This document discusses bank reconciliation statements. It defines a bank reconciliation statement as a schedule that reconciles any differences between the bank balance shown on the bank statement and the cash book. The document outlines reasons for differences between the two balances, including unpresented checks, uncredited deposits, and bank charges. It provides rules for debiting and crediting items in a bank reconciliation statement and steps to prepare the reconciliation, including identifying omitted transactions and adjusting entries to make the balances agree.

2. Contents
Reporting cash in the balance sheet
Definition of BRS
The purpose of the BRS
Nature of the cash book and the bank statement
Reasons for difference between the CB and the BS
Rules of debit and credit in BRS
Steps in preparing BRS
Illustration

3. Reporting cash in the balance sheet
• Cash is listed first in balance sheet
• The term Liquid Assets.
• Current asset section of balance sheet.
•Purpose of balance sheet.

4. CASH EQUIVALENTS
• Short term investments.
• Similar items in the balance sheet.
• First asset shown in balance sheet.

5. Non considered Cash
Equivalents
Cash equivalent investment in stocks, bonds.
Marketable Securities.

6. Evaluating Solvency
Study of Balance Sheet.
Users of a company financial statement.
Creditors need to know the amount of liquid
resources.

7. Line of Credit
Arrangements of the Line of Credit.
The meanings of Line of Credit.
Borrow Money.
Liability to the Bank.

8. 11..TTHHEE DDEEFFIINNIITTIIOONN OOFF TTHHEE BBAANNKK
RREECCOONNCCIILLIIAATTIIOONN SSTTAATTEEMMEENNTT
A bank reconciliation is a schedule
explaining any differences between the
balance shown in bank statement and
the balance shown in Cash book.

9. 22..TTHHEE PPUURRPPOOSSEE OOFF TTHHEE BBAANNKK
RREECCOONNCCIILLIIAATTIIOONN SSTTAATTEEMMEENNTT
It reflects actual bank balance position
Detect mistake in cash book or Pass book
Prevent frauds in recording banking
transactions
Explain any delay collection of checks
It identifies valid transaction recorded by
one party but not by other

10. WWhhaatt iiss CCaasshh
bbooookk aanndd bbaannkk
ssttaatteemmeenntt

11. CCaasshh bbooookk
A book in which record all the transaction relating to cash receipt
and payments in detail is called cash book
Prepared or maintain by company
Kinds:
1. Simple : maintained by small enterprise
2. Cash book with discount
3. Cash book with discount and cash column
4. Petty cash book

12. BBaannkk ssttaatteemmeenntt
Report released (on a fixed date every month)
by banks that lists deposits, withdrawals, checks
paid, interest earned, and service
charges or penalties incurred on an account. It
shows the cumulative effect of
these transactions the account's balance, up to the
date the report was prepared

13. 44.. NNAATTUURREE OOFF TTHHEE CCAASSHH BBOOOOKK AANNDD
TTHHEE BBAANNKK SSTTAATTEEMMEENNTT..
The balance in the cash book is an asset to the
company, therefore:
Cash book
(A credit
represents a
decrease)
(A debit
represents an
increase)

14. The balance as per the bank statement is a
liability to the bank, therefore:
(represents
the amount
owed to
the clients)
Bank statement
Cr.
(represents
increases)
Dr.
(represents
decreases)
Balance

15. 33.. RREEAASSOONNSS FFOORR DDIIFFFFEERREENNCCEESS
BBEETTWWEEEENN TTHHEE CCAASSHH BBOOOOKK AANNDD TTHHEE
BBAANNKK SSTTAATTEEMMEENNTT..
The bank balances as shown in the cash book and
the bank statement seldom agree. There are
various reasons for this. A statement is used to
reconcile the two balances.
There are some transactions recorded by the depositor but
missed by the bank.
Similarly, there are transactions appearing on the bank
statement and not recorded by the company.

16. o Unpresented cheques
• They are cheques issued by the firm that have
not yet been presented to its bank for payment.
o Deposit transit/uncredited cheques
• Cash receipts recorded by the depositor but not
included in bank statement.

17. o Service charges
They are charges made by the bank to the
company for banking services used.
o Dishonored cheques/NSF cheques
They are cheques deposited but subsequently
returned by the bank due to the failure of the
drawer to pay.

18. o Interest allowed by the bank
They are interest received for deposits or fixed
deposits.
o Miscellaneous bank charges and credits
 banks charge for services – such as printing
cheques, handling collection of notes receivable
and processing NSF cheques.

19. Rules
Some important rules for debit and
credit in bank reconciliation statement

20. 1. Unpresented cheques
•Cheques issued but not yet presented
•Cheques drawn but not enchased
•Cheques paid for payment but not cleared
•Cheques issued returned by bank on technical
grounds
DR/Cr D C
2. Uncredited cheques
• Cheques deposit but not credited by the bank
• Cheques paid into the bank but not cleared by bank
• Cheques sent to bank but not collected by bank
Dr + -
Cr - +
3. All types of income/credit memo/memorandum
• Income given by bank
• Income collected by bank
Dr + _

21. 4. Dishonored cheques
• Cheques received and deposited but dishonor
• Cheque issued but dishonor
5. If anything C. in the bank statement only
6. If anything Dr. in the bank statement only
CR (-) (+)
DR (+) (-)
Dr
Cr
(+)
(-)
(-)
(+)
7. Overstated/overcast
• Payment side of cashbook overstated
• Receipts side of cashbook overstated
8. Expenses paid by bank Cr. (-) (+) 9. expenses charged by
bank
• Bills directly paid bank charges
• Insurance premium service
charges
• Interest charged by bank interest on
overdraft
Dr
Cr
Cr.
(+)
(-)
(-)
(-)
(+)
(+)

22. In BANK STAEMENT.
ADD:-
•Deposit in Transit.
•Bank errors.
•Wrongly recorded
cheques.
LESS:-
• Outstanding cheques
• Unpresented cheques
• Unpaid cheques.
etc.

23. IN CASH BOOK :-
ADD :-
• Interest Earned
• Interest Received
• Notes Receivable
• Recording Error
LESS:-
• NSF cheques
•Service Charges
• Interest Allowed.

24. Steps
1. Check the bank statement and the cash book to see the
items which have been omitted.
2. Arrange the paid cheques in sequence by serial number
and compare each cheque with the corresponding entry
in the cheque register.
3. Add balance to the depositor’s accounting record(credit
memorannda) issued by the bank.
4. Deduct from the balance per the depositor record which
have not been recorded by the depositor.
5. Make appropriate additions or deductions to correct
errors.

25. Continued ...
6. Balance of B.S = Balance of cashbook
7. Prepare journal entries as adjustments

27. Balance as per Company’s
statement…………………………………………………………. $ 26,686.95
Add:
Interest earned……………………………………………….............. 80
Notes receivable ………………………………………………………….. 3663
Recording error ……………………………………………………………. 900
Subtotal …………………………………………………………………………4643
Less:
NFS checks ………………………………………………………………. 168.20
Service charges ………………………………………………………….. 19.45
Subtotal
…………………………………………………………………………………………………….
187.65
Adjusted cash balance (as above) ……………………………. $31142.3

28. Particulars L/F Debit Credit
Cash
4643
Interest earned
19.45
Notes receivable
168.20
Recording error
(To record interest earned, N/R and Recording error)
Service charges
Edward Jones (NSF)
Cash
(to record service charges by the Bank and NSF check by
Edward Jones)
80
3663
900
187.65
7B-3-B
Prepare journal entries to adjust the accounts of July
7B-3-C
What balance should be included in the balance sheet?
Bank Balance = 31142.3