BANK RECONCILIATION STATEMENTS

INTRODUCTION

Almost all businesses have current account with banks. The purposes are:

1. keeping money in the book is one way to facilitate

2. the control of cash is further strengthened because the bank
records all deposits of cash and cheque received. In addition, the
bank also records all cheques paid out the firm when they are
presented for clearance. This serves as a cross check with the
records of the firm. (cash book).

An added advantage is that some bank pays interest on current account balance
which are kept above a certain min-level.

BANK STATEMENT

At the end of regular intervals (normally of 4 weeks duration) the bank sends the
business a document called bank statement.
It is a monthly report showing details that have been taken place in the firm’s
account. It contains the following information:

1. The balance in the account b/f from the previous bank statement.
2. A Debit column showing generally the cheque written out by the
depositor and actually paid out by the bank during the month. It also
shows item such as standing orders, cheque book charges, bank
charges, bank interest on overdraft or interest on loan from the bank.

Cheque issued by the depositor but not cleared by the bank will
obviously not be shown in the statement for that month.
3. A Credit column which shows all the cash and cheques deposited by
the firm into the bank, credit transfers and interest earned on fixed
deposit.
4. A Balance column show balance after each transaction has taken
place.

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PURPOSE OF THE BANK RECONCILIATION STATEMENT

A BRS is usually drawn up to explain the differences (to reconcile)

between the bank balances as recorded in the bank statement and the balance
in the cash book (bank column) at a particular date.

Differences may be due to:-

1. UNPRESENTED CHEQUE
 Those cheque paid out to the creditors of a business and already
recorded in the cash of the business. However, the creditors have
not yet presented them to the bank of the business and therefore
not yet recorded in the bank statement.

2. UNCREDITED CHEQUE (OUTSTANDING DEPOSITS)

 Those cash deposits or cheques received by the business. These
would have been deposited into the bank and would therefore be
recorded in the cash book but not yet recorded by the bank in the
bank statement.

3. BANK CHARGE
 May take various forms such as interest charges. Charges for
cheque books etc. These charges would have been recorded in the
bank statement. However they will be recorded in the cash book
only when the business received bank statement.

4. BANK / CREDIT TRANSFERS

 Cash deposit / cheque received on behalf of the business by the
bank. These would have been crecorded in the bank statement but
not yet recorded in the cash book since the business does not
know of them yet, Examples, dividends / payment by debtors.

5. STANDING ORDERS
 Instructions given by the business to the bank to make regular
payments on its behalf to its creditors. The bank will record these
in the bank statement. However the business will update its cash
book only when it receives the bank statement.

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 Other causes that make the balance in the bank statement and cash
book differ are:-

ERROR MADE BY THE BANK

The following are some errors that may possible be made in the bank
statement by the bank:-
1. Debiting or crediting wrong amounts of the business account in
the bank statement.
2. Debiting or crediting amount which should not appear in the
business statement at all.
3. Debiting instead of crediting and vice versa of correct amounts
in the business statement.

ERRORS MADE IN CASH BOOK

1. Debiting / crediting wrong amounts into the cash book.
2. Debiting instead of crediting (vice versa of correct amounts in
the cash book of the business.

DISHONOURED CHEQUE
This may arise for a variety of reasons:-
1. The business has issued a cheque to an amount exceeding the
amount it has in the bank or exceeded the limit of its facilities
with the bank. This often referred to by the bankers as
‘insufficient funds’
2. Cheque are presented on a date past the valid time period or
presented too early (post dated cheques)
3. Cheque are not properly written out in terms of wording/figures
4. Cheque are not properly written out in dates and signatures.
5. The words and figures of a cheque do not tally.

OVERDRAFT
 An overdraft facilities can be granted to a business by the bank for
business purposes. The adjustment has to be made on the beginning
balances showing on overdrawn situation:-

CASH BOOK(ADJUSTED)
Unadjusted balance b/d xx Unadjusted balance b/d xx
Bank / credit transfer xx Bank charges xx
Dividend from xx Dishonored cheque xx
Understanding amount xx Standing order xx
Amount which should xx Amount which should xx
debited (2x) Credited
Overstating amount xx
Adjusted balance b/d xx Adjusted balance b/d xx
xx xx

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 If adjusted CASH BOOK = DEBIT BALANCE

BANK RECONCILIATION STATEMENTS AT

Adjusted debit balance as per cash book xx

Add : unpresented cheque xx

Less : uncredited cheque xx

Credit balance as per bank statement xx

OR

BANK RECONCILIATION STATEMENTS AT

Credit balance as per bank statement xx

(+) uncredited cheque xx

(-) unpresented cheque xx

Adjusted debit balance as per cash book xx

 Normally before the Bank Reconciliation statement is

prepared, the cash book should be updated (cash book adjusted). This
updating is necessary to make sure that the cash book balance ( bank
column) are not in error.

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 If adjusted CASH BOOK CREDIT BALANCE

BANK RECONCILIATION STATEMENTS AT

Adjusted credit balance as per cash book (overdraft) xx

Add : uncredited cheque xx

Less : unpresented as per bank statement xx

Debit balance as per bank statement xx

OR

BANK RECONCILIATION STATEMENTS AT

Debit balance as per bank statement xx

(+) unpresented cheque xx

(-) uncredited cheque xx

Adjusted credit balance as per cash book (overdraft) xx

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Steps to Answer Bank Reconciliation Statement

1. Compare the details in The Bank Statement with the details in the Cash Book
( Bank Column ).

2. Identify the details that are recorded in the Bank Statement and also recorded
in the Cash Book. Mark it as ( √ ).

3. Identify the details that are recorded in the Bank Statement but NOT
RECORDED in the cash book. Underline the details to mark them.

