CHAPTER 7

Bank reconciliation
7.1CONTROL OVER CASH
It is important to check accounting entries
regularly to ensure accuracy and control.

Cash is the lifeblood of any organisation and

poor cash management can ultimately lead to
an enterprise’s demise.

The checking of the cash journals and the bank

statements on a monthly basis confirms the
balance of cash held at the bank.
 7.1.1 The business’s records
• All money received is recorded in the cash receipts
journal and all money paid out is recorded in the
cash payments journal.

• At the end of the month the totals of these two

journals are posted to the bank account in the general
ledger.

• The bank account is a current asset, therefore all

receipts are debited; that is, they increase the bank
balance.
• All payments are credited in the bank account; that is,
they decrease the bank balance.
 7.1.2 The bank’s records
• The bank also records all the transactions that affect our bank balance,
and at the end of the month it sends us a copy of these transactions in
the form of a bank statement.

• The main difference between the way we record transactions and the
way the bank records transactions is that the bank statement will be the
mirror image of the cash journals.

• The bank credits to increase and debits to decrease our bank balance.
This is opposite to what we do in the general ledger. The reason for this
is that the bank views our account as a liability. From its point of view it
owes us the money which is in our bank account.
• The bank follows the rule: to increase a liability, credit, and to
decrease a liability, debit.

• Clearly the cash journals and the bank statements are reflecting the
same entries, and therefore in essence should have the same closing
balance. If the closing balance in our records does not agree with the
closing balance in the bank statement, a bank reconciliation must be
conducted.
 7.2.1 Steps for bank reconciliation
1.Compare the closing balance in the general ledger bank account with the
closing balance in the bank statement. If they are not the same, then continue
with step 2.

2.Compare the cash journals and the bank statement and circle any item that
does not appear in both sets of records.

3.Items that appear on the bank statement but not in the cash journals must be
entered into the general ledger bank account.

4.Items that appear in the cash journals but not on the bank statement must be
entered on the bank reconciliation statement.

5.Any errors that have been made in the cash journals must be corrected in the
general ledger bank account.

6.Any errors made by the bank must be corrected on the bank reconciliation
statement.
 7.2RECONCILIATION
journals
PROCESS
Items not appearing in the business cash Items not appearing on the bank statement

1. Bank charges, including service fees, cash 1. Deposits made but not yet recorded by the
deposit fees, cost of chequebooks, etc. bank because they were made close to
statement date. They were not processed by the
bank in time and will therefore only appear on the
following month’s bank statement.

2. Payments made by the bank for stop orders or 2. Cheques issued but not recorded by the bank
debit orders, e.g. insurance premiums because they have not been presented to the
bank for payment
3. Deposits made directly into our bank account
by a debtor, e.g. rental

4. Dishonoured cheques (R/D cheques)

previously deposited in good faith by the
business
5. Interest on overdraft

These items do not appear in the business’s These items do not appear in the bank’s
books and must therefore be entered into the books and must therefore be entered on the
general ledger bank account. bank reconciliation statement.
Any errors that have been made in the cash Any errors made by the bank must be
journals must be corrected in our books. corrected on the bank reconciliation
statement.
Many of the discrepancies are simply caused by time delays.
ILLUSTRATIVE EXAMPLE
The following is the bank reconciliation for May 20x1, the bank
statement for June 20x1 and a summary of the cash records
for June 20x1 for SDB Ltd:
 General ledger
Bank
Date Detail Fol Amount
1 June 20x1 Balance b/d R2 353,50

Bank Reconciliation
Balance as per bank statement 2 826,50
Add: Outstanding deposit 1 232,00 √
Less: Outstanding cheques
No. 180 (770,00)
No. 183 (935,00) √
Balance as per general ledger bank account 2 353,50

Cash receipts journal for June 20x1 CRJ 6

04 Deposit 800√
10 Deposit 1 700√

15 Deposit 2 100√
25 Deposit 1 500√
30 Deposit 1 100
7 200

Cash payments journal for June 20x1 CPJ 6

01 Cheque 185 900√
04 Cheque 186 510
10 Cheque 187 1 414√
17 Cheque 188 440√
25 Cheque 189 1 134√
30 Cheque 200 516
4 914
 SAVINGS BANK
Bank statement
Date Code Cheque no. Cheques and Deposits Balance
other debits R R
R
May 31 R2 826,50
Jun 01 1 232,00√ 4 058,50

185 900,00√ 3 158,50

SF 4,50 3 154,00
03 183 935,00√ 2219,00

SF 4,50 2 214,50
05 800,00√ 3 014,50

11 SF 7,00 1 700,00√ 4 707,50

12 187 1 414,00√ 3 293,50
SF 7,00 3 286,50
16 2 100,00√ 5 386,50
17 188 440,00√ 4 946,50
SF 4,00 4 942,50
Rent 500,00 5 442,50
26 1 500,00√ 6 942,50
27 RD (James) 1 200,00 5 742,50
SF 6,00 5 736,50
28 189 1 134,00√ 4 602,50
SF 6,00 4 596,50
 Required
1.Adjust the general ledger bank account.
2.Prepare a bank reconciliation statement as at 30 June 20x1.
Solution

