The document provides a detailed overview of bank reconciliation, including its purpose, processes, and common discrepancies between cash books and bank statements. Key concepts include identifying errors, updating the cash book, and preparing bank reconciliation statements, emphasizing the importance of monthly reconciliation for accurate bookkeeping. Various illustrations showcase practical examples of how to handle discrepancies and prepare reconciliation statements effectively.

1. ABFA1163 FINANCIAL ACCOUNTING II 1
Lecture 5: Bank Reconciliation
Learning Objectives
After you have studied this chapter, you should be able to:
 explain the purpose of bank reconciliation statement
 explain the reasons for the differences between the Cash Book and the
Bank Statement
 identify errors made in the Cash Book and those made by the bank
 update the Cash Book and prepare the bank reconciliation statement
1 Cash Book
o Prepared by the proprietor/company to record the business
transactions by cash and cheque.
o Debit receipts (deposits) and credit payments (withdrawals).
2 Bank Statement
o Prepared by the bank and sent to clients at the end of each month (for
current account only), itemising the opening balance, deposits into
and withdrawals from the account during the period, and the closing
balance.
o Debit withdrawals and credit deposits by the client.
o Clients who are overdrawn (debit balance) are short-term receivables
to the bank and clients with excess balance (credit balance) are short-
term payables to the bank.
3 Bank reconciliation statement
o Prepared by the proprietor/company to compare the Bank Statement
with the Cash Book, in order to identify and explain the errors and
differences between the two and finally, to reconcile the closing
balances between the two.
o Bank reconciliation statement is a necessary internal control activity
that must be undertaken every month to ensure that book-keeping
records of the proprietor/company are accurate and there are no errors
in the bank’s records.
4 Differences between the Cash Book closing balance and the Bank
Statement closing balance:
(i) Bank charges/interest, other payments or receipts – items in the Bank
Statement not yet recorded in the Cash Book of the business. The
Cash Book will need to be revised.
o The bank might DEDUCT:
 bank charges for services rendered to the business,
such as bank overdraft facilities, banker’s cheques/ bank
draft, telegraphic transfer of funds, etc.
 stamp duty on cheque book.
 bank interest on loan/overdraft.
 direct debit payments (this is an instruction by the
business to the bank to make direct payments for
amounts owing to certain suppliers).
 standing order payments (this is an instruction by the
business to the bank to make certain fixed amount of
payments every month, such as insurance premium,
rental, loan repayment instalments, etc.
o The bank might ADD:
 credit transfer, which is amount paid by customers
directly through bank transfer.
 dividend/ interest received which have been
credited directly into the bank account.
 There might be other transactions which the business
has not been informed about it until when the Bank
Statement is received eg. Inter-Bank Giro
Transaction (IBG)*
Important Textbook Reading:
 Chapters 12 & 30: Frank Wood & Alan Sangster “Business Accounting 1”-14th
edition

2. ABFA1163 FINANCIAL ACCOUNTING II 2
*Inter-Bank Giro (IBG) is now widely used currently as banks
encourage the use of e-banking and discourage the use of cheques
by increasing the fee/charge for issuing cheques.
(ii) Time difference – items already recorded in the Cash Book, not in
appearing in the Bank Statement. The bank reconciliation statement
will need to be prepared to explain the two types of transactions not
yet taken up by the bank:
o Uncredited lodgement
There are some cheques received and deposited into the bank
account, but not yet 'cleared'. This receipt has already been
debited into the Cash Book, but not yet acknowledged by the
bank – although it will be in a very short time when the cheque
is eventually cleared.
o Unpresented cheque
There are some cheque payments where recipients have delayed
in depositing into their bank accounts. This payment has already
been credited from the Cash Book, but not yet withdrawn from
the bank account.
(iii)Errors in calculation or recording incomes and payments – most
errors are likely to be made by the business rather than by the bank,
but it is conceivable that the bank makes mistakes too.
o Errors in the Cash Book
 recording errors, omissions, casting errors, entries on the
wrong side (debit or credit side)
 the Cash Book will need to be revised
o Errors made by the bank
 cheque withdrawals from other clients wrongly entered,
deposits by other clients wrongly entered, errors in bank
charges/interest
 the bank reconciliation statement will need to explain the
errors
5 Format of bank reconciliation statement:
Bank Reconciliation Statement as at …
RM RM
Balance as per Bank Statement X
Add:
Uncredited lodgement X
Error by the bank X
XX
Less:
Unpresented cheque X
Error by the bank X
(XX)
Balance as per Cash Book XX
!Quiz
Which amount should be shown in the
Statement of Financial Position as “Bank”
under current assets?

