Kwame Nkrumah University of

Science & Technology, Kumasi, Ghana

ACF 255/DBA 239

FINANCIAL ACCOUNTING 1
LESSON 7
Bank Reconciliation

Department of Accounting and Finance

Beatrice Sarpong-Danquah

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 To explain the need for Bank reconciliation
Learning Objectives statement

To explain the relevance of proper documentation

for reconciliation purposes

To identify the causes of the differences between

the balances on cash book and bank statements

To identify the main reasons why banks dishonour

cheques

Reconcile cash book balances with bank

statement balances

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 Introduction
•Businesses keep records of both
cash and cheque transaction in a
cash book.

•Nature of cash book

– The debit side of the cash book
is used for recording receipts
– The credit side is used for
recording payments

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Introduction

When amounts are paid into the

business bank account, the bank
also credits the business account
and the cash book is debited.

Similarly, when cheques are drawn,

the bank debits the business current
account with the amount as soon as
they are presented and honoured
and the cash book is credited

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Introduction What appears on the debit side of the cash
book appears on the credit side of the current
account in the bank’s books, and vice versa.

It follows therefore that all things being equal

the two books should have the same balance.
But rarely will the cash book balance agree with
the balance shown on the bank statement.

Because of this possible discrepancy, there is

the need to reconcile the two records (cash
book and bank statement balance).

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Causes of differences/discrepancies

Informational differences

• Differences arising from

information available to bankers
but not the entity

Timing Differences

• Differences arising from the

different times of recording by the
entity’s cashier and the bankers

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 Causes of differences/discrepancies
Timing differences
• Unpresented cheques
Cheques issued out by the entity but yet to be
presented to the bankers or presented to the
bankers but yet to clear
• Uncredited cheques
Cheques received and deposited by the entity
but yet to be credited by the bank
• Bank errors;
wrong credits; errors by the bank that
increases an entities balance
wrong debits; errors by the bank that
decreases an entities balance
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 Causes of differences/discrepancies

Informational differences
• Standing order
• Direct debit
• Credit transfers
• Bank charges
• Dishonoured cheques etc…

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Reasons for dishonouring cheques

Insufficient Insufficient
Stale cheques
funds mandate

Amount in
words different Post dated No signature of
from amount in cheques account holder
figures

Signature differs
from bank
specimen

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 The need for a reconciliation statement

• A BRS is a statement that is

prepared to bring into
agreement the difference
between the cash book
balance and the bank
statement balance.

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 The Reconciliation Process
• Bring down the balance of the original
cash book into the adjusted cash book

1 • Enter on the credit side of the cash book

Adjust the cash book with
the informational difference:
all items not previously entered but
appeared on the debits of the bank
statement e.g. bank charges
• Enter on the debit side of the cash book
items that appeared on the credit side of
the bank statement but not previously
entered in the cash book
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 Causes of differences/discrepancies

Informational differences
• Standing order
• Direct debit
• Credit transfers
• Bank charges
• Dishonoured cheques etc…

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 Adjusted cash book
Bal b/f xxx Bank charges xxx
Dividend rec xxx Dishourned cheques xxx

Errors in the CB xxx Standing order xxx

Direct credit xxx rrors in the CB xxx
Other direct deibts xxx
Balance c/d xxx
xxx xxx
Balance b/d xxx 13
 The Reconciliation Process

Information entered in the cash book

not yet recorded by the bank on the
bank statement namely; unpresented
cheques and uncredited cheques 2

Prepare the BRS using the timing

Common errors by the bank (wrong
debit and wrong credit)
differences:

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 Format of BRS
Bank Reconciliation Statement as at 30-06-2021
Gh¢ Gh¢
Balance as per adjusted cash book ****
Add Unpresented cheques ****
wrong credit **** ****
****
Less Uncredited cheques ****
wrong debit **** (****)
Balance as per bank statement ****
www.knust.edu.gh

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 Format of BRS
Bank Reconciliation Statement as at 30-06-2021
Gh¢ Gh¢
Balance as per bank statement ****
Add Uncredited cheques ****
wrong debit **** ****
****
Less Unpresented cheques ****
wrong credit **** (****)
Balance as per adjusted cashbook ****
www.knust.edu.gh

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 The following are extracts from the cash
book and the bank statement of F Perry.
 You are required to:
 (a) Write the cash book up to date, and
state the new balance as on 31 December
20X9, and
 (b) Draw up a bank reconciliation
statement as on 31 December 20X9.

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 cashbook
 20X9 Dr £ 20X9 Cr £
 Dec 1 Bal b/d 3,419 Dec 8 B Young 462
 ‘’ 7 F Lamb 101 ‘’ 15 F Gray 21
 ‘‘ 22 G Brock 44 ‘‘ 28 T Errant 209
 ‘’ 31 W Terry 319 ‘’ 31 Bal c/d 3,437
 ‘’ 31 S Miller 246
4,129 4,129

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 Bank Statement
 20X9 Dr Cr
Balance
£ £ £
Dec 1 Bal b/d 3,419
‘’ 7 Cheque 101 3,520
‘’ 11 B Young 462 3,058
‘’ 20 F Gray 21 3,037
‘’ 22 Cheque 44 3,081
‘’ 31 Credit transfer: T Morris 93 3,174
‘’ 31 Bank charges 47 3,127
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Thank You

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 Example

Worksheet 1

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