General ledger
Bank

20x1 20x1

June 01 Balance b/d R2 353,50 June 30 Payments R4 914,00

30 Receipts 7 200,00 Bank charges 9,00
Debtors (RD
Rental income 500,00 1 200
cheque)
Balance c/d 3 900,50
10 053,50 10 053,50
July 01 Balance b/d 3 900,50
Arithmetic method
Bank reconciliation statement as at 30 June 20x1

Balance as per bank statement R4 596,50

Add: Outstanding deposit 1 100,00

Less: Outstanding cheques 1 796,00

No. 180 R770,00

No. 186 510,00

No. 200 516,00

Balance as per bank account 3 900,50

EX 3 memo
 Ex 4
The following is the bank reconciliation for May 2000, the bank statement for June 2000 and a
summary of the cash records for Jun 2000 of Tele Ltd:

The bank balance in the general ledger on 1 June 2000 was R3 530,25 favourable. Stable Bank
Bank statement
The following deposits occurred during June 2000: Date Code Cheque Cheques & Deposits Balance
No. other debits
May 31 4239,75
04th R1 200 June 01 1 848,00 6 087,75
10th R2 550 295 1 350,00 4 737,75
15th R3 150 SF 6,75 4 731,00
25th R2 250 03 293 1 402,50 3 328,50
30th R1650 SF 6,75 3 321,75
05 1 200,00 4 521,75
The following payments were made during June 2000: 11 2 550,00 7071,75
Cash fee 10,50 7 061,25
01st
Cheque 295 R1 350 12 297 2 121,00 4 940,25
04th Cheque 296 R 765 SF 6,75 4 933,50
10th Cheque 297 R2 121 16 3 150, 00 8 083,50
17th Cheque 298 R 660 Cash fee 10,50 8 073,00
25th Cheque 299 R1 701 17 298 660,00 7 413,00
30th Cheque 300 R 774 SF 6,00 7 407,00
Rent 750,00 8 157,00
2 250,00 10 497,00
Bank reconciliation statement as at 31 May 2000 26 RD (Rice) 1 800,00 8 607,00
27 SF 9,00 8 598,00
Balance as per bank statement 4 239,75 SF 9,00 8 589,00
28 299 1 701,00 6 888,00
Add: Outstanding deposit 1 848,00

Less: Outstanding cheques

No. 290 (1 155,00)

No. 293 (1 402,50)

Balance as per general ledger bank account 3 530,25

 Stable Bank

The bank balance in the general ledger on 1 June 2000 was R3 530,25 favourable. Bank statement

Date Code Cheque No. Cheques & other Deposits Balance

debits
The following deposits occurred during June 2000:
May 31 4239,75

04th R1 200√ June 1 848,00√ 6 087,75

01
R2 550√ 295 1 350,00√ 4 737,75
10th
Receipts
R3 150√ SF 6,75 4 731,00
15th
10 800
25th R2 250√ 293 1 402,50√ 3 328,50
30th R1650 03
SF 6,75 3 321,75
The following payments were made during June 2000: 1 200,00√ 4 521,75
05
2 550,00√ 7071,75
01st Cheque 295 R1 350 √ 11
04th Cheque 296 R 765 Cash fee 10,50 7 061,25

10th Cheque 297 R2 121√ 297 2 121,00√ 4 940,25

Payments 12
17th Cheque 298 R 660√ SF 6,75 4 933,50
7371
25th Cheque 299 R1 701√ 3 150, 00√ 8 083,50
30th Cheque 300 R 774 16
Cash fee 10,50 8 073,00

298 660,00√ 7 413,00

Bank reconciliation statement as at 31 May 2000
17
SF 6,00 7 407,00
Balance as per bank statement 4 239,75
Rent 750,00 8 157,00
Add: Outstanding deposit 1 848,00√
2 250,00√ 10 497,00
Less: Outstanding cheques
RD (Rice) 1 800,00 8 607,00
No. 290 (1 155,00) 26
SF 9,00 8 598,00
No. 293 (1 402,50) √ 27
SF 9,00 8 589,00
Balance as per general ledger bank account 3 530,25
299 1 701,00√ 6 888,00
28
General ledger of Tele Ltd

Bank
Jun 01 Balance b/d 3 530,25

Jun 30 Receipts 10 800,00 Jun 30 Payments 7 371,00

Rent 750,00 Bank charge 65,25

Cheque RD (Rice) 1 800,00

Balance c/d 5 844,00

15 080,25 15 080,25
20x0
Jul 1 Balance b/d 5 844,00
Bank reconciliation statement as at 30 June 2000.

Debit Credit
Debit balance as per bank statement 6 888,00

Debit: Outstanding cheques

296 765,00

290 1 155,00

300 774,00

Credit: Outstanding deposits 1 650,00

Debit: Balance as per bank account 5 844,00

8 538 8 538