ACC111 Reconciliation2 =WK 8

8/7/2019 ACC111 Reconciliation2 =WK 8

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COLLEGE OF BUSINESS AND SOCIAL

SCIENCESDEPARTMENT OF ACCOUNTING

ACC 111

PREPARATION OF BANK

RECONCILIATION STATEMENT


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INTRODUCTION

Bank reconciliation is the agreement of the

balance on a companys cashbook with the

balance shown on the bank statement sent by

the bank in respect of such account. If the

cashbook and the bank statement show the same

balance, then there may be no need for

reconciliation. The treatment of items in both the cashbook and

bank statement can be summarized as follows:


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Description Bank Column of Cashbook In bank statement

Receipts Debit Credit

Payment Credit DebitCash at Bank Debit Balance Credit Balance

Bank overdraft Credit Balance Debit Balance


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From the above, it can be seen that the

cashbook and bank statement should

normally contain the same information, but in

practice, this cannot be achieved, as there are

certain reasons that could cause differences

between the cashbook and the bank

statement. A bank reconciliation statement isthen prepared to reconcile the cashbook with

the bank statement.


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CAUSES OF DIFFERENCES BETWEEN

CASHBOOK AND BANK STATEMENT

ITEMS IN THE CASHBOOK ONLY:

UNPRESENTED CHEQUE: These are chequespaid out by the firm, but yet to be presentedby the payees to the bank for payment. Thecheques would have been credited to thecashbook when they were issued, however,

due to the fact that they are yet to bepresented to the bank for payment, they willnot appear in the bank statement.


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UNCREDITED CHEQUES/LODGEMENTS: these

are cheques/ cash lodged into the bank

account by the firm but which are yet to be

credited by the bank. A common reason for

uncredited cheques is the delay caused by the

clearing system the period from the time the

cheque is paid into the firms bank account tothe time the cheque is honoured by the

paying banker.


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ITEMS IN BANKSTATEMENTSONLY

There are various items debited in the bankstatement, which to be recorded in the firmscashbook. They include:-

Bank Charges, commission on turnover (COT),commission on draft and value added tax (VAT).

Interest on loan and overdraft.

Direct debits: These are payments made directly

out of the bank account to persons who had beenauthorized by the firm to draw money from theaccount. They are usually used for payinginsurance premium.


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Standing order: These are regular paymentsmade by the bank on the instruction of thecustomer. Payment usually made by standing

order includes subscription.

Dishonoured cheque: These are chequesearlier credited by the bank but which werelater dishonoured by the paying banker. Uponthe dishonoured, the cheque is debited to theaccounts of the firm by the bank.


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RECEIPTS IN BANKSTATEMENT ONLY

These are various items credited in the bankstatement, which are yet to be recorded in thefirms cashbook. They include:-

Interest received on deposit and current account Dividend received

Traders credit: These are amounts receiveddirectly into the bank account from debtors

accounts who had been instructed to pay directlyinto the firms account. Traders credit arenormally effected by the firms debtors,instructing their own


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bankers to transfer the amount to the bankers of

the firm who will then receive the amount on

the firms behalf.

Others include:-

Errors in the cashbook.

Errors in the bank statement.


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PROCEDURESFOR PREPARING BANK

RECONCILIATIONSTATEMENT

The preparation of a bank reconciliation statementis a periodic exercise depending on the activitiesof the organizations. It could be prepared daily,

weekly, monthly or even annually.The procedure is firstly to adjust on the bank

balance disclosed in the cashbook and items,which are entered in the bank statement but not

in the bank columns of the cashbook. Theadjusted amount will represent the true bankbalance in the cashbook.


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Secondly, adjust on the bank statement

balance the amount of any unpresented

cheque and lodgment not yet credited by the

bank. These adjusted bank statement balance

would then agree with the bank balance in the

cashbook. The format for a bank reconciliation

statement is shown below:-


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FORMAT

Starting with the adjusted cashbook

N N

Balance as per cashbook (adjusted figure) XXAdd: Unpresented cheque XX

XXX

Less: Uncredited cheque XX

Balance as per bank statement XXX


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Starting with the bank statement

N N

Balance as per bank statement XX

Add: Uncredited cheque XX

XXX

Less: Unpresented cheque XX

Balance as per adjusted cashbook XXX


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Note: Where the adjusted cashbook gives rise to an overdraft,

the procedures for preparing a bank reconciliation statement will

just be a reverse of a normal situation e.g.

N N

Balance as per cashbook (adjusted figure) XX (OD)

Add: Uncredited cheque XX

XXX Less: Unpresented cheque XX

Balance as per bank statement XXX


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WHAT TO DO WITH THE

RECONCILIATION STATEMENT

Notify the bank of its error(s) for correction

Review the bank statement for the period

immediately following the reconciliation dateto confirm if the unpresented cheque has

been presented and if the uncredited

cheques/lodgment has been credited.


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If the unpresented cheque remains unpresented fortoo long, get in touch with the payee to find out why

the cheque has remained unpresented. It is possiblethat the payee is no longer in a position to present thecheque to the bank for payment. This would be thecase if, for example, the payee has died or hasmisplaced the cheque. In such circumstances, the bank

should be notified not to honor the cheque. This wouldensure that payment is not made to the wrongpersons.

