Introduction to bank reconciliation
Spot the differences
Bank ReconciliationA bank reconciliation is the process of matchingthe balances in the business records to the bankrecords...
Why do bank reconciliation?• Identify any errors committed by the business or  the bank (rare).• Helps the business identi...
Why do bank reconciliation?• The bank reconciliation may also show any undue  delay in the clearance of cheques.• A balanc...
Bank Records:                               Business Records:Bank Statement            Compare           • Cash receipts  ...
What is a bank statement?A bank statement is a document that is issued by abank once a month to its customers.
What information does the bank statementprovide? •   The beginning cash balance in the account •   + The deposited cheques...
1) The business owner (Mr. A) makes a cash sale of$200 and deposit the cash into the bank (NAB).• What is the double entry...
Bank Interest earnedBank automatically add interest to the account.When you open an account at a bank, the bankwill pay yo...
Bank chargesBank automatically deducts charges from theaccount.Examples• Monthly bank service charge - cost of  maintainin...
2) Mr. A’s bank (NAB) deducts a bank charge of $6.• What is the double entry for the business?   DR Bank charges $6, CR Ca...
Bank StatementDate      Description                          DR           CR                BalanceXXX       Balance b/f  ...
Bank reconciliation & Reconciling Items
Reconciling Items•   Unrecorded deposits•   Unpresented cheques•   Business errors and Bank errors (rare)•   Bank Transfer...
Case Study     Bella needs to buy a     beautiful prom dress for     the prom night.     Mr John Brown is a     fantastic ...
Unrecorded deposits           Bella gave John a cheque of $700.           John entered this transaction into his cash     ...
Unrecorded depositsReceipts that have been recorded in the cashreceipts journal and taken to the bank at theend of the day...
Unpresented cheques          John ordered some silk cloth from Jay          Enterprise to make Bella’s prom dress.        ...
Unpresented chequesCheques that have been written, sent andrecorded in the cash payments journal; but atthat time the bank...
Bank Statement   Date               Particulars      Debits    Credits                   Balance01/04/2012     Balance bro...
Bank Statement        Date              Particulars      Debits    Credits                 Balance     01/04/2012    Balan...
Bank Statement   Date             Particulars    Debits                     Credits            Balance01/04/2012 Balance b...
Bank Statement   Date              Particulars      Debits                  Credits         Balance01/04/2012    Balance b...
Cash receipts journal (DR)     Date               Particulars            Rec no. Debtors         Cash sales       Sundries...
Cash balance summary as at 30 April 2012                                              $            Opening balance from ba...
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Bank reconciliation v4

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  • Bank reconciliation is similar to “Spotting the Differences” activity we did earlier. One is using pictures and the other is using numbers.
  • Undue = excessive
  • The bank statement also shows the cumulative balance of cash in the account (it appears on the right side of the bank statement).Show the class an example of a bank statement.
  • The bank statement also shows the cumulative balance of cash in the account (it appears on the right side of the bank statement).Show the class an example of a bank statement.
  • This is because it reflects the bank's obligation/liability to return the $200 to the business owner on demand.
  • Simple interest: simple interest is interest paid on the original principal only.For example,4000 dollars is deposited into a bank account and the annual interest rate is 8%. How much is the interest after 2 years?4000× 8% × 4= $640Compound interest: is the interest earned not only on the original principal, but also on all interests earned previously.In other words, at the end of each year, the interest earned is added to the original amount and the money is reinvested = 4000 x 8% x1= $320; 4000+320 =4320; 4320 x 8% x1=$345.6 Total interest = 320 +345.6 =$665.6
  • Q: How does a business owner know whether if his bank deduct any bank charges or add any bank interest?
  • I am assuming John is such a fantastic tailor because he is a vampire; this means he doesn’t need to sleep hence have many extra hours to sew a brand new dress.
  • Items recorded in the cash book but not in the bank statement, due to timing difference.
  • As you add a transaction, put a tick beside it in the bank statement, cash receipts journal and cash payments journal. It indicates that the those missing entries have been recorded.
  • Bank reconciliation v4

    1. 1. Introduction to bank reconciliation
    2. 2. Spot the differences
    3. 3. Bank ReconciliationA bank reconciliation is the process of matchingthe balances in the business records to the bankrecords.The goal is to find the differences between thetwo (business records vs bank records) andmaking changes to the business records asappropriate. Q: Why do business do bank reconciliation?
