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Bank Reconciliation Statement

Prepared by Hassan Khalil MBA (B&F)

Bank Reconciliation Statement

BANK RECONCILIATION STATEMENT

This Chapter Covers.
In the last chapter we balanced the cash book of a business to find out the balance of the bank account. In this chapter we look at the way in which a business deals with any differences between the balance of the bank account in the cash book and the closing balance of the bank account shown by the bank statement for the same period. These differences are explained by a document known as bank reconciliation Statement: which lists? Items which are in the cash book but not on the bank statement Items which are on the bank statement but not in the cash book This process is an important one: it enables the business to update its cash book and also helps to prove the accuracy of the bookkeeping of the business and the bank.

Bank Statement
A bank statement is a copy of a bank account as shown by the bank records. Bank statements are sent out to customers on a regular basis, for example every month. This enables the customer to check their funds in the bank (or borrowing on overdraft) regularly and to update their own records of transactions that have occurred. It could be, for example, that the bank has not previously notified them of a certain deduction from the account, for example bank charges.

Definition of Bank Reconciliation Statement

Analysis and adjustment of differences between the cash balance shown on a bank statement, and the amount shown in the account holder's records. This matching process involves making allowances for checks issued but not yet presented, and for checks deposited but not yet cleared or credited. And, if discrepancies persist, finding the cause and bringing the records into agreement

Explanation:
From time to time the balance shown by the bank and cash column of the cash book required to be checked. The balance shown by the cash column of the cash book must agree with amount of cash in hand on that date. Thus reconciliation of the cash column is simple matter. If it does not agree it means that either some cash transactions have been omitted from the cash book or an amount of cash has been stolen or lost. The reason for the difference is ascertained and cash book can be corrected. So for as bank balance is concerned, its reconciliation is not so simple. The balance shown by the bank column of the cash book should always agree with the balance shown by the bank statement, because the bank statement is a copy of the customer's account in the banks ledger. But the bank balance as shown by the cash book and bank balance as shown by the bank statement seldom agrees. Periodically, therefore, a statement is prepared called bank reconciliation statement to find out the reasons for disagreement between the bank statement balance and the cash book balance of the bank, and to test whether the apparently conflicting balance do really agree.

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Bank Reconciliation Statement

Reasons for disagreements: 1. NP (Not Presented Cheques)
Cheques issued to creditors entered on credit side of cash book but not presented to bank for payments are called not presented cheques (NP)

2. NC (Not Credited Cheques / Not Cleared Cheques / Not Collected Cheques )

Cheques received from debtors and deposited into bank but not yet credited / cleared / collected by bank are called not credited cheques (NC)

3. Incomes (I)
a) b) c) Any amount deposited directly into bank by the debtor but not yet entered on the debit side of cash book is treated as income. Any dividend directly collected by bank but not yet entered on the debit side of cash book is treated as income Any interest allowed on deposit by bank or any interest on investments directly collected by bank but not yet entered on debit side of cash book is treated as income

4. Expenses ( E)
a) b) Bank charges and interest on overdraft charged by bank but not yet entered on the credit side of cash book are treated as expenses Insurance premium or any direct payments paid by bank according to instructions given before time but not yet entered on the credit side of cash book are treated as expenses.

Method Judgement: S.No

1 2 3 4 5 6 7 8

Statement
Cash Book Balance Cash Book Favorable Balance Overdraft Cash Book Balance Cash Book Unfavorable Balance Pass Book Balance Pass Book Favorable Balance Overdraft Pass Book Balance Pass Book Unfavorable Balance

Balance
Debit Debit Credit Credit Credit Credit Debit Debit

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Bank Reconciliation Statement

Formulas: 1. Debit Balance of cash Book:

NP NC I E
2. Credit Balance Of Cash Book :

+ + -

NP NC I E

+ +

3.

Debit Balance of Pass Book

NP NC I E
4. Credit Balance of Pass Book:

+ + -

NP NC I E

+ +

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Bank Reconciliation Statement Solution of Problems

Question #7

ABC & Co.

Bank Reconciliation Statement

as on 31 December 1991. Add / Less Add Less Less Less Add

Detail
Balance as per Bank Statement Uncollected Cheques Balance Un Presented Cheques Balance Dividend receive by Bank Balance Interest Allowed Balance Bank Charges Balance as per Cash Book

Amount
25000.00 1000.00 26000.00 15000.00 11000.00 100.00 10900.00 200.00 10700.00 20.00 10720.00 Cr. Cr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Cr.

Question #8

XYZ & Co.

Bank Reconciliation Statement

as on 31 December 2000 Add / Less Less

Detail
Balance as per Bank Statement Un Presented Cheques R & Co. S & Sons. B & Bros. Balance Un Collected Cheques J & Co. H & Bros. Balance Banker Wrongly debited to our A/c Balance as per Cash Book

Amount
6,246.00 Cr. 459.00 596.00 95.00

1,150.00 Dr. 5,096.00 Cr.

