Bank reconciliation statements

Purpose of bank reconciliation statements

- It is to explain the difference between the bank statement balance and the bank
account balance as per cash book.

Bank statement

- It is a copy of the account of the business as it appears in the books of the bank.
- The bank statement must be compared with the bank account in the cash book. If
the balances differ it is necessary to reconcile them, that is explain why the
difference has arisen.
Reasons for differences between cash book balance and bank statement balance.

Items appearing in the cash book, but not in the bank statement

1. Cheques not yet presented (unpresented cheques)

- these are cheques that have been paid by the business and credited in the cash
book, but which do not appear in the bank statement.

2. Amounts not yet credited

- these are cheques and other amounts which have been debited in the cash book,
but which do not appear in the bank statement.

3. Cash book errors.

Items appearing in the bank statement but not in the cash book.

1. Standing order
- this is an instruction to our bank to pay specified amounts at specified dates.

2. Direct debit

- this is when we give permission for an organization to collect amounts owing direct
from our bank account.
-

Mr Maposa (AccountingCoach): +263 774 741 041 Page 1

 3. Credit transfers

- this is when a person has instructed his/her bank to pay an amount of money
directly into the bank account of the business.

4. Bank charges and bank interest

- this refers to the amount that the bank takes from the firm’s account to cover costs
of running the account, and for any interest on loans and overdrafts the business
may have.

5. Dishonoured cheques

- these are cheques that have been refused by the bank.

6. Bank errors.

Reasons why a cheque may be dishonoured

a. Errors on the cheque for example an amount written $1000 in figures and one
hundred dollars in words or wrong signatures.
b. The cheque may have been a stale cheque (these are cheques over six months
old, which will not be paid by the bank.)
c. Insufficient funds in the account of the customer.

Mr Maposa (AccountingCoach): +263 774 741 041 Page 2

Procedure for preparing a bank reconciliation statement

Step 1

- Compare the bank columns of the cash book and the bank statement.
- Tick all those receipts and payments which can be found in both the cash book and
the bank statement.
- When this has been done, there may be some unticked items in the cash book and
some unticked items in the bank statement.

Step 2

- Bring the cash book up to date by entering the unticked bank statement items into
the cash book and calculate the new balance.
- Correct any errors in the cash book if there are any.

Step 3

- Enter the unticked cash book items into the bank reconciliation statement.

Format of the bank reconciliation statement

Balance as per updated cash book X

Add unpresented cheques X
X
Less amounts not yet credited (X)
Balance as per bank statement X

Mr Maposa (AccountingCoach): +263 774 741 041 Page 3

Illustration

L. Khumalo cash book (bank columns only) for the month of April 2015 was as follows

Cash book (bank columns)

Date Details $ Date Details $
2015 2015
April 1 Balance b/d 2 500 April 3 S. Jena 500
4 C. Musa 300 M. Chabaya 450
12 Cash 600 12 D. Gunn 150
29 Cash 565 10 Fidelity Co 80
27 Drawings 350
30 Balance c/d 2 435
3 965 3 965
May 1 Balance b/d 2 435

He received the following statement from the bank on 1 May 2015.

Bank Statement
Date Details Debit Credit Balance
April 2015 $ $ $
1 Balance 2 500 cr
4 Cheque No. 10108 500 2 000 cr
5 Deposit 300 2 300 cr
6 Cheque No. 101109 450 1 850 cr
12 Deposit 600 2 450 cr
15 Dividends 50 2 500 cr
20 Stop order (HC C) 100 2 400 cr
22 Commission 10 2 390 cr
25 Credit transfer (S. Ndou) 160 2 550 cr
28 Charges 15 2 535 cr
29 Cheque No. 10112 350 2 185 cr

Mr Maposa (AccountingCoach): +263 774 741 041 Page 4

Required

a. Bring the cash book up to date and balance it at 30 April 2015

b. Prepare a statement, under its proper heading, to reconcile the updated cash book
and the balance in the bank statement on 30 April 2015
c. Prepare Khumalo’s statement of financial position showing the balance at bank.

Mr Maposa (AccountingCoach): +263 774 741 041 Page 5

Solution

a.

Cash book (updated)

Date Details $ Date Details $
April April
30 Balance b/d 2 435 30 Stop order (HCC) 100
Dividend 50 Commission 10
S. Ndou 160 Bank charges 15
30 Balance c/d 2 520
2 645 2 645
May
1 Balance b/d 2 520

b.