4. Check the details underlined in 3 above with the Bank Reconciliation

Statement prepare in the previous month to see whether it is already
identified earlier or not. If it already recorded in the previous month Bank
Reconciliation Statement than cancel and exclude the items from the
process of preparing Bank Reconciliation Statement.

5. Identify the details that are recorded in the Cash Book but NOT FOUND in the
Bank Statement. the items identified.
Circl
ee

6. Read the additional information given to identify for any error that require
adjustment.

7. Divide the errors identify to :

a. Errors made by the bank – identify in the Bank Statement

b. Errors made by the business – identify in the Cash Book

8. Check whether items identified in 3 and 5 above are related to errors identify
in 7 or not. If yes, marks it as ( * )

9. Items marked as ( *) is not considered as items :

a. That will be adjusted in the Cash book because it is recorded in the

Bank Statement but not yet recorded in the cash book

b. That will be recorded in the Reconciliation Statement as Unpresented

or Uncredited Cheque

BUT it will be adjustment due to ERRORS where adjustment in amount might be

needed to correct the errors.

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Question 1:

ZAFF Enterprise reported the following bank reconciliation statement as at 31 August

2005.

ZAFF Enterprise
Bank Reconciliation Statement as at 31 August 2005
RM RM
Adjusted cash book balance 8,500
Add : Unpresented Cheques
Cheque No: 310101 543
Cheque No: 310102 457 1000
Balance as per bank statement 31 August 2005 9,500
=====

The following were extracted from the accounting books of ZAFF Enterprise for the
month of September 2005

Cash Receipts Journal

Date Particulars Cheque No RM
September 4 Idrus Trading 250199 900
7 Tia Tirana Enterprise 310103 550
10 Amia Trade 737399 2000
20 One-Ten 003789 320
27 Aum Sdn Bhd 888999 410
30 Brizz Travel 283848 215

Cash Payment Journal

Date Particulars Cheque No RM
September 8 Fast Travel 310104 120
12 Easy Learn Biz 310105 325
18 Daniel 310106 230
27 Diini Traders 310107 182
29 Ah Cun 310108 120

It was discovered that errors made by the business account clerk:

a. Cheque no: 250199 received from Idrus Trading amounted to RM700 had been
wrongly recorded in the cash book as RM900.

b. Cheque no:310103 paid to Tia Tirana Enterprise for RM550 has been entered in
the cash book as a receipt instead of payment.

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The following is the bank statement received on early October 2005.

Bank Islam Malaysia Berhad

Statement as at 30 September 2005
Date Transactions Cheque Debit Credit Balance
No: RM RM RM
Sept 1 Balance b/f 9,500
2 Cheque cleared 310101 543 8,957
3 Cheque cleared 310102 457 8,500
5 Cheque deposited 250199 700 9,200
8 Cheque cleared 310103 550 8,650
8 Cheque cleared 310104 120 8,530
10 Direct Debit 375 8,155
12 Cheque deposited 737399 2,100 10,255
13 Bank charges 15 10,240
16 Cheque cleared 310105 325 9,915
18 Credit transfer 832 10,747
20 Cheque deposited 003789 320 11,067
22 Credit transfer 200 11,267
23 Dishonoured cheque 003789 320 10,947
25 Bank Interest 25 10,922
29 Cheque cleared 310108 120 10,802
30 Dividend 53 10,855

It was discovered there were errors made by the BIMB’s staff:

a. Credit transfer of RM200 did not belong to ZAFF Enterprise.

b. Cheque no: 737399 deposited was incorrectly entered in the bank statement as
RM2,100 instead of RM2,000.

The following were extracted from the accounting books of ZAFF Enterprise for the
month of September 2005

Cash Receipts Journal

Date Particulars Cheque No RM
September 4 Idrus Trading 1 250199 900
7 Tia Tirana Enterprise 310103 √550
10 Amia Trade 737399 2000
20 One-Ten 003789 320
27 Aum Sdn Bhd 888999 410
30 Brizz Travel 283848 215

Cash Payment Journal

Date Particulars Cheque No RM
September 8 Fast Travel 310104 √120
12 Easy Learn Biz 310105 325
18 Daniel 310106 230

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 27 Diini Traders 310107 182
29 Ah Cun 310108 120

Bank Islam Malaysia Berhad

Statement as at 30 September 2005
Date Transactions Cheque Debit Credit Balance
No: RM RM RM
Sept 1 Balance b/f 9,500
2 Cheque cleared 310101 543 8,957
3 Cheque cleared 310102 457 8,500
5 Cheque deposited 1 250199 700 9,200
8 Cheque cleared 310103 550 8,650
8 Cheque cleared 310104 120 8,530
10 Direct Debit 375 8,155
12 Cheque deposited 737399 2,100 10,255
13 Bank charges 15 10,240
16 Cheque cleared 310105 325 9,915
18 Credit transfer 832 10,747
20 Cheque deposited 003789 320 11,067
22 Credit transfer 200 11,267
23 Dishonoured cheque 003789 320 10,947
25 Bank Interest 25 10,922
29 Cheque cleared 310108 120 10,802
30 Dividend 53 10,855