To reconcile means to bring to an agreement. This mostly occurs when the bank balance in the cash book is different from the balance given by bank in the bank statement.
Bank reconciliation statement is a statement prepared to reconcile or bring into agreement, the differences between the bank balance in the cash book and the balance in the bank statement.
Why Does The Cash Book Disagree With The Bank Statement? (Causes)
The causes of the disagreement between the bank balance in the cash book and that of the bank statement usually occur as a result of time difference or one party (bank or business) has not recorded some entries. This can occur in any of the following forms:
1. Un-presented Cheque: This occurs when the business issues cheque to a supplier or make payment for expenses and the collector (supplier) has not presented the cheque to the bank for payment or presented it after the bank statement for the period has been prepared. In this case, the amount has been deducted in the cash book without deduction from the bank account. The effect is that such transaction will make the bank balance to be greater than the cash book balance.
2. Uncredited Cheque: In this case, the business has received the cheques from the customers and debiting it into the cash book but has not presented them to the bank for its account to be credited or presented them after the bank statement for the period has been prepared.
Note: when deposit is made to the bank, the bank credits the account of the depositor (business) as he is recognized as a creditor who the bank owes the amount of money in the account. But when money is withdrawn from the bank or the business draw cheque from bank, as the business credit its bank account in the cash book, the bank debit the account of the business in return .
3. Standing Order: This occurs when an organization ordered the bank to make certain payment on its behalf at regular intervals, e it weekly, monthly, quarterly or yearly. Such payments are at times made without notifying the business. Examples of such payments include: payment of electricity bill, interest on loan, payment for subscription, etc.
4. Bank Charges: This is the amount of money charged by banks for their services. This money is deducted directly from the bank account and as such not captured in the cash book.
5. Direct Debit: This occurs when bank makes payment directly to a person or firm who has been authorized by the business to withdraw from the account.
6. Direct Credit: This is when customers make deposit into an organization’s account without the knowledge of the organization.
7. Dishonored Cheque: This occurs when a cheque received by the business is rejected by the bank or the cheque issued to supplier is rejected by the bank. In this case, the business would have debited the bank column in the cash book when the cheque is received from a customer or credited the bank account when it was issued out. In such situation, there is need to reverse the amount back in the book of account which might have contributed to the differences in the two books (Bank statement and the bank account in the cashbook)
8. Dividend Received: This is money received by bank from other investments that the business made outside.
9. Errors in the Book of Account: This may happen to the business or the bank in the preparation of the account. For example, a mistake made in calculating the balances in the cash book or bank account, posting an amount different from the one in source documents, among others. If such cases, it will amount to disagreement between the cash book and the bank statement.
How To Prepare Bank Reconciliation Statement.
i. Compare the entries in the cash book with the entries in the bank statement and tick or circle the common entries (entries that appear in both the cash book and the bank statement).
ii. Prepare the adjusted cash book by bringing the cash book balance as balance brought forward.
iii. Add all entries that are not in the cash book but credited to the bank statement.
iv. Subtract all entries that are not in the cash book but debited to the bank statement from the balance to arrive at the Balance as per Cash book.
v. Prepare bank reconciliation statement by bringing the balance in the adjusted cash book forward
vi. Add all amount credited to the cash book but not in the bank statement (Un-presented Cheque).
vii. Subtract all amount debited in the cash book but not in the bank statement (Un-credited Cheque) from the balance.
viii. The balance should be equal to the balance stated in the bank statement (Balance as per Bank Statement).
Illustration
The following account is the bank account of Fadworld Enterprises as contained in its cash book for the month of January, 2022.
DR Bank Account (Cash book) CR
|
2022 |
2022 |
|
June 1 Bal b/f 8,000 |
June 2 Electricity 2,000 |
|
June 7 Abiodun 10,000 |
June 5 Ade & Sons 10,000 |
|
June 16 Cash Banked 15,000 |
June 8 Denis 6,000 |
|
June 25 Lateef 25,000 |
June 14 wale 8,000 |
|
June 27 Jude 16,000 |
June 19 Rent 15,000 |
|
|
June 22 Anthony 8,000 |
|
|
June 25 Ola 4,000 |
|
|
June 28 Ahmed 10,000 |
|
_______ |
June 30 Bal c/d 11,000 |
|
74,000 |
74,000 |
|
Feb 1 Bal b/d 11,000 |
|
The bank statement received by Fadworld for the month of January is as follows:
IBADAN BANK OF NIGERIA (IBN)
Account Name: Fadworld Enterprises
DR. CR. Bal.
2022
N N N
June 1. Balance b/f - - 8,000 Cr
June 2. Electricity 2,000 - 6,000 Cr
June 5. Cheque 1005 Ade & Sons 10,000 - 4,000 Dr
June 7. Paid in (Abiodun) - 10,000 6,000 Cr
June 8. Cheque 1006 Denis 6,000 - -
June 12. Standing Order (water) 2,000 - 2,000 Dr
June 14. Cheque 1007 Wale 8,000 - 10,000 Dr
June 16. Paid in (cash) - 15,000 5,000 Cr
June 19. Cheque 1008 (Rent) 15,000 - 10,000 Dr
June 25. Cheque 1009 (Ola) 4,000 - 14,000 Dr
June 27. Jaiz Bank (Dividend) - 20,000 6,000 Cr
June 29. Bank Charges 5,000 - 1,000 Cr
You are required to prepare Bank Reconciliation statement after makin necessary adjustment for the month of June, 2022.
SOLUTION
Adjusted Cash Book
|
|
|
|
Bal b/f 11,000 |
Standing Order 2,000 |
|
Dividend (Jaiz Bank) 20,000 |
Bank Charges 5,000 |
|
_____ |
Bal c/d 24,000 |
|
31,000 |
31,000 |
|
Bal b/d 24,000 |
|
Bank Reconciliation Statement
N N
Balance as per adjusted Cash book 24,000
Add Un-presented cheque:
Anthony 8,000
Ahmed 10,000 18,000
42,000
Less Un-credited cheque:
Abd-Lateef 25,000
Jude 16,000 41,000
Balance as per Bank statement 1,000
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