Bank reconciliation statement at 30 April 2015

$
Balance as per updated cash book 2 520
Add: unpresented cheques:
- D. Gunn 150
- Fidelity Co 80
2 750
Less: Amounts not yet credited
- Cash (565)
Balance as per bank statement 2 185

Mr Maposa (AccountingCoach): +263 774 741 041 Page 6

 Statement of financial position (extract) at 30 April 2015
$ $
Current assets
Cash at bank 2 520

NB

Amount shown in the statement of financial position is the balance as per updated cash
book. (The business cannot use the balance as per bank statement because it is not a record
of the business)

Mr Maposa (AccountingCoach): +263 774 741 041 Page 7

Practice questions

Question 1

Janet is a trader. Her financial year ends on 31 May. The bank columns of her cash book for
the month of May 2018 were as follows:
Date Details $ Date Details $
May 2018 May 2018
1 Balance b/d 4 420 9 Mulenga 872
12 MT Traders 628 16 Operating expenses 250
30 Cash 1 000 28 P. Mabika 780
30 Balance c/d 4 146
6 048 6 048
Jun 1 Balance b/d 4 146

Janet’s business bank statement for May 2018 was as follows:

Bank Statement
Date Details Debit Credit Balance
May 2018
1 Balance 4 420 cr
9 Direct debit - electricity 720 3 700 cr
11 Dividend (credit transfer) 124 3 824 cr
18 Mulenga 872 2 952 cr
19 MT Traders 628 3 580 cr
22 Operating expenses 250 3 330 cr
28 MT Traders (dishonoured) 628 2 702 cr
29 Interest 100 2 802 cr
30 Bank charges 22 2 780 cr

Mr Maposa (AccountingCoach): +263 774 741 041 Page 8

Required:

a. Update Janet’s cash book. Bring down the updated cash book balance on 1 June
2018.
b. Prepare the bank reconciliation statement for Janet at 31 May 2018.

Mr Maposa (AccountingCoach): +263 774 741 041 Page 9

Question 2

Sasha’s cash book (bank columns only) for the month of June 2021 was as follows

Cash book (bank columns)

Date Details $ Date Details $
2021 2021
June 1 Balance b/d 1 250 Jun 3 Len 250
3 James 150 4 Benj 225
14 Cash 300 22 Brita 75
29 Nyika 283 25 TD Insurance 40
27 Drawings 175
30 Balance c/d 1 218
1 983 1 983
July 1 Balance b/d 1 218

She received the following statement from the bank on 1 July 2021

Bank Statement
Date Details Debit Credit Balance
Jun 2021 $ $ $

1 Balance 1 250
4 Cheque No. 201 250 1 000
5 Deposit 150 1 150
6 Cheque No. 203 225 925
15 Deposit 300 1 225
15 DM Ltd – credit transfer 50 1 275
24 Direct debit - water 180 1 095
26 Insurance refund 210 1 305
28 Bank charges 25 1 280
29 Cheque No. 203 175 1 105

Mr Maposa (AccountingCoach): +263 774 741 041 Page 10

Required

a. Bring the cash book up to date and bring down the balance on 1 July 2021

b. Prepare a statement, under its proper heading, to reconcile the updated cash book
and the balance in the bank statement on 30 June 2021.

Mr Maposa (AccountingCoach): +263 774 741 041 Page 11

Illustration

Balance as per updated cash book is an overdraft

The following are extracts from the cash book and bank statement of Rumbi Hair Salon.

Cash book (Bank Columns)

Date Details $ Date Details $
June 2019 June 2019
1 Balance b/d 2 600 1 Hair Chemicals 4 100
5 T. Tenda 900 7 City Council 3 200
9 C. Vera 1 200 11 Beauty Care Ltd 1 600
16 O. Okra 650 14 Power Utility 1 900
24 J. Tenda 1 100 24 Hair Chemicals 5 000
26 C. Chenai 750
30 Balance c/d 8 600
15 800 15 800

Bank Statement
Date Details Debit Credit Balance
2019 $ $ $
June 1 Balance 2 600 cr
6 Deposit 900 3 500 cr
11 Deposit 1 200 4 700 cr
12 0041 4 100 600 cr
0042 3 200 2 600 dr
18 Deposit 650 1 950 dr
29 Deposit 1 100 850 dr
30 0044 1 900 2 750 dr
Insurance Ltd 470 3 220 dr
Dividends 1 430 1 790 dr
Bank Charges 610 2 400 dr

Mr Maposa (AccountingCoach): +263 774 741 041 Page 12

Required

a. Update the cash book [5]

b. Draw up the bank reconciliation statement on 30 June 2019 [7]

c. Prepare the statement of financial position (extract) at 30 June 2019

Mr Maposa (AccountingCoach): +263 774 741 041 Page 13

Practice questions

Question 1

Paula Richards sells men’s clothing. She has received a bank statement for her business
account dated 24 November 2011. The figures shown on the bank statement are correct.
Her cash book balance at that date did not agree with the closing balance on her bank
statement.

