THEME 1: BANK RECONCILIATION
The business and the bank
The daily banking process
- Bank account used by businesses = current account
- Current account = designed to give the account holder the highest possible degree of
flexibility for managing their cash flow.
- Business received payments in cash, cheques or credit card payments
- Credit card payments are processed manually or swiped through a ‘Speedpoint’
machine.
- After a day’s trading, a business will have cash, cheques and manual credit card
payments that needs to be banked.
- Part of the daily process is to complete a cash-up where the cash registrar will
generate an “X” reading.
- “X” – reading = outlines the sales for the day & breaks this amount down into cash &
credit sales
Furthermore, it outlines how the cash sales were received
- The cash-up procedure involves this “X” reading with what is actually in the registrar
- Cash float = constant amount of cash a business keep in the registrar where excess
cash over this minimum is removed every day to be banked.
- When the bookkeeper of the business goes to the bank he/she will complete a
deposit slip
- The deposit slip has blocks for cheques, manual credit card slips, notes, and coins.
- A business will make payments by cheque, electronic funds transfer or by using their
own credit card.
The credit card is a completely separate account: thus credit card payments
are not reflected on the statement of the current account.
- In the bank reconciliation process, we are comparing movements of cash in the
business’s cashbook with the movements of cash in the business’s current account.
- The bank will inform the business on a monthly basis of the movements in the
current account that is recorded in a statement.
Created by PastThatTest.
Note: This document is protected under the Copyright Act Illegal distribution of the document is not
allowed
,The bank statement
- Bank statement = document received from the bank that is a reflection of the
transactions on the business’s account, as recorded by the bank.
- The bank records deposits as credits and payments as debits.
- In the general ledger, the bank column from the cashbook receipts is debited and
the bank column from the cashbook payments is credited.
- Thus, we debit receipts and credit payments
- Why we debit receipts = because money coming into a business is increasing an
asset, thus the bank account is debited
- Why we credit payments = because money going out of the business is decreasing an
asset, thus the bank account is credited.
- On the bank’s statement, these are reversed.
The bank reconciliation procedure
Step 1:
- The credits on the bank statement are compared with the bank column of the
cashbook receipts & the differences are identified and investigated
- Question at this point = why are there differences between the transactions
recorded by the bank & by the business?
Answer = either the bank or business is not aware of the particular
transaction recorded by the other or the transaction is recorded differently
by each party
Errors
- Where there’s a discrepancy between a transaction recorded by the bank &
business, it needs to be investigated.
- If the error is made by the business = the cashbook needs to be amended
- If the error is made by the bank = the difference must be entered in the bank
reconciliation statement.
Awareness differences
- Differences between the cashbook and bank statement is classified as either
adjusting differences or timing differences
Created by PastThatTest.
Note: This document is protected under the Copyright Act Illegal distribution of the document is not
allowed
, Adjusting differences
= occur when the business is not aware of a particular transaction recorded by the bank.
- Thus, the comparison between the bank column of the cashbook receipts & credits
on the bank statement show a variety of the following un-reconciled credits:
Interest on the current account
Direct deposits
- Needs to be added to the cashbook receipts.
Timing differences
= occurs when the bank is not aware of a particular transaction recorded by the business.
- It’s a result of a time delay between transactions being recorded by the business and
by the bank
- They result in difference cashbook and statement periods
- The business may have a monthly cycle where the bank send statements out on the
26th of each month
- Thus, deposits recorded in the cashbook receipts from the 27 th will only reflect on
the following bank statement.
- Thus, the comparison between the bank column of the cashbook receipt and bank
statement will show outstanding deposits on the bank statement.
- Timing differences are usually entered as outstanding amounts on the bank
reconciliation statement
Step 2
- The debits on the bank statement are compared with the bank column of the
cashbook payments and the differences are identified as requiring addition or
outstanding items to be entered.
Errors
- Business errors are amended in the cashbook
- Bank errors are entered in the bank reconciliation statement
Awareness differences
Adjusting differences
Created by PastThatTest.