If the uncredited cheques/lodgments remain

uncredited for an unreasonable period; this should betaken up with the bank for appropriate action. It ispossible that the cheques/lodgments have beencredited by the bank to the account of anothercustomer.


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ILLUSTRATION 1

Onome & Osagie Company has the following transactions in their cashbook andtheir bank statement for April 2004.

Cashbook

Lodgment into bank Paymentsordered

N N

Cheque 6789 14000 Cheque 123456 4000 Cheque 4591 12000 Cheque 123457 6000

Cheque 4826 9500 Cheque 123458 7500

Cheque 4725 19000 Cheque 123459 12500

Cheque 4228 9000 Cheque 123460 8000

Cash 66000 Cheque 123461 1500

Bal c/d 90000 129500 129500

Bal b/d 90000


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Bank Statement

Debit Credit Balance

N N N

Cheque 123459 12500 (12500)

Cheque 123458 7500 (20000)

Cheque 4826 9500 (10500)

Cheque 6789 14000 3500 Cheque 123460 8000 (4500)

Cheque 4826 contra 9500 (14000)

ICAN Standing order 250 (14250)

C.O.T 500 (14750)

Commission 1750 (16500)

Cheque 4228 9000 (7500)

Cheque 123457 6000 (13500)

Cash 66000 52500

You are required to: Prepare an adjusted cashbook and reconcile the adjustedcashbook with the bank statement.


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Solution

ONOME & OSAGIE

Adjusted cashbookN N

Bal b/d 90000 ICANStanding order 250

C.O.T. 500Commission 1750

Bal c/d 87500

90000 90000


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ONOME & OSAGIE COMPANY

Bank Reconciliation Statement as at

April 2004N NBalance as per bank statement 52500

Add: Uncredited cheque

Cheque 4591 12000

Cheque 4826 9500Cheque 4725 19000

40500

93000

Less: Unpresented Cheque

Cheque 123456 4000Cheque 123461 1500 5500

87500


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ILLUSTRATION 2

On the 31st of December 1994, the cashbook of Amisco, aretailer, showed an overdraft ofN20,000. The bank balancewas N193,000 CR

You are given the following additions/information:

A cheque for N28,000 received by Amisco and entered inhis cashbook on 31st December 1994 was not credited bybank until 2nd January 1995.

A credit transfer ofN114,000 in settlement of a debt by acustomer has not been entered in the cashbook.

Cheque drawn by Amisco on 26th December 1994amounting to N268,000 where not paid by bank until 31stDecember, 1994.

In December 1991 the bank debited Amiscos account byN14,000 for bank charges. No entry has been made in

Amiscos books.


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A dividend ofN58,000 was paid directly to bank.

Standing order on insurance for N20,000 was paid by

the bank. A cash payment of N12,000 was recorded in the bank

column of the cashbook.

A cheque ofN63,000 lodged by Amisco was credited toADEMISCOS account.

A dishonoured cheque cheque of N123,000 was notrecorded in the cashbook.

A cheque for rate ofN67,000 on 10th December 1994had been entered in the cashbook as N76,000.

You are required to: Prepare an adjusted cashbook

Bank reconciliation statement at 31st December, 1994.


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SOLUTION 2

AMISCO LTD

ADJUSTED CASHBOOKN NCredit transfer 114,000 Balance b/d 20,000

Dividend 58,000 Bank charges 14,000

Correcting of error (76,000-67,000) 9000 Standing order 20,000

Cash reverted by error 12,000 Dishonoured cheque 123,000Bal c/d 16,000

193,000 193,000

Bal b/d 16,000


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AMISCO

Bank Reconciliation Statement As At 31st

December 1994N N

Balance as per cashbook 16,000

Add: Unpresented Cheque 268,000284,000

Less: Uncredited cheque 28,000

63,000 91,000Balance as per bank statement 193,000


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OR

Bank Reconciliation Statement

N N

Balance as per bank statement 193,000

Add: Uncredited cheque (28,000 + 63,000) 91,000284,000

Less: Unpresented cheque 268,000

Balance as per adjusted cashbook 16,000


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ASSIGNMENT

Vicman cashbook showed a debit balance of 3,344 on 31st

Jan, 2002. His bank statement for January, 2002 however

showed a credit balance of 3,424. On investigation, it was

discovered that:

The opening balance on the cashbook for the month had

been wrongly brought down as 1505, instead of 1550.

Payment for rent 250 had been debited in the cashbook

A customer had paid 600 directly into the bank

The bank had paid a standing order of 300 to an

insurance company

A cheque for 870 deposited on 25th January was not

credited until 3rdFeb. 2002.


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Cheques paid to suppliers totaling 1875, had not

been presented for payment

Cost of cheque book and other charges by bank

totaling 90 had not been entered in the cashbook

The bank had paid a cheque of 680 in error fromVicmans account.

You are required to

Prepare an adjusted cashbook

Bank reconciliation statement as at 31st January,

2002.

Documents

ACC111 Reconciliation2 =WK 8