3. ABFA1163 FINANCIAL ACCOUNTING II 3
Lecture Illustration 1: Items in the Cash Book, not in the Bank Statement
Cash Book (bank columns only)
RM Cheque No. RM
Balance b/d 2,500 Furniture 12501 600
Sales 800 T. Payables 12502 970
Commission received 780 Purchases 12503 550
T. Receivables 1,200 Salary 12504 500
Balance c/d 2,660
5,280 5,280
Balance b/d 2,660
Bank Statement as at …
Withdrawal
(Dr)
Deposit
(Cr) Balance
RM RM RM
Balance 2,500
Cheque 12501 600 1,900
Cheque 12502 970 930
Deposit 800 1,730
Analysis of items in the Cash Book, not in the Bank Statement:
i) Uncredited lodgements (already debited in the Cash Book, but not yet
credited in the Bank Statement):
 Commission received RM780
 T. Receivables RM1,200
ii) Unpresented cheques (already credited in the Cash Book, but not yet
debited in the Bank Statement):
 Cheque no. 12503 (Purchases) RM550
 Cheque no. 12504 (Salary) RM500
Solution:
Bank Reconciliation Statement as at …
RM RM
Balance as per Bank Statement 1,730
Add: Uncredited lodgements
- Commission received 780
- T. Receivables 1,200 1,980
3,710
Less: Unpresented cheques
- Cheque no. 12503 550
- Cheque no. 12504 500 (1,050)
Balance as per Cash Book 2,660

4. ABFA1163 FINANCIAL ACCOUNTING II 4
Lecture Illustration 2: Items in the Bank Statement, not in the Cash Book
(continuation from Lecture Illustration 1)
Cash Book – same as in Example 1.
Bank Statement as at …
Withdrawal
(Dr)
Deposit
(Cr) Balance
RM RM RM
Balance 2,500
Cheque 12501 600 1,900
Cheque 12502 970 930
Deposit 800 1,730
Interest on fixed deposit 70 1,800
Standing order 120 1,680
Bank charges 20 1,660
Cheque book 15 1,645
Credit transfer 150 1,795
Dividend received
IBG fund transfer
105
100
1,900
2000
Analysis of items in the Bank Statement, not in the Cash Book:
i) Receipts in the bank account (already credited in the Bank Statement, but
not yet debited in the Cash Book)
 Interest on fixed deposit RM70
 Credit transfer RM150
 Dividend received RM105
 IBG fund transfer from other bank via e-banking RM100
ii) Standing order (already debited in the Bank Statement, but not yet
credited in the Cash Book) RM120
iii) Bank charges (already debited in the Bank Statement, but not yet credited
in the Cash Book) RM20
iv) Cheque book (already debited in the Bank Statement, but not yet credited
in the Cash Book) RM15
Solution:
Revised Cash Book (bank columns only)
RM RM
Balance b/d Standing order
Interest received Bank charges
Credit transfer Cheque book
Dividend received
Fund transfer
Balance c/d
Balance b/d 2,930
Bank Reconciliation Statement as at …
RM RM
Balance as per Bank Statement
Add: Uncredited lodgements
- Commission received
- T. Receivables
Less: Unpresented cheques
- Cheque no. 12503
- Cheque no. 12504
Balance as per revised Cash Book 2,930