Cash book
Date Details $ Date Details $
Nov Nov
16 P. Hunter 80 16 Balance b/d 988
22 M. Burns 255 16 K. Hill 208
22 Umar Alan 136
24 Balance c/d 725
1 196 1 196

Bank statement
Dr Cr Balance
Nov
16 Balance b/f 988 dr
18 P. Hunter 80 908 dr
20 Bank charges 85 993 dr
24 Umar Alan 136 857 dr
24 Bank interest 46 811 dr
24 P. Hunter 80 891 dr
24 Direct debit SM Ltd 316 1 207 dr

Required

Mr Maposa (AccountingCoach): +263 774 741 041 Page 14

 a. Make the necessary entries in Paula’s cash book. Dates are not required. Bring down
the balance at 24 Nov 2011.
b. Prepare the bank reconciliation statement at 24 November 2011.

Mr Maposa (AccountingCoach): +263 774 741 041 Page 15

Question 2
The cash book of Yasmin Bukera shows a bank overdraft of $8 292 at 30 November 2009.
The balance shown on the bank statement at that date does not agree with the balance
shown in the cash book. The following points are discovered.

1. A direct debit payment of $242 on 26 November 2019 has not yet been entered in
the cash book.
2. A cheque payment of $1 500 on 28 November 2019 for rent has been entered in the
cash book but has not yet been presented to the bank.
3. On 30 November 2019, the bank credited the account with interest of $56. This
amount has not been entered in the cash book.
4. A cheque received for rates refund of $45 on 29 November 2019 has been paid into
the bank and entered in the cash book. The transaction is not shown on the bank
statement.
5. A cheque paid on 26 November 2019 appears on the bank statement as $515 but
has been entered in the cash book as $551.

Required

a. Make the necessary entries in the cash book of Yasmin Bukera and show the
updated balance at 30 November 2019. Dates are not required. [6]
b. Prepare a bank reconciliation statement for Yasmin Bukera that clearly shows the
balance on the bank statement at 30 November 2019. [5]

Mr Maposa (AccountingCoach): +263 774 741 041 Page 16

Question 3
Alan produces a monthly bank reconciliation statement. On 1 August 2013 Alan’s cash book
showed a debit balance of $1 690 while his bank statement showed a credit balance of $1
634. The following items appeared on the statement but not in the cash book.
$
Bank charges 61
Direct debit (water rates) 205
Standing order (rent) 1 000
Credit transfers received
Diga 658
Howat 512

The following items were in the cash book but not on the bank statement.

$
Cash sales deposited 1 112
Cheque to supplier
Nash 701
Zamir 451

a. Update Alan’s cash book. Bring down the updated bank balance on 1 August 2013.
[7]
b. Prepare Alan’s bank reconciliation statement at 1 August 2013. [5]

Mr Maposa (AccountingCoach): +263 774 741 041 Page 17

Question 4

On 31 January 2015 David Jones balanced his cash book and brought down a debit balance
of $114 on 1 February. The bank statement showed a credit balance of $154 on 31 January
2015.

A comparison of the cash book and the bank statement revealed the following.

$
1. Items appearing only in the cash book
Cash from sales paid into the bank on 28 January 235
Cheque paid to M Sharp, a credit supplier 490

2. Items appearing only on the bank statement

Bank charges 62
Cheque received from K Taylor, a credit customer, 143
dishonoured
Insurance premium paid by standing order 40
Interest on deposit account paid directly into the bank 130

3. The total of the debit side of the cash book had been overcast 100

Required

a. Update the cash book of David Jones. Bring down the updated bank balance on 1
February 2015. [6]
b. Prepare a bank reconciliation statement for David Jones at 31 January 2015. [6]
c. State whether the cash book balance or the bank statement balance should be
shown in David Jones’ statement of financial position at 31 January 2015. Give a
reason for your answer. [3]
d. State two reasons why David Jones’ bank manager would be interested in his
financial statements. [2]

Mr Maposa (AccountingCoach): +263 774 741 041 Page 18

Question 5

Ottoman compared his cash book with the statement from his bank at 30 September 2010.
The balance on Ottoman’s cash book (bank column) was $850 Dr. The balance shown on his
bank statement was $1 660. The cash book was checked against the bank statement and the
following differences were found.

i. Cheques totalling $250 issued to creditors had not been presented for payment.
ii. Rent received of $800 paid directly into the bank on 30 September did not appear in
the cash book.
iii. Bank charges of $60 were shown on the bank statement but had not been entered in
the cash book.
iv. Cash sales recorded as $1200 were shown on the bank statement correctly as $1500.
v. A cheque received from Hans for $480 and deposited at the bank on 28 September
has been entered in the cash book but has not yet been shown on the bank
statement.