Add

506.00 913.00

1,419.00 Cr. 6,515.00 Cr. 225.00 Cr. 6,740.00

Add

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Bank Reconciliation Statement

Question #9

GHK & Co.

Bank Reconciliation Statement

as on 31 December 1992 Add / Less Less Add

Detail
Balance as per Cash Book Un Presented Cheques Balance Un Collected Cheques Balance as per Pass Book

Amount
500.00 250.00 250.00 20.00 270.00 Cr. Dr. Cr. Cr. Cr.

Question #10

X & Co.

Bank Reconciliation Statement

as on . Add / Less Less Less less Less Add

Detail
Balance as per Cash Book (O/D) Un Presented Cheques Balance Un Collected Cheques Balance Wrongly enter into cash Colum of Cash Book Balance Bank charge commission Balance Debit of Cash Book Bank Colum under cast Balance as per Bank Statement

Amount
80.00 144.00 64.00 26.00 38.00 20.00 18.00 8.00 10.00 50.00 60.00 Cr. Dr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Dr.

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Bank Reconciliation Statement

Question #11

XYZ

Bank Reconciliation Statement

as on 31 December 1995 Add / Less Less Add Less Less Add

Detail
Balance as per Cash Book Uncollected Cheques Balance Un Presented Cheques Balance Bank Charges Balance Interest charge by Bank Balance Interest received by Bank Balance as per Bank Statement

Amount
1,580.00 430.00 1,150.00 510.00 1,660.00 10.00 1,650.00 20.00 1,630.00 300.00 1,930.00 Dr. Cr. Dr. Dr. Dr. Cr. Dr. Cr. Dr. Dr.

Question # 12

Mr. Karim

Bank Reconciliation Statement

as on . Add / Less Less Less Add Add Add

Detail
Balance as per Bank Statement Un Presented Cheques Balance Un Collected Cheques Balance Credit side of cash book bank Colum overstated Balance Bank received interest Balance Pass Book error Balance as per Cash Book

Amount
9,000.00 15,000.00 6,000.00 1,500.00 4,500.00 500.00 5,000.00 150.00 5,150.00 300.00 5,450.00 Cr. Dr. Dr. Cr. Dr. Dr. Dr. Dr. Dr. Dr.

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Bank Reconciliation Statement

Question #13

Mr. Rahim & Co.

Bank Reconciliation Statement

as on 31 December 1991 Add / Less Add Less Less Add Add

Detail
Balance as per Bank Statement Un Presented Cheques Balance Un Collected Cheques Balance Interest Debit by Bank Balance Amount Transfer from A/C # 2 to A/C # 1 Balance Wrongly enter into A/C # 1 Balance as per Cash Book

Amount
17250 6250 23500 4500 19000 600 18400 2000 20400 500 20900 Dr. Dr. Dr. Cr. Dr. Cr. Dr. Dr. Dr. Dr.

Question #14

Mr. Rafiq

Bank Reconciliation Statement

as on 31 December 1991 Add / Less Less Add Add Less Less Less Less

Detail
Balance as per Cash Book (O/D) Un Presented Cheques Balance Un Collected Cheques Balance Bank Charges Balance Cheques Deposit directly by customer Balance Cheque write twice in Cash Book Balance Club dues paid by bank Balance Dishonoured Cheques Balance as per Bank Statement

Amount
3500 2200 1300 660 1960 150 2110 950 1160 450 710 100 810 1200 390 Cr. Dr. Cr. Cr. Cr. Cr. Cr. Dr. Cr. Dr. Cr. Cr. Cr. Dr.

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Bank Reconciliation Statement

Question #15

XYZ

Bank Reconciliation Statement

as on 31 December 1991 Add / Less Less Less Add Less Add

Detail
Balance as per Bank Statement Interest charge on o/d by bank Balance Bank Charges Balance Un Presented Cheques Balance Un Collected Cheques Balance Interest on Investment receive by Bank Balance as per Cash Book

Amount
6340 160 6180 30 6150 1168 7318 2170 5148 1200 6348 Dr. Cr. Dr. Cr. Dr. Dr. Dr. Cr. Dr. Dr. Dr.

Question #16

XYZ

Bank Reconciliation Statement

as on 31 December 1991 Add / Less Less Add Add Less Add

Detail
Balance as per Cash Book (O/D) Un Presented Cheques Balance Un Collected Cheques Balance Dishonor Cheques Balance B/R Collected by Bank Balance Bank Charges Int. on O/D bank Charges Balance as per Bank Statement

Amount
1729 600 1129 750 1879 150 2029 1500 529 15 85 Cr. Dr. Cr. Cr. Cr. Cr. Cr. Dr. Cr.

