SEM103

LECTURE 6
BANK RECONCILIATION

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 CHAPTER

6 Bank Reconciliation

LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Explain the purpose of Bank Reconciliation.
2. Prepare a Bank Reconciliation.

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 The Purpose of Bank Reconciliation

1. To determine the account balance

2. Uncovering problems
3. Identifying uncashed checks
4. Internal auditing

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 Writing Checks - Sample

Written order signed by depositor directing bank to pay a

specified sum of money to a designated recipient.

Maker

Payee

Payer

Illustration 7-9
Check with remittance advice

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 Bank Statements Illustration 7-10
Bank statement

DEBIT MEMORANDUM
 Bank service charge.
 NSF (not sufficient
funds).

CREDIT
MEMORANDUM
 Collect notes
receivable.
 Interest earned.
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 Reconciling the Bank Account
Learning
Objective 7
Reconcile balance per books and balance Prepare a bank
reconciliation.
per bank to their adjusted (corrected) cash
balances.
Reconciling Items:
1. Deposits in transit.
Time Lags
2. Outstanding checks.
3. Bank memoranda.
4. Errors.

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 Reconciling items

 Deposit in Transit  Outstanding checks

End-of-month deposits of Checks written by the

cash recorded on the depositor are recorded
depositor’s book in one when written but may not be
month are received and recorded by (may not
recorded by the bank in “clear”) the bank till the next
the following month. month.

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 Reconciling items
 Bank charges
Charges recorded by the
bank against the depositor’s
balance for such items as
bank services, printing
checks, Not-sufficient funds
(NSF) checks, and safe-
deposit box rentals. The
depositor may not be aware
of these charges until the
receipt of bank statement.
7-8
 Not Sufficient Fund
NSF checks. The bank may
have rejected some of your
deposited checks, because
the person or business
issuing the checks did not
have sufficient funds in their
account(s) to remit to your
bank. These are known as 
NSF (not sufficient funds)
checks.
 Reconciling items
 Bank Credits  Bank or Depositor
Errors.
Collection or deposits by the
bank for the benefit of the Errors on either the part of
depositor that may be the bank or the part of the
unknown to the depositor depositor cause the bank
until receipt of bank balance disagree with
statement. Example are depositor’s book balance.
note collection for the
depositor and interest
earned on interest-bearing
checking accounts.

7-9
 Reconciling items
 Direct Debit
Payments
This is an instruction by the
business to the bank to
make direct payments for
amount owing to certain
suppliers)
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 Standing Order
Payments
This is an instruction by the
business to the bank to
make certain fixed amount
of payment every month,
such as insurance, rental,
loan repayment installment.
 Reconciling items
 Credit transfer

Which amount paid by

customers directly through
bank transfer.

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 RECONCILIATION OF BANK BALANCES

ILLUSTRATION 7A-1
Bank Reconciliation
Form and Content

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LO 3
 Reconciling the Bank Account

RECONCILIATION PROCEDURES Illustration 7-11

Bank reconciliation
adjustments

+ Deposit in Transit + Notes collected by bank

- Outstanding Checks - NSF (bounced) checks
+/- Bank Errors - Check printing or other
service charges
+/- Book Errors

CORRECT BALANCE CORRECT BALANCE

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 BANK RECONCILIATION ILLUSTRATED
The bank statement for Laird Company, in Illustration 7-10, shows a
balance per bank of £15,907.45 on April 30, 2019. On this date the
balance of cash per books is £11,589.45. Using the four reconciliation
steps, Laird determines the following reconciling items.
Step 1. Deposits in transit:
April 30 deposit (received by bank on May 1). £2,201.40
Step 2. Outstanding checks: No. 453, £3,000.00; no. 457,
£1,401.30; no. 460, £1,502.70. 5,904.00
Step 3. Errors: Laird wrote check no. 443 for £1,226.00
and the bank correctly paid that amount. However,
Laird recorded the check as £1,262.00. 36.00
Step 4. Bank memoranda:
a. Debit—NSF check from J. R. Baron for £425.60 425.60
b. Debit—Charge for printing company checks £30.00 30.00
c. Credit—Collection of note receivable for £1,000
plus interest earned £50, less bank collection fee £15.00 1,035.00
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 BANK RECONCILIATION ILLUSTRATED

Illustration: Prepare a bank reconciliation at April 30.

Cash balance per bank statement ₤15,907.45

Deposit in transit 2,201.40
Outstanding checks (5,904.00)
Adjusted cash balance per bank ₤12,204.85

Cash balance per books ₤11,589.45

Error in check No. 443 36.00
NSF check (425.60)
Bank service charge (30.00)
Collection of notes receivable 1,035.00
Adjusted cash balance per books ₤12,204.85

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 Revision Question

Refer Lecture exercise!!

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