FABM – BANK RECONCILIATION

(Melfa Yawan)
What is bank reconciliation
– A bank reconciliation is a statement prepared by an entity to reconcile the cash-in-bank
account balance versus the balance as reported by the banks in the bank statement.

(Seline Telen)
And the next part I will be explaining what the 4 purposes of the bank reconciliation
statement are.

Here are the following reasons to consider the differences between the cash book balance
and the bank statement balance.

1. Uncredited items
- Cheques are received by the business that are recorded in the cash book but not
recorded in the bank statement.

Banking made shown in the cash book But not on the bank statement

2. Unpresented Cheques
- These are the cheques that you write to your creditors/ suppliers but these
creditors will take it to the bank within a given duration

3. Standing Orders
- are typically used to pay rent, mortgages or other fixed regular payments. A
standing order is not usually suitable for paying variable bills such as credit
cards, gas, or electric bills.

4. Direct Debits
- A Company/Organisation authorizes to collect payments on an agreed date.
They will notify you of a charge to the amount of bills. e.g. you may use direct
debits to pay electricity bills.

(Shella Patubo)
5. Bank Charges
- This can be deducted for the bank's processing of the business' checking account
activity and can include monthly charges or charges from overdrawing your account.

6. Dishonoured cheques
 - A cheque falls under the dishonoured category when a payee cannot successfully
deposit the payer's cheque.
7. Credit transfers / direct credits
- Credit Transfers - A credit transfer is a direct payment of money from one bank account
into another.
- Direct Credits - are amounts deposited directly by someone into an account of the
company.
8. Interest allowed by the bank
- Interest allowed by the bank would lead to an increase in the bank balance but it would
not be entered in the cash book until and unless the account holder views it in his pass
book.
Nature of the cash book and bank statement
Cash-in-bank

Banks statements > increase in cash is on the credit side

> decrease in cash is on the debit side

So the rules in the debit and credit we will be apply in the ledger

Ledger > increase in cash is can be on the debit side

> decrease in cash is can be on the credit side

What is the difference between a cash book and a bank statement?

- Cash book is used to record all transactions for cash, checks, money orders, or postal
order while a bank statement is the list of entries to each account holder that have been
made in their personal account.

(Mikaella Go)

Drawing up a bank reconciliation statement

To reconcile the bank statement with corrected cash book

There are three steps to reconcile the bank statement with the corrected cash book. First, is to
Check the bank statement and the cash book to identify the items which have been
omitted.
- If your not familiar in the word omitted its is the unmentioned item

Second is to, Update the cash book with any omissions and errors made by the firm itself.
Examples are:
e.g.
 - Credit transfers- (debit cash book)
- Bank Interest- (debit cash book)
- Standing orders/Direct debits- (credit cash book)
- Bank Charges- (credit cash book)
- Dishonoured Cheques- (credit cash book)

And lastly is to, Prepare the bank reconciliation statement

● Stated here are the example of how you prepare the bank reconciliation statement

PhP PhP
Corrected balance in hand as per Cash Book x
Add Unpresented cheques x
Wrong credits by the bank x x
x
Less Bank deposits not yet entered on Bank Statement x
Wrong debits by the bank x x

As you can see in the cash book column. On December 30, 2018 on the debit side there are
uncredited items, And as per what seline said uncredited items are the deposits paid into the
bank. These items occurred too close to the cut-off date of the bank statement and so do not
appear on the statement. They will appear in the next statement. And on December 31, 2018 on
the credit side there are unpresented checks. They are cheques issued by the firm that have not
yet been presented to its bank for payment.
These are the omitted items that is not recorded in the cash book from the bank statement, cAs
per the answer, we need to create a t-account to identify the items which have been omitted
from the cash book. In the debit side on december 31, 2018 we have a balance of 48,000 and
we will be adding the commission received total of 3,000 from the bank statement because, a
commission received is written on the credited side and credited side in bank statement is
increasing and the other one is bank interest total of 500 we will also adding it because that is
written in credit which is increasing that's why the result is total 51,500. On the credited side in
the cash book it is disbursement. This is the omitted items from the bank statement that is not
recorded to a cash book. So, we have December 31 t cheung- dishonored cheque total of
20,000 and it was written on the debit side and in the bank statements the debit side is
decreasing. On the december 31 also there is a bank charges amounting to 300, other one is
rent total of 2,500 and lastly balance that total of 28,700 we just need to add this all to get the
total amount of 51,500

Bank Reconciliation Statement as at 31 Dec 2018

Bank Reconciliation Statements as at 31 December 2018

Php
Corrected balance in hand as per Cash Book 28,700
Add Unpresented Cheques 1,000
29,700

Less Bank deposits not yet entered on bank statement 14,000

Balance in hand as per Bank Statement 15,700

● Only adjusted caused by timing difference

Melfa
To reconcile the bank statement with the Unadjusted cash book
Two steps :
1. Check the bank statement and the cash book to identify the items which have been omitted.
2. Prepare the bank reconciliation statement.
Example 2
- The fact are the same as Example 1, but the cash book was not updated.

Other Issues:

Post-dated cheque

● It is a cheque which has not yet matured within the current accounting period.

Accounting Treatment
● The cheque should be held by the cashier and no entry should be made until the cheque
becomes mature.
 ● If a post-dated cheque has been entered in the cash book, make correcting entries.

Dr Debtors With the amount of the post-dated cheque

Cr Bank

B. Stale cheque
● It is a cheque which has been drawn for more than 6 months but has not yet gone
through the bank of the drawee.
Accounting Treatment:

Dr Bank With the amount of the state cheque

Cr Creditor
(Richard)
What Is an Overdraft?
- What Is an Overdraft? An overdraft occurs when there isn't enough money in an account
to cover a transaction or withdrawal, but the bank allows the transaction anyway.
Essentially, it's an extension of credit from the financial institution that is granted when
an account reaches zero.