100 629

Cr.

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Bank Reconciliation Statement

Question #17

XYZ

Bank Reconciliation Statement

as on 31 October 1991 Add / Less Add Less Less Less Less Add Add

Detail
Balance as per Bank Statement (O/D) Un Presented Cheques Balance Interest on O/D Balance Un Collected Cheques Balance Bank Charges Balance Interest Collected by Bank Balance Omitted Cheques Balance Customer directly paid into bank Balance as per Cash Book

Amount
4700 750 5450 235 5215 3250 1965 65 1900 350 2250 220 2030 350 2380 Dr. Dr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Dr. Dr. Cr. Dr. Dr. Dr.

Question #18

Mr. A Hussain

Bank Reconciliation Statement

as on 31 December 1991 Add / Less Add Add Less Add Less

Detail
Balance as per Cash Book (O/D) Interest on O/D Balance Bank Charges Balance Un Presented Cheques Balance Un Collected Cheques Balance Interest On Investment collected by Bank Balance as per Bank Statement

Amount
6000 200 6200 50 6250 1500 4750 2500 7250 1800 5450 Cr. Cr. Cr. Cr. Cr. Dr. Cr. Cr. Cr. Dr. Cr.

Note : Cheque Paid into bank mean Cheques sent for collection Dreams School Of Accountancy Page 10

Bank Reconciliation Statement

Question #19

Mr. A Hussain

Bank Reconciliation Statement

as on 31 December 1991 Add / Less Add

Detail
Balance as per Bank Statement (O/D). Un Presented Cheques (250-200) Balance Un Collected Cheques Balance Omitted Cheques Balance Bank Charge Interest Balance Customer directly deposit into bank Balance Interest Received by Bank Balance as per Cash Book (O/D)

Amount
750 Dr. 50 Dr. 800 25 775 10 765 25 740 30 770 60 830 Dr. Cr. Dr. Cr. Dr. Cr. Dr. Dr. Dr. Dr. Dr.

Less Less Less Add Add

Question #21

Mr. Safdar Khan

Bank Reconciliation Statement

as on 31 March 1982 Add / Less Add Add Less Less Add Add

Detail
Balance as per Cash Book Un Presented Cheques Balance B/R Collected by Bank Balance Un Collected Cheques Balance Bank Charges Balance Interest received by Bank Balance Dividend Collected by Bank Balance as per Bank Statement

Amount
3425 800 4225 700 4925 700 4225 32.5 4192.5 140 4332.5 900 5232.5 Dr. Dr. Dr. Dr. Dr. Cr. Dr. Cr. Dr. Dr. Dr. Dr. Dr.

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Bank Reconciliation Statement

Question #22

XYZ & Co.

Bank Reconciliation Statement

as on 31 December 2010 Add / Less Less Add Add Add Less Add Less Less Less Add Add

Detail
Balance as per Cash Book (O/D) Cheques deposit but no entry made in Cash Book Balance Cheques received but not sent to bank Balance Credit side of cash book (Bank Colum) under cast Balance Insurance Paid by Bank Balance Bank charges written twice in cash book Balance Cheques Return Balance Cheques issued and return Balance B/R Collected by Bank Balance Bank Charges Balance Cheques received enter twice Balance Bill Discounted Dishonor Balance as per Bank Statement

Amount
8000 300 7700 1000 8700 100 8800 500 9300 10 9290 400 9690 300 9390 2000 7390 12 7402 500 7902 4000 11902 Cr. Dr. Cr. Cr. Cr. Cr. Cr. Cr. Cr. Dr. Cr. Cr. Cr. Dr. Cr. Dr. Cr. Cr. Cr. Cr. Cr. Cr.

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Bank Reconciliation Statement

Question #23 From the following particulars prepare a Bank Reconciliation Statement of Sarmad & Company as on 31st December 2005. (1) (2) (3) (4) (5) Balance as per cash book Rs. 12,500. Cheques issued amounting to Rs. 4,500 not presented, for payment. Cheques deposited but not cleared Rs. 3,110. Bankers had wrongly debited the firms account with Rs. 712. Bank charges debited in pass book Rs. 35.

Solution:

Sarmad & CO.

Bank Reconciliation Statement

Add/Less Add Less Less Less As on 31st December, 2005 Details Balance as per cash book Cheques issued but not presented Balance Cheques deposited but not cleared Balance Banker has given wrongly debited the A/c Balance Bank charges debited in pass book Balance as per pass book Amount 12500 4500 17000 3110 13890 712 13178 35 13143

Dr. Dr. Dr. Cr. Cr. Cr. Cr. Cr. Cr.

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