This document discusses bank reconciliation statements. It outlines the learning objectives which are to understand differences between business bank account balances and bank statements, and prepare reconciliations. It explains reasons for differences can include transactions recorded in one book but not the other, or errors. The main aim of a bank reconciliation statement is to explain differences between the cash book and bank balances.

2. Bank Reconciliation Statements
12

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After studying this chapter, you should be able to:
 Understand a bank statement and use it as a check
against a business’s cash records
 Explain why there are differences between the
business’s bank account balance and the bank
statement
 Prepare the adjusted cash book (Bank column) for
cash items that are in the bank statement, but not in
the cash book
Learning Outcomes

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Fundamentals of Financial Accounting (SECOND EDITION)
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 List cash items which are already in the cash book,
but not in the bank statement
 Reconcile the balances in both the cash book and
the bank statement
 Draw up a bank reconciliation statement
Learning Outcomes (cont.)

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Fundamentals of Financial Accounting (SECOND EDITION)
© Oxford Fajar Sdn. Bhd. (008974-T), 2018 1–5
 Bank Balance in the company’s books very often
does not correspond to the balance in the Bank
Statement issued by the bank.
 There are many reasons for this difference. Some
require adjusting the Cash Book while others need
to be explained in a statement.
 The statement is known as a Bank Reconciliation
Statement. Therefore, preparing a Bank
Reconciliation Statement will help to bridge the gap
between the conflicting balances in the business
and in the eyes of the bank.
12.0 Introduction

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Fundamentals of Financial Accounting (SECOND EDITION)
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 It is more often than not for there to be differences
between the book and bank balances.
 It is important for the business entity to identify and
track the differences and adjust the company’s
books accordingly to ensure that the balance
shown is correct.
 An incorrect bank balance in the books may lead to
an overdrawn account and avoidable overdraft
fees. A bank reconciliation statement is also an
important document during annual audit
procedures.
12.1 Importance of Bank
Reconciliation Statements

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Fundamentals of Financial Accounting (SECOND EDITION)
© Oxford Fajar Sdn. Bhd. (008974-T), 2018 1–7
 There are three main reasons for this difference:
– The transactions have been recorded in the cash
book but not in the bank statement.
– The transactions have been recorded in the bank
statement but not yet recorded in the cash book.
– Bookkeeping errors may be made either by the bank,
the business or both.
12.2 Reasons for Differences
Between Book Balance and
Bank Balance

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Fundamentals of Financial Accounting (SECOND EDITION)
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 Transactions that have been credited in the cash
book, but have not yet been debited in the bank
statement (e.g. unpresented cheques)
 Transactions that have been debited in the cash
book, but have not yet been credited in the bank
statement (e.g. uncredited cheques/uncredited
lodgements)
12.2.1 Transactions recorded in
cash book (but not in bank
statement)

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Fundamentals of Financial Accounting (SECOND EDITION)
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 Transactions that have been credited to the bank
statement, but not yet debited to the cash book,
(e.g. interests from the savings, credit transfer from
debtors, dividends received by the bank on behalf
of the business)
 Transactions that appear on the debit side of the
bank statement, but no recording has yet been
made on the credit side of the cash book (e.g.
charges on various services by the bank, payment
for chequebooks, interests on overdrafts,
dishonoured cheques)
12.2.2 Transactions recorded in
bank statement (but not in cash
book)

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 Misstatement in the cash book (e.g. RM563
recorded as RM356, other transactions that are
posted wrongly)
 Details in the bank statement may have been
wrongly stated (e.g. wrong amounts of payment
recorded, wrong accounts debited by mistake)
12.2.3 Errors in cash book
and/or bank statement

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 The main aim of preparing the Bank Reconciliation
Statement is to explain the difference between the
cash book and the bank balances.
12.3 Preparing a Bank
Reconciliation Statement

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12.3 Preparing a Bank
Reconciliation Statement (cont.)

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12.3 Preparing a Bank
Reconciliation Statement (cont.)

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 Sometimes, a business may be given an overdraft
facility to its current account with a bank.
 An overdraft is shown as a credit balance in the
cash book and a debit balance in the bank
statement.
12.4 Bank Reconciliation
Involving Overdrafts