Required

a. Prepare Ottoman’s updated cash book. Balance the cash book at 30 September 2010
and bring down the balance. [8]
b. Prepare a bank reconciliation statement at 30 September 2010. [7]
c. Name the heading under which bank will be shown in Ottoman’s statement of
financial position on 30 September 2010. [1]
d. State the amount which will be entered for bank in Ottoman’s statement of financial
position on 30 September 2010. [1] - [Total: 23]

Mr Maposa (AccountingCoach): +263 774 741 041 Page 19

Reasons for preparing bank reconciliation statements

- To discover items not entered and errors in the cash book.

- To ensure that the cash book entries are complete. Items missing from the cash book
will not have been entered in other ledger accounts and the business records will be
unreliable.
- To discover bank errors.
- To discover dishonoured cheques.
- To monitor stale cheques (those which have not been banked by the payees within
six months)
- To check on fraud.

Mr Maposa (AccountingCoach): +263 774 741 041 Page 20

Bank reconciliation - errors
Illustration
Jane Sharma is a trader. Her financial year ends on 30 April. The bank columns of her cash
book for the month of April 2008 were as follows:

Date Details $ Date Details $

Apr 2008 Apr 2008
1 Balance b/d 2 210 9 Mashatu stores 436
12 Lobatse Traders 314 16 General expenses 125
30 Cash 500 28 Ghanzi & Co 390
30 Balance c/d 2 073
3 024 3 024
May 1 Balance b/d 2 073

Jane Sharma’s business bank statement for April 2008 was as follows:

Bank Statement
Date Details Debit Credit Balance
April 2008
1 Balance 2 120 cr
10 AB Insurance 360 1 760 cr
11 Dividend (credit transfer) 62 1 822 cr
17 Mashatu stores 436 1 386 cr
18 Lobatse Traders 314 1 700 cr
21 General expenses 125 1 575 cr
29 Lobatse Traders (dishonoured) 314 1 261 cr
30 Bank charges 11 1 250 cr

The following errors were discovered:

1. The cash book balance brought down on 1 April should have been $2 120.

Mr Maposa (AccountingCoach): +263 774 741 041 Page 21

 2. The bank had credited dividend received, $62, to Jane Sharma’s business bank
account instead of her personal account.
Required:

a. Update Jane Sharma’s cash book. Bring down the updated cash book balance on
1 May 2008.
b. Prepare the bank reconciliation statement for Jane Sharma at 30 April 2008.

Mr Maposa (AccountingCoach): +263 774 741 041 Page 22

Practice Question

Grace Ngema is a trader. Her financial year ends on 31 August. The bank columns of her
cash book for the month of August 2011 were as follows:

Cash Book (bank columns only)

Date Details $ Date Details $
Aug Aug
1 Balance b/d 54 4 Equipment 1 300
11 Paul Ndlovu 117 17 Jane Abbasi 129
30 Sales 490 28 Omega Supply 284
Balance c/d 1 052
1 713 1 713
Sep
1 Balance b/d 1 052

Grace Ngema’s business bank statement for August 2011 was as follows:

Bank statement at 31 August 2011

Aug Debit Credit Balance
1 Balance 154 154 Cr
2 Rent received (credit transfer) 200 354 Cr
7 ABC Insurance Co 50 304 Cr
10 Equipment 1 300 996 Dr
18 Paul Ndlovu 117 879 Dr
22 Jane Abbasi 129 1 008 Dr
30 Bank charges 39 1 047 Dr

The following errors were discovered.

1. The cash book balance brought forward on 1 August 2011 should have been
$154.

Mr Maposa (AccountingCoach): +263 774 741 041 Page 23

 2. The bank has debited $50 for an insurance premium to Grace Ngema’s business
account instead of her personal account.
Required

a. Update Grace Ngema’s cash book. Bring down the updated cash book balance on
1 September 2011. [7]
b. Prepare a bank reconciliation statement for Grace Ngema at 31 August 2011. [8]

Mr Maposa (AccountingCoach): +263 774 741 041 Page 24

Mr Maposa (AccountingCoach): +263 774 741 041 Page 25