    4. 4. Why do bank reconciliation?• Identify any errors committed by the business or the bank (rare).• Helps the business identify the actual amount of cash available to spend.• Without bank reconciliation you expose your business to risk. Risk of people stealing from your account.
    5. 5. Why do bank reconciliation?• The bank reconciliation may also show any undue delay in the clearance of cheques.• A balanced bank reconciliation provides confidence in the accuracy of the business records.
    6. 6. Bank Records: Business Records:Bank Statement Compare • Cash receipts journal • Cash payment journal Find the differences • Cash at bank accountTick each entry that appears in both sets of recordsAnd circle the entries do not appear in both set of recordsEntries found in the bank records but missing in the businessrecords should be added to the business records Prepare a cash balance summary Prepare a bank reconciliation statement.
    7. 7. What is a bank statement?A bank statement is a document that is issued by abank once a month to its customers.
    8. 8. What information does the bank statementprovide? • The beginning cash balance in the account • + The deposited cheques and cash • - Cash withdrawn from the account • - Cheques paid out • + Interest earned on the account • - Bank charges against the account • = Ending cash balance in the account
    9. 9. 1) The business owner (Mr. A) makes a cash sale of$200 and deposit the cash into the bank (NAB).• What is the double entry for the business? DR Cash $200, CR Sales $200• What is the double entry for the bank? DR Cash $200, CR Bank statement (deposit) $200The $200 the bank received is not from sales, but anobligation/liability to return the $200 to the business owneron demand.
    10. 10. Bank Interest earnedBank automatically add interest to the account.When you open an account at a bank, the bankwill pay you to keep your money at their bank.
    11. 11. Bank chargesBank automatically deducts charges from theaccount.Examples• Monthly bank service charge - cost of maintaining an account.• Bank charges a fee when a cheque is returned for insufficient funds.• Bank charges a fee on an overdraft account.
    12. 12. 2) Mr. A’s bank (NAB) deducts a bank charge of $6.• What is the double entry for the business? DR Bank charges $6, CR Cash $6• What is the double entry for the bank? DR Bank statement $6, CR Bank service charge revenue $6 When bank charges Mr. A $6, the bank earns $6.
    13. 13. Bank StatementDate Description DR CR BalanceXXX Balance b/f 0XXX Cash Sales 200.00 √ 200.00 CRXXX Bank interest earned 5.00 205.00 CRXXX Monthly bank service charge 6.00 √ 199.00 CR Missing in cash receipts journal Cash receipts journal (DR) Date Particulars Rec no. Debtors Cash sales Sundries Bank xxx Cash sales xx 200.00 200.00 √ 200.00 Cash payments journal (CR) Date Particulars Chq no. Creditors Cash Purchase Sundries Bank xxx Monthly bank service charge 5.00 5.00 5.00 Mr. A made an error
    14. 14. Bank reconciliation & Reconciling Items
    15. 15. Reconciling Items• Unrecorded deposits• Unpresented cheques• Business errors and Bank errors (rare)• Bank Transfer /EFT• Bank Interest earned• Bank charges
    16. 16. Case Study Bella needs to buy a beautiful prom dress for the prom night. Mr John Brown is a fantastic tailor and he owns a neighbourhood dress shop. Bella decides to purchase a custom made dress which cost her $700.
    17. 17. Unrecorded deposits Bella gave John a cheque of $700. John entered this transaction into his cash receipts journal. At the end of the day, he deposited the cheque into his bank account.John’s bank did not have a chance to process thecheque; and the bank statement has already beenprepared.
    18. 18. Unrecorded depositsReceipts that have been recorded in the cashreceipts journal and taken to the bank at theend of the day; but at that time the bankstatement has been prepared; and the bankhave not processed those receipts.
    19. 19. Unpresented cheques John ordered some silk cloth from Jay Enterprise to make Bella’s prom dress. He wrote a cheque of $200 to Jay Enterprise and sent it by mail.He entered this transaction into his cash paymentsjournal.John’s bank statement has already been prepared,but the cheque has not been presented for paymentat the bank.
    20. 20. Unpresented chequesCheques that have been written, sent andrecorded in the cash payments journal; but atthat time the bank statement has beenprepared; and the cheques have not beenpresented for payment at the bank.
