BANK RECONCILIATION

 Cashbook is owner’s record (Debit means + balance, Credit means – balance)

Bank statement is bank’s record (Credit means + balance, Debit means – balance)

 Some entries are recorded in the bank statement but not in the cashbook. For these, we will have to correct the
cashbook:

o Credit transfer (Bank Giro): Money deposited by customer directly in the bank account (We should add
it to cashbook balance).

o Standing orders: A firm can instruct its bank to pay regular amounts of money at stated dates to persons
or firms (We should subtract this from cashbook balance).

o Direct Debits: These are payments which have to be made, such as gas bills, electricity bills, etc. (We
should subtract this from cashbook balance).

o Bank Charges/ Interest Charged: Money deducted directly by the Bank (We should subtract this from
cashbook balance).

o Dishonored cheque: A cheque that has been refused payment by the debtors (accounts receivable) bank
due to insufficient funds in the debtors (accounts receivable) account (We should subtract this from
cashbook balance).

o Interest Received/ Dividends Received: Money added to the bank account in form of interest or dividend
(We should add it to the cashbook balance).

 Some entries are recorded in the cashbook but not on the bank statement. For this, we will have to correct the bank
statement:
o Unpresented Cheque: Cheques written by us to a creditor but not yet presented to the bank for payment, so
the bank has not deducted money from our account. (We should subtract this from bank statement balance)

o Uncredited Cheque (Lodgments): Cheques received by us but not yet deposited in the bank, so the bank
has not increased the bank balance. (We should add this to the bank statement balance)

 The usefulness to a business of regularly preparing a bank reconciliation statement:

(State some reasons why a trader should reconcile the cash book balance with the balance shown on the bank
statement at the end of each month)

o Provide an accurate and updated bank balance

o Identification of errors made by the bank and notified to the bank for correction.
o Identification of errors in the cash book and easily be corrected.
o Assist in the prevention of fraud
o Identification of bank charges
o Payments made directly by customers
o Payment of standing orders/direct debits
o Identify returned cheques