were for whatever reason not honoured by their banks
    • Bank charges and transaction charges
    • Unknown RTGS/SWIFT/ZIPIT transfers ( Giro Transfers in other countries) from our customers
    • Any other items on the bank statement that have not yet recorded in the cash book
  • The updated Cash Book has been prepared the two balances are compared again
  • If there are still different a bank reconciliation statement is prepared

NB

  • Since we are dealing with the bank column of the Cash Book here it is customary to ommit the Cash and Discount columns
  • The result is the Cash Book is presented as a normal T account

Bank Reconciliation Statement

Bank Reconciliation Statement as at 31 December 20x7 
Balance as per cash bookxxx
Add unpresented chequesxxx
Add pending RTGS transfers to creditors

xxx

xxxx
Less Uncredited Lodgements(xxx)
Less pending credits e.g. uncredited RTGS etc(xxx)
Balance as per bank statement

xxx

  • This is the most common way of presenting bank reconciliation statements
  • We start with the Updated Cash Book Balance and end with the Balance as shown on the current bank statement
  • Simple maths however means there is another way of presenting a Bank Reconciliation Statement
  • We could do it in reverse, start with the Balance as per bank statement and end with the balance as shown in the updated Cash Book Instead
  • The result:
Bank Reconciliation Statement as at 31 December 20x7 
Balance as per per bank statementxxx
Add Uncredited Lodgementsxxx
Add pending credits e.g. uncredited RTGS receipts etc

xxx

xxxx
Less unpresented cheques(xxx)
Less pending RTGS transfers to creditors(xxx)
Balance as per Cash Book

xxx

  • It is entirely up to you which presentation you prefer
  • The fact remains that if there are no errors/mistakes in the records a bank reconciliation statement will prove the difference
  • Between the bank balance as shown in the Cash Book and the one on the bank statement is easily explained by the fact that the bank is yet to record some items we have already recorded in the updated cash book

Which figure to show for Bank in the statement of financial position

  • The figure to show under Current Assets in the Statement of Financial position is the updated Cash Book bank balance
  • You should never use the old figure or the bank statement balance as they are both inaccurate according to current information

To access more topics go to the Principles of Accounting Notes.

By |2017-09-26T07:50:35+00:00September 21st, 2017|Notes, Ordinary Level Notes, Principles of Accounts Notes|Comments Off on Principles of Accounting: Preparation of bank reconciliation statement

About the Author:

He holds an Honours in Accountancy degree from the University of Zimbabwe. He is passionate about technology and its practical application in today's world.
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