    21. 21. Bank Statement Date Particulars Debits Credits Balance01/04/2012 Balance brought forward 2,565.00 CR04/04/2012 C/c 2,300.00 4,865.00 CR05/04/2012 276 1,200.00 3,665.00 CR09/04/2012 C/c 500.00 4,165.00 CR11/04/2012 277 2,800.00 1,365.00 CR15/04/2012 Monthly service charge 10.00 1,355.00 CR16/04/2012 Interest 6.00 1,361.00 CR17/04/2012 278 1,500.00 139.00 DR17/04/2012 Fee - overdrawn account 30.00 169.00 DR18/04/2012 C/c 200.00 31.00 CR20/04/2012 C/c 2,400.00 2,431.00 CR23/04/2012 C/c 200.00 2,631.00 CR26/04/2012 279 2,000.00 631.00 CR30/04/2012 Returned Cheque - Nancy 200.00 431.00 CR30/04/2012 Fee - returned cheque 25.00 406.00 CR C/c = Cash and Cheques deposited Cash receipts journal (DR) Date Particulars Rec no. Debtors Cash sales Sundries Bank 3/04/2012 Angel Bridal Shop 128 2,300.00 2,300.00 8/04/2012 Wendy CRR 500.00 500.0017/04/2012 Nancy 129 200.00 200.0019/04/2012 Kelly Fashion 130 2,400.00 2,400.0022/04/2012 Sewing equipment CRR 200.00 200.0030/04/2012 Bella 131 700.00 700.00 - 5,600.00 500.00 200.00 6,300.00CRR = Cash register roll - money received over the counter.
    22. 22. Bank Statement Date Particulars Debits Credits Balance 01/04/2012 Balance brought forward 2,565.00 CR 04/04/2012 C/c 2,300.00 4,865.00 CR 05/04/2012 276 1,200.00 3,665.00 CR 09/04/2012 C/c 500.00 4,165.00 CR 11/04/2012 277 2,800.00 1,365.00 CR 15/04/2012 Monthly service charge 10.00 1,355.00 CR 16/04/2012 Interest 6.00 1,361.00 CR 17/04/2012 278 1,500.00 139.00 DR 17/04/2012 Fee - overdrawn account 30.00 169.00 DR 18/04/2012 C/c 200.00 31.00 CR 20/04/2012 C/c 2,400.00 2,431.00 CR 23/04/2012 C/c 200.00 2,631.00 CR 26/04/2012 279 2,000.00 631.00 CR 30/04/2012 Returned Cheque - Nancy 200.00 431.00 CR 30/04/2012 Fee - returned cheque 25.00 406.00 CR C/c = Cash and Cheques deposited Cash payments journal (CR)Date Particulars Chq no. Creditors Cash Purchases Wages Rent Sundries Bank 4/04/2012 Rent 276 1,200.00 1,200.0010/04/2012 Sewing machine 277 2,800.00 2,800.0016/04/2012 Natalie - employee 278 1,500.00 1,500.0025/04/2012 AB Fabric Pty Ltd 279 2,000.00 2,000.0030/04/2012 Jay Enterprise 280 200.00 200.00 - 2,200.00 2,800.00 1,500.00 1,200.00 - 7,700.00
    23. 23. Bank Statement Date Particulars Debits Credits Balance01/04/2012 Balance brought forward 2,565.00 CR04/04/2012 C/c 2,300.00 √ 4,865.00 CR05/04/2012 276 1,200.00 3,665.00 CR09/04/2012 C/c 500.00 √ 4,165.00 CR11/04/2012 277 2,800.00 1,365.00 CR15/04/2012 Monthly service charge 10.00 1,355.00 CR16/04/2012 Interest 6.00 1,361.00 CR17/04/2012 278 1,500.00 139.00 DR17/04/2012 Fee - overdrawn account 30.00 169.00 DR18/04/2012 C/c 200.00 √ 31.00 CR20/04/2012 C/c 2,400.00 √ 2,431.00 CR23/04/2012 C/c 200.00 √ 2,631.00 CR26/04/2012 279 2,000.00 631.00 CR30/04/2012 Returned Cheque - Nancy 200.00 431.00 CR30/04/2012 Fee - returned cheque 25.00 406.00 CR C/c = Cash and Cheques deposited Cash receipts journal (DR) Date Particulars Rec no. Debtors Cash sales Sundries Bank 3/04/2012 Angel Bridal Shop 128 2,300.00 2,300.00 √ 8/04/2012 Wendy CRR 500.00 500.00 √17/04/2012 Nancy 129 200.00 200.00 √19/04/2012 Kelly Fashion 130 2,400.00 2,400.00 √22/04/2012 Sewing equipment CRR 200.00 200.00 √30/04/2012 Bella 131 700.00 700.00 5,600.00 500.00 200.00 6,300.00CRR = Cash register roll - money received over the counter.