Note: This document is protected under the Copyright Act Illegal distribution of the document is not
allowed
The business and the bank
The daily banking process
- Bank account used by businesses = current account
- Current account = designed to give the account holder the highest possible degree of
flexibility for managing their cash flow.
- Business received payments in cash, cheques or credit card payments
- Credit card payments are processed manually or swiped through a ‘Speedpoint’
machine.
- After a day’s trading, a business will have cash, cheques and manual credit card
payments that needs to be banked.
- Part of the daily process is to complete a cash-up where the cash registrar will
generate an “X” reading.
- “X” – reading = outlines the sales for the day & breaks this amount down into cash &
credit sales
Furthermore, it outlines how the cash sales were received
- The cash-up procedure involves this “X” reading with what is actually in the registrar
- Cash float = constant amount of cash a business keep in the registrar where excess
cash over this minimum is removed every day to be banked.
- When the bookkeeper of the business goes to the bank he/she will complete a
deposit slip
- The deposit slip has blocks for cheques, manual credit card slips, notes, and coins.
- A business will make payments by cheque, electronic funds transfer or by using their
own credit card.
The credit card is a completely separate account: thus credit card payments
are not reflected on the statement of the current account.
- In the bank reconciliation process, we are comparing movements of cash in the
business’s cashbook with the movements of cash in the business’s current account.
- The bank will inform the business on a monthly basis of the movements in the
current account that is recorded in a statement.
Created by PastThatTest.
Note: This document is protected under the Copyright Act Illegal distribution of the document is not
allowed
,The bank statement
- Bank statement = document received from the bank that is a reflection of the
transactions on the business’s account, as recorded by the bank.
- The bank records deposits as credits and payments as debits.
- In the general ledger, the bank column from the cashbook receipts is debited and
the bank column from the cashbook payments is credited.
- Thus, we debit receipts and credit payments
- Why we debit receipts = because money coming into a business is increasing an
asset, thus the bank account is debited
- Why we credit payments = because money going out of the business is decreasing an
asset, thus the bank account is credited.
- On the bank’s statement, these are reversed.
The bank reconciliation procedure
Step 1:
- The credits on the bank statement are compared with the bank column of the
cashbook receipts & the differences are identified and investigated
- Question at this point = why are there differences between the transactions
recorded by the bank & by the business?
Answer = either the bank or business is not aware of the particular
transaction recorded by the other or the transaction is recorded differently
by each party
Errors
- Where there’s a discrepancy between a transaction recorded by the bank &
business, it needs to be investigated.
- If the error is made by the business = the cashbook needs to be amended
- If the error is made by the bank = the difference must be entered in the bank
reconciliation statement.
Awareness differences
- Differences between the cashbook and bank statement is classified as either
adjusting differences or timing differences
Created by PastThatTest.
Note: This document is protected under the Copyright Act Illegal distribution of the document is not
allowed
, Adjusting differences
= occur when the business is not aware of a particular transaction recorded by the bank.
- Thus, the comparison between the bank column of the cashbook receipts & credits
on the bank statement show a variety of the following un-reconciled credits:
Interest on the current account
Direct deposits
- Needs to be added to the cashbook receipts.
Timing differences
= occurs when the bank is not aware of a particular transaction recorded by the business.
- It’s a result of a time delay between transactions being recorded by the business and
by the bank
- They result in difference cashbook and statement periods
- The business may have a monthly cycle where the bank send statements out on the
26th of each month
- Thus, deposits recorded in the cashbook receipts from the 27 th will only reflect on
the following bank statement.
- Thus, the comparison between the bank column of the cashbook receipt and bank
statement will show outstanding deposits on the bank statement.
- Timing differences are usually entered as outstanding amounts on the bank
reconciliation statement
Step 2
- The debits on the bank statement are compared with the bank column of the
cashbook payments and the differences are identified as requiring addition or
outstanding items to be entered.
Errors
- Business errors are amended in the cashbook
- Bank errors are entered in the bank reconciliation statement
Awareness differences
Adjusting differences
Created by PastThatTest.
Note: This document is protected under the Copyright Act Illegal distribution of the document is not
allowed
