1. What is a bank reconciliation statement?
Bank reconciliation statement is the comparison of a bank statement (sent by bank) with the cash book (prepared by business) in order to explore, identify, explain and to account for the difference between the cash book and bank statement balances
2. What are the reasons why cash book balance doesn’t agree with bank statement balance?
1) Errors or mistakes
Mistakes in calculation or in recording receipts and payments of cash in the cash book
Leaving out items in the cashbook
3) Time difference
Timing difference between a business and a bank in recording the transactions
3. Why do accountants prepare a bank reconciliation statement?
It prevents cash embezzlement and frauds
It is helpful in identifying errors and mistakes in a cashbook and bank statement
Bank reconciliation statement explains the reasons for the disagreement between cashbook and bank statement balances
4. What are Unpresented checks or outstanding checks?
Checks drawn or paid by the business and credited in cash book but these checks have not yet been presented to bank for the payment or cleared by the bank
5. What are Uncollected or uncredited cheques?
Checks received by business, paid into bank and debited in cash book but not yet cleared by the business bank and entered them in its books. Therefore, these checks will not appear in bank statement.
6. What are dishonour checks?
Also referred to as non-sufficient funds (NSF) check, dishonored check, bad check, hot check, cold check.
A check returned by the bank due to insufficient balance in the account on which the check was drawn. In other words a check presented for the payment but the amount written on check is exceeding the amount available in the bank account
7. What are favorable and unfavorable balances of a cash book?
The debit balance of a cashbook is referred to as a favorable balance while credit balance is considered as an unfavorable balance of the cashbook
8. What are favorable and unfavorable balances of a bank statement?
The credit balance of a bank statement is known as a favorable balance while debit balance is considered as an unfavorable balance
9. What is a Pass Book?
It’s a statement of depositor’s account in the bank ledger. Checks drawn and paid into the bank are recorded in this book.
10. Does overdraft appear to be debited or credited on bank statement?
Overdraft is debited in bank statement since in case of overdraft banks treat the customers same like debtors. On the other hand, the person or organization that has obtained the overdraft records overdraft as a liability and treat bank as a creditor which is why overdraft is credited in cash book.
11. What are the most common items needed to look at while preparing bank reconciliation statement?
They are listed below:
Adjustments to cash book such as Bank charges for its services, interest on overdraft charged by bank, standing order and direct debit, dishonored checks etc
Adjustments to bank statement like Unpresented checks, Uncollected or credited checks etc
12. What does “not sufficient funds” imply?
The term “not sufficient funds” implies that there are not sufficient funds available in your bank account so as to meet your demand for cash.
13. What is a deposit in transit?
Deposit in transit means that you have deposited cash into your bank account, but your deposit is still not processed or cleared to be used or shown as your bank balance.