    24. 24. Bank Statement Date Particulars Debits Credits Balance01/04/2012 Balance brought forward 2,565.00 CR04/04/2012 C/c 2,300.00 √ 4,865.00 CR05/04/2012 276 1,200.00 √ 3,665.00 CR09/04/2012 C/c 500.00 √ 4,165.00 CR11/04/2012 277 2,800.00 √ 1,365.00 CR15/04/2012 Monthly service charge 10.00 1,355.00 CR16/04/2012 Interest 6.00 1,361.00 CR17/04/2012 278 1,500.00 √ 139.00 DR17/04/2012 Fee - overdrawn account 30.00 169.00 DR18/04/2012 C/c 200.00 √ 31.00 CR20/04/2012 C/c 2,400.00 √ 2,431.00 CR23/04/2012 C/c 200.00 √ 2,631.00 CR26/04/2012 279 2,000.00 √ 631.00 CR30/04/2012 Returned Cheque - Nancy 200.00 431.00 CR30/04/2012 Fee - returned cheque 25.00 406.00 CR C/c = Cash and Cheques deposited Cash payments journal (CR)Date Particulars Chq no. Creditors Cash Purchase Wages Rent Sundries Bank 4/04/2012 Rent 276 1,200.00 1,200.00 √10/04/2012 Sewing machine 277 2,800.00 2,800.00 √16/04/2012 Natalie - employee 278 1,500.00 1,500.00 √25/04/2012 AB Fabric Pty Ltd 279 2,000.00 2,000.00 √30/04/2012 Jay Enterprise 280 200.00 200.00 2,200.00 2,800.00 1,500.00 1,200.00 - 7,700.00
    25. 25. Cash receipts journal (DR) Date Particulars Rec no. Debtors Cash sales Sundries Bank 3/04/2012 Angel Bridal Shop 128 2,300.00 2,300.00 √ 8/04/2012 Wendy CRR 500.00 500.00 √ 16/04/2012 Interest 6.00 6.00 √ 17/04/2012 Nancy 129 200.00 200.00 √ 19/04/2012 Kelly Fashion 130 2,400.00 2,400.00 √ 22/04/2012 Sewing equipment CRR 200.00 200.00 √ 30/04/2012 Bella 131 700.00 700.00 30/04/2012 Returned Cheque - Nancy (200.00) (200.00) √ 5,400.00 500.00 206.00 6,106.00 Cash payments journal (CR)Date Particulars Chq no. Creditors Cash Purchases Wages Rent Sundries Bank 4/04/2012 Rent 276 1,200.00 1,200.00 √10/04/2012 Sewing machine 277 2,800.00 2,800.00 √15/04/2012 Monthly Service charge 10.00 10.00 √16/04/2012 Natalie - employee 278 1,500.00 1,500.00 √17/04/2012 Fee - overdrawn account 30.00 30.00 √25/04/2012 AB Fabric Pty Ltd 279 2,000.00 2,000.00 √30/04/2012 Jay Enterprise 280 200.00 200.0030/04/2012 Fee - returned cheque 25.00 25.00 √ 2,200.00 2,800.00 1,500.00 1,200.00 65.00 7,765.00
    26. 26. Cash balance summary as at 30 April 2012 $ Opening balance from bankOpening balance 2,565.00 statementAdd cash receipts 6,106.00 Total from cash receipts journalLess cash payments 7,765.00 Total from cash payments journalClosing balance 906.00Bank reconciliation statement as at 30 April 2012 MATCH $ Closing balance from bankBalance as per bank statement 406.00 CR statement Item circle/ highlight fromAdd Unrecorded deposit 700.00 cash receipts journalLess Unpresented cheques 200.00 Item circle/ highlight from cash payments journalBalance as per business cash records 906.00 CR
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