5. ABFA1163 FINANCIAL ACCOUNTING II 5
Lecture Illustration 3: Bank Overdraft
Cash Book (bank columns only)
RM RM
May 15 Jaya Bhd 450 May 1 Balance b/d 3,000
28 Soda & Co 215 9 Johan Sdn Bhd 190
31 Balance c/d 3,220 18 Equipment 600
25 Mei Enterprise 95
3,885 3,885
June 1 Balance b/d 3,220
Bank Statement as at 31 May
Withdrawal
( Debit)
Deposit
(Credit) Balance
RM RM RM
May 1 Balance 3,000 Dr
11 J Ltd 190 3,190 Dr
18 Cheque 450 2,740 Dr
20 Interest 55 2,685 Dr
23 Standing order 170 2,855 Dr
25 Bank charges 30 2,885 Dr
31 Direct Credit 950 1,935 Dr
Analysis of items in the Cash Book, not in the Bank Statement:
i) Uncredited lodgement (already debited in the Cash Book, but not yet
credited in the Bank Statement):
 Soda & Co RM215
ii) Unpresented cheques (already credited in the Cash Book, but not yet
debited in the Bank Statement):
 Equipment RM600
 Mei Enterprise RM95
Analysis of items in the Bank Statement, not in the Cash Book:
i) Receipts in the bank account (already credited in the Bank Statement, but
not yet debited in the Cash Book)
 Interest RM55
 Direct credit RM950
ii) Standing order (already debited in the Bank Statement, but not yet
credited in the Cash Book) RM170
iii) Bank charges (already debited in the Bank Statement, but not yet credited
in the Cash Book) RM30
Solution:
Revised Cash Book (bank columns only)
RM RM
May 31 Interest received May 31 Balance b/d
“ Direct credit “ Standing order
“ Balance c/d “ Bank charges
June 1 Balance b/d 2,415
Bank Reconciliation Statement as at 31 May
RM RM
Balance as per Bank Statement
Add: Uncredited lodgement
- Soda & Co
Less: Unpresented cheques
- Equipment
- Mei Enterprise
Balance as per revised Cash Book (2,415)

6. ABFA1163 FINANCIAL ACCOUNTING II 6
Lecture Illustration 4: Difference in Opening Balances
Cash Book (bank columns only)
RM Chq RM
June1 Balance b/d 750 June 15 Insurance 109 170
8 Sales 330 20 Purchases 110 25
25 K Ltd 180 28 Yok S/B 111 175
29 Zeta & Co 112 100
30 Balance c/d 790
1,260 1,260
July 1 Balance b/d 790
Bank Statement as at 30 June
Withdrawal
(Debit)
Deposit
(Credit) Balance
RM RM RM
June 1 Balance 310
2 Cheque 108 110 200
3 Deposit 550 750
10 Deposit 330 1,080
17 Cheque 109 170 910
21 Cheque 110 250 660
25 Credit transfer 300 960
30 Bank charges 80 880
Solution:
Reconciliation of opening balances as at 1 June
RM
Opening balance as per Bank Statement
Add: Uncredited lodgement
Less: Unpresented Cheque
Opening balance as per Cash Book 750
Revised Cash Book (bank columns only)
RM RM
June 30 Balance b/d June 30 Bank charges
“ Credit transfer “ Error in Cash
Book
“ “ Balance c/d
July 1 Balance b/d 785
Bank Reconciliation Statement as at 30 June
RM RM
Balance as per Bank Statement
Add: Uncredited lodgement
- K Ltd
Less: Unpresented cheques
- Cheque no: 111
- Cheque no: 112
Balance as per revised Cash Book 785

7. ABFA1163 FINANCIAL ACCOUNTING II 7
Lecture Illustration 5: Adjustments of error in the Cash Book
As at 30 September, the balance in the Cash Book of Warisan Enterprise was
RM80,515 on debit side. Bank Statement on the same date showed a credit
balance of RM111,230.
On investigation of the difference between the two sums, it was established
that:
(i) Cash book had been undercast by RM9,000 on the debit side.
(ii) Cheques deposited but not yet credited by bank amounted to
RM20,820.
(iii) Cheques drawn but not presented to the bank amounted to RM42,535.
Required:
(a) Show the correction to the Cash Book,
(b) Prepare a statement reconciling the balance per Bank Statement to the
balance per Cash Book.
Solution:
(a) Revised Cash Book (bank columns only)
RM RM
Sep 30 Balance b/d Sep 30 Balance c/d
“ Error in Cash
Book
Oct 1 Balance b/d 89,515
(b) Bank Reconciliation Statement as at 30 September
RM RM
Balance as per Bank Statement
Add: Uncredited lodgements
Less: Unpresented cheques
Balance as per revised Cash Book 89,515
Lecture Illustration 6: Adjustment of error in the Bank Statement
On 31 January, a firm’s Cash Book showed a credit balance of RM1,500 on
its current account, which did not agree with the balance in Bank Statement.
During the reconciliation, the following points were noted:
RM
Not recorded in Cash Book
Bank charges 360
Direct debit 4,500
Transfer from fixed deposit account 5,000
Not recorded in Bank Statement
Unpresented cheques 9,160
Uncredited lodgements 4,300
It was also discovered that bank had debited the firm’s account with a
cheque of RM1,000 in error. What was the balance on the Bank
Statement?
Solution:
Revised Cash Book (bank columns only)
RM RM
Jan 31 Transfer from
fixed deposit
Jan 31 Balance b/d
“ Balance c/d “ Bank charges
“ Direct debit
Feb 1 Balance b/d 1,360
Bank Reconciliation Statement as at 31 January
RM RM
Balance as per Bank Statement (bal. fig.)
Add: Uncredited lodgement
Error by the bank
Less: Unpresented cheques
Balance as per revised Cash Book (1,360)

