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Important Terms used in bank reconciliation statement

Pass Book
It’s a statement of depositor’s account in the bank ledger. Cheques drawn and paid into the bank are recorded in this book.

When cash or cheque paid into the bank, it is credited in the passbook. When cheque issued or cash withdrawn from bank account, it is debited in the passbook

The bank statement
A statement issued by bank and sent it to the customer (business) showing the customer’s account balance and detail of transactions through bank

Unpresented cheques
Cheques drawn or paid by business and credited in cash book but these cheques have not yet been presented to bank for payment

Uncollected or uncredited cheques
Cheques received by business, paid into bank and debited in cash book but not yet cleared by bank and entered in its record. So, these cheques will not appear in bank statement

Dishonoured cheque
Cheque deposited or presented by customer that is not credited by bank for any reason like signature of customer does not match, insufficient funds etc

Bank charges
Banks charges are all kinds of charges or fees charged by the bank to its customer (Account holder). These charges include charges for providing the account, interest on overdraft, charges on transactions etc...

Standing order
A business can order bank to pay certain amount of money regularly at stated date to an individual or organization. For example a firm can ask bank to pay $500 as insurance premium on 5th of every month

Direct debits
In contrary to instructing your bank to pay certain amount money, you give permission to a person or an organization to obtain money directly from your account


The common items you need to look at while preparing bank reconciliation statement.

Adjustments to cash book

Dividend received and paid into business bank account but not yet enterered in cash book by business

Bank charges for its services, interest on overdraft charged by bank

Payment made from business bank account through standing order and direct debit.

Business paid cheque or received cheque and deposited in bank account but the cheque has been dishonored by the bank. The information of dishonor cheque might not yet received by businesses

Adjustments to bank statement

Cheques drawn or paid by business and credited in cash book but these cheques have not yet been presented to bank for payment (are called unpresented cheques)

Cheques received by business, paid into bank and debited in cash book but not yet cleared by bank and entered its record. So, these cheques will not appear in bank statement (are called uncollected or credited cheques )


EXAMPLE

On 31 January 2008 a company’s cash book shown a credit balances of $500 on its current account which did not agree with the bank statement balance. While performing reconciliation the following items were identified.

These items were not recorded in the cash book
Bank charges $100
Transfer from deposit account to current account $700

These item were not recorded in Bank statement
Unpresented cheques $200
Outstanding lodgements $300

It was also discovered that the bank had debited the company’s account with a cheque for $400 in error.

Requirement: what was the original balance on the bank statement?

To find out the original balance of bank statement, we first need workout the adjusted/correct balance of cash book



Cash Book

                       DESCRIPTION
AMOUNT
                        DESCRIPTION
AMOUNT

  Transfer from Deposit Account


$700

  Balance b/d
  Bank charges

  Balance c/d (Adjusted)


$500
$100

$100
                              TOTAL
$700
                               TOTAL
$700



Bank Reconciliation statement


Balance as per Cash book (Adjusted)
Add: Unpresented cheques

Less: Outstanding lodgements
         Error by Bank
Balance as per Bank statement (Original)
100
200

(300)
(400)

(400)