Bank Renconciliation
BANK RECONCILIATIONS
1At the end of this chapter, learners should be able to:
outstanding cheques, cheques not presented for payment, deposits not appearing on the bank statement, stop orders and debit orders, direct transfers and deposits, bank charges, interest received or charged, correction of errors/omissions, r/d cheques and post dated cheques received or issues
IMPORTANT TERMINOLOGY
Term |
Definition |
Stale cheque |
A cheque that is more than 6 months old
|
Dishonoured (r/d) cheque |
A cheque that is rejected by the bank for some reason e.g. insufficient funds. r/d= referred back to drawer
|
Post dated cheque |
Cheques dated for a time in the future i.e. today is 20 February 2010 but the cheque is dated 28 February 2010.
|
Reconciliation |
Comparing information in the books to a document received from another source to identify differences.
|
Overdraft |
A negative balance on a bank cheque a/c. an amount owed to the bank on a cheque a/c
|
DEFINING A RECONCILIATION
IMPORTANCE OF A BANK RECONCILIATION
Not reconciling the books of the business to that of the bank may expose the business to several risks:
Therefore, it is important to do regular bank reconciliations to be able to pick up on mistakes, by the bank or the business, and correct them appropriately
BANK RECONCILIATION PROCEDURE
TYPES OF DISCREPENCIES
1. Something appears in the bank statement and not in our books- ENTER MISSING TRANSACTIONS IN CPJ/CRJ to update our books.
Enter on CRJ(dr on bank) |
Enter on CPJ(cr on bank) |
Direct deposits |
R/D cheques |
EFT by the business |
Bank charges |
Interest on current acc. |
Int. on overdraft |
Stale cheques |
Debit orders |
|
Stop orders |
2. Something appears in the books of the business and not in the bank statement- RECORD MISSING TRANSACTIONS IN THE BANK RECONCILIATION STATEMENT and cheque the following month if the bank updated its own records.
|
DR |
CR |
Dr/cr balance as per bank statement |
- |
+ |
Cr outstanding deposits |
|
n |
Dr outstanding cheques |
|
|
no. 100 |
|
|
no. 120 |
|
|
Dr/cr errors by the bank |
- |
+ |
Dr/cr balance as per bank account |
+ |
- |
{the totals should always balance} |
Total |
total |
ILLUSTRATIVE EXAMPLE
QUESTION 1:
1.1. prepare the bank account for November 2008.make any entries that would affect the cash journals directly in the bank account [17]
1.2. prepare the bank reconciliation statement on 30 November 2008 [08]
(REFER TO WORD DOCUMENT WITH THE TRANSACTIONS AND ANSWER)