8. ABFA1163 FINANCIAL ACCOUNTING II 8
Lecture Illustration 7: Finding the Bank Statement balance
A company’s Bank Statement shows RM7,150 direct debit and RM3,530
investment income that were not yet recorded in the Cash Book. The Bank
Statement does not show a customer’s cheque of RM8,750 and a cheque
payment of RM4,000 for the purchase of a second hand motor van, which
have already been entered in the Cash Book on the last day of the accounting
period.
If the Cash Book shows a debit balance of RM6,100, what is the balance that
appears on the Bank Statement?
Solution:
Revised Cash Book (bank columns only)
RM RM
Balance b/d Direct debit
Investment income Balance c/d
Balance b/d 2,480
Bank Reconciliation Statement as at …
RM RM
Balance as per Bank Statement (bal. fig.)
Add: Uncredited lodgement
Less: Unpresented cheque
Balance as per revised Cash Book 2,480
Lecture Illustration 8:
On 30 June, Carmen’s Cash Book showed that she had an overdraft of
RM3,000 on her current account at the bank. A Bank Statement as at the end
of month June showed that she was in credit with the bank by RM650.
On checking the Cash Book with the Bank Statement, you find the following:
(i) Cheques drawn amounting to RM5,000 had been entered in the
Cash Book but had not been presented.
(ii) Cheques received amounting to RM4,000 had been entered in the
Cash Book but had not been credited by the bank.
(iii) On 29 June, Carmen instructed the bank to transfer interest
received on her deposit account amounting to RM600 to her
current account. Carmen had credited this amount in the Cash
Book on 29 June. On the other hand, the bank had wrongly
delayed the transfer, which was made only on 3 July, the next
month.
(iv) Bank charges RM35 and a standing instruction to pay insurance
premium of RM315 had not entered in the Cash Book.
(v) The payment side of Cash Book had been undercast by RM100.
(vi) Dividend received amounting to RM2,500 had been paid direct to
the bank and not entered in the Cash Book.
(vii) A cheque issued to Johnny for RM250 was replaced when it
became outdated. It was entered again in the Cash Book, no other
entry being made. Both cheques were included in the total of
unpresented cheques shown in (i) above.
Required:
(a) Indicate the appropriate adjustments in the Cash Book.
(b) Prepare a statement reconciling the amended balance with that shown in
the Bank Statement.

9. ABFA1163 FINANCIAL ACCOUNTING II 9
Solution:
Revised Cash Book (bank columns only)
RM RM
June
30
(iii) Interest rec’d
wrongly credited
June
30
Balance b/d
“ (iii) Interest rec’d “ (iv) Bank charges
“ (vi) Dividend
rec’d not recorded
“ (iv) Standing order
“ (vii) Chq outdated “ (v) Payment u/cast
“ Balance c/d
July 1 Balance b/d 500
Bank Reconciliation Statement as at 30 June
RM RM
Balance as per Bank Statement
Add: Uncredited lodgements (ii)
Interest received not yet credited (iii)
Less: Unpresented cheques (i)
Cheque to Johnny cancelled (vii)
Balance as per revised Cash Book 500
Please click the link below for the steps to do bank reconciliation:
https://www.youtube.com/watch?v=HLkN6hwi3DM
https://www.youtube.com/watch?v=7x-W_xFCD2A