Slide 30.

Chapter 30
Bank reconciliation statements

Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.2

Learning objectives
After you have studied this chapter, you should
be able to:
Explain why bank reconciliations are prepared
Reconcile cash book balances with bank
statement balances
Reconcile ledger accounts to suppliers
statements
Make the necessary entries in the accounts
for dishonoured cheques
Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.3

Bank reconciliations

All funds paid into and out of the business bank

account are recorded in the cash book.

The bank also record the flow of funds.

If the items entered in the cash book and by the

bank were the same, the balances would match.

However, there may be items in the cash book

that the bank dont know about and vice versa,
so a reconciliation is necessary.

Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.4

Comparing the cash book and statement

Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.5

The updated cash book

Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.6

Where closing balances differ

Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.7

Where closing balances differ (Continued)

The unmatched items are:
The

cheque paid to M. Peck on January

30 that is in the cash book but not the
bank statement.
The cheque for 470 received from J.
Soames that is in the cash book but not
the bank statement.
Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.8

Where closing balances differ (Continued)

Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.9

Dealing with a bank overdraft

A cash

book showing an overdrawn

balance will have a balance brought down
on the credit side.
A bank statement showing an overdrawn
balance will show O/D against the balance.
Reconciling a bank statement that is
overdrawn is done in the same way,
remembering that money coming in will
make the balance smaller.
Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.10

Dealing with a bank overdraft (Continued)

Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.11

Dealing with a bank overdraft (Continued)

Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.12

Dishonoured cheques
When

a cheque is received from a

customer and paid into the bank, it is
recorded on the debit side of the cash
book.
Later, if the customers bank will not honour
the cheque, it is recorded on the credit side
of the cash book to cancel out the receipt.
The bank will show the cheque on the
statement as a dishonoured cheque.
Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.13

Learning outcomes
You should have now learnt:
1. Why

it is important to perform a bank

reconciliation when a bank statement is
received
2. That a bank reconciliation statement
should show whether or not errors have
been made either in the bank columns of
the cash book or on the bank statement
Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.14

Learning outcomes (Continued)

That a bank reconciliation statement can be
prepared either before or after updating the
cash book with items omitted from it that are
shown on the bank statement
4. That a bank reconciliation statement prepared
after updating the cash book with items
omitted from it that are shown on the bank
statement shows that you know why the bank
statement balance is different from that shown
in the cash book and statement of financial
position
3.

Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.15

Learning outcomes (Continued)

5.

That a bank reconciliation statement prepared

before updating the cash book with items
omitted from it that are shown on the bank
statement is reconciled from cash book to
statement of financial position amount and
then to the bank statement. It shows the
amounts to be entered in the statement of
financial position and also shows that you
know why the bank statement balance is
different from the balances shown in the cash
book and in the statement of financial position
Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.16

Learning outcomes (Continued)

6. That

in the case of bank overdrafts, the

reconciliation statement adjustments are the
same as those shown when there is a
positive bank balance, but the opening and
closing balances are negative
7. How to prepare a bank reconciliation
statement after updating the cash book with
items omitted from it that are shown on the
bank statement
Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012

Slide 30.17

Learning outcomes (Continued)

8. How

to prepare a bank reconciliation

statement before updating the cash book
with items omitted from it that are shown
on the bank statement
9. Why cheques may be dishonoured and
what the effect is upon the bank balance
10.How to make the appropriate entries to the
accounts when a cheque is dishonoured
Frank Wood and Alan Sangster, Frank Woods Business Accounting 1, 12th Edition, Pearson Education Limited 2012