Bank reconciliation
The bank is also a business
Like any other businesses the bank keeps records of all transactions
A bank have a personal account for each of its clients
It is important to note that an account in which cheques are drawn and
deposits are made is called a current account
Bank reconciliation can be used by many businesses as a cash control measure
by comparing its records with what reflects on the bank statement.
It is known that the bank sends statements to the clients at the end of each
month whereas business update their record on regular basis
If it was possible that the business and the bank can know each other
transactions that have taken place, the balance on the business records and
the balance on the statement would be the same.
This is seldom the case because the business and the bank becomes aware of
the transactions at different times, that is called a ‘timing difference”
The main reason why bank reconciliation is prepared is to correct errors and
omissions committed by both the bank and the business.
Information known by the bank but not
the business
There might be a movement of cash in the current account of the business
that the business does not know about.
Types of entries frequently encountered are:
Direct deposit- this maybe the amount paid by a debtor in payment of his
account
Interest on credit account- The bank might pay interest directly into the
business account.
In cases such as the above, no entries can be made in the business books by the
business until the statement is received. Once the bank statement is received
and such is experienced, is then that the CRJ can be updated with bank
statement as the source document.
Information known by the bank
There can be amount that are paid out of the business current account , not
yet known by the business. These can be classified into three types:
Bank charges and /or interest on bank overdraft which the bank has already
deducted from the current account.
EFT which do not require a cheque and therefore may not have been entered
into the CPJ
R/D or unpaid cheques
All the above will result in a reduction in the business bank account and
therefore they should be recorded in the CPJ.
When the CPJ is updated in cases such as the above, like with CRJ, the source
document will be bank statement.
Information known by the business and
not by the bank
Both the bank and the business keeps records of transactions and as such it is
important to compare the two to check for errors and omissions.
It is always good to identify the transactions that are missing and inform the bank
what their balance should have been should they have known of the missing
transactions.
The process of comparing the bank statement with the cash journals in order to
check for errors and omissions is called the bank reconciliation.
There are two types of entries that are frequently missing from the bank statement.
These types of entries are:
Deposits
Cheques
Errors and omission exposed
Errors made by the business will be rectified in the cash journals whereas
errors made by the bank should be rectified by the bank on the next
statement. Such bank errors will then be shown in the reconciliation
statement
Activity 1
Jack’s Bazaar received its bank statement at the end of May 2005. The items in the
bank statement but not in the cash receipts journal and cash payments journal were
identifed and entered.
After posting to the general ledger, the bank account showed a debit balance of R1
059, while the bank statement showed a credit balance of R892.
On comparing the cash receipts journal and cash payments journal with the bank
statement, these items were found to be missing from the bank statement:
Cheques No. 0246 R86 00
No. 0312 R98 00
No. 0314 R127 00
Deposit on 31 May R478 00
You are required to:
Draft a bank reconciliation statement.
Jack’s Bazaar
BANK RECONCILIATION STATEMENT AS AT 31 MAY 2005
Debit Credit
Credit balance as per bank statement 892 00
Credit outstanding deposit 478 00
Debit outstanding cheques:
No. 0246 86,00
No. 0312 98,00
No. 0314 127,00
Debit balance as per bank account 1 059,00
1 370,00 1370,00
Activity
After comparing the cash journals, bank reconciliation for the previous month
and the current month’s bank statement of Malapa Traders for 30 June 2020,
the following differences were found:
Pencil totals of the cash journals at 30 June 2020:
Cash receipts journal R 23380
Cash payment journal R 24650
Bank account(favourable) as at 31 May 2020 R 270
Balance as bank statement(favourable) -30 June 2020 R 900
Items that appeared on the bank reconciliation statement at 31 May 2020 but
not on the bank statement for June:
Cheque no 511 issued to S Munro on 28 April 2020 R 210
Items that appeared on the bank statement but not in the cash journals:
Bank charges R56
Interest on bank overdraft R64
A stop order in respect of an annual donation to the Balvania Music school R200
An R/D cheque that was originally received from debtor M Mathew R280
A deposit that was paid directly into the bank account of Malapa Traders by a tenant F
Castro R1000
Items that appeared in the cash journals but not on the bank statement:
Deposit R 720
Cheque number 1008 R 2010
Required:
Complete the cash journals for June 2020 by commencing with the given
totals. Show only the total columns. (11)
Prepare the Bank account in the general ledger for June 2020. (9)
Prepare the Bank reconciliation statement for June 2020. (10)
Cash receipts journal
Provisional total 23380√
Rent received 1000√
Dr bank account 24380√√
CASH PAYMENT JOURNAL
Cash Payment journal
Provisional total 24650√
Bank charges 56√
Interest 64√
Donations 200√
C Carlos (cheque R/D) 280√
Cr bank account 25250√√
BANK ACCOUNT
BANK ACCOUNT
Balance b/d 270√ Cash payments 25250√
Cash receipts 24380√
Balance c/d 600√
25250√√ 25250√√
Balance b/d 600√
BANK RECONCILIATION
Balance as per bank statement 900√
Credit outstanding deposits 720√
Debit outstanding cheques: 511 210√
1008 2010√
Credit balance as per bank account 600√√
2220√√ 2220√√
