Bank Reconciliation Statement

From time to time, the owners of business will require all information of the details of amounts paid into or withdrawn from the bank’s records and as well the information -as to the state of bank account, for this result, therefore, the bank supplies a passbook or statement of the account. This sometimes takes the form of an exact copy of the ledger account of the customer in the book of bank, and the amount paid is being shown on the credit side and amount withdrawn is on the other side shown on the debit side.

Most banks have adopted the practice of supplying this information to customers not in a bound passbook but on a loose sheet or statement in which the balance of the account can be retained and these statements also to be filed while a bound passbook must be returned periodically to the bank to’ be written up.

From all indications, traders and businessmen maintain their current accounts with their bankers to which they pay in their receipts and from which they withdraw their cheques in favour of their creditor. The bankers honour their customer cheques up to the limit of the amount standing to the customer’s credit in his book with a special arrangement; however, a banker will pay cheques in excess of this amount. In other words, quite unlike the cash accounts, the bank account could be overdrawn, that is, a customer withdraws more money than he has in his bank account to meet his business needs. By such accommodation, the customer’s account in the bank is shown as a debit, while customer credits his cashbook with the overdraft.

We can, therefore, note that where the account is withdrawn, the balance is written or printed in red ink. The account is then colloquially referred to as being in the red. It would be found many times that the balance as shown by the bank statement at a particular date differs from that disclosed by the cashbook of the business The difference may be caused by any of the following attributes: –

Unpresented Cheque

Some cheques which have been drawn on the bank account may have been entered on the credit side of the cashbook may not yet have been presented to the bank for payment and therefore have not been debited in the bank statement. This -in effect causes disagreement of cashbook ba1anc and that of bank balance.

Uncredited Cheque

Cheque received and paid into the bank may have been debited in the cashbook but may not yet have been credited by the bank and so may make it not to appear in the bank statement and thus can cause disagreement of both cash and both balance.

Bank Charges

Here, changes made by the bank for keeping the account interest on loans and overdrafts or other services may have been entered in the bank statement but not in the cash book and this consequently causes disagreement of both cashbook and bank balances.

Bank Standing Order

Here, the bank’s customer may have authorized the bank by bankers order to make certain regularly, recurring payments such as subscriptions to clubs, associations and charitables on his behalf as they become due. Since no cheques are drawn for these payments, they may not be entered in the cashbook until the bank statement and this shows that the payments which have been made, have been received.

The Dividends and Direct Payments

The customer may have authorized companies of which he is a shareholder to pay any dividends that is-due to him direct to his bank for the credit of his account; and such dividends received by the bank and credited to the customer’s account will appear in the bank statement, but may not yet have been entered in his cashbook and this consequently causes disagreement of both cash and bank balances. 

Dishournoured Cheque

Some cheque which may have been received and paid into the bank for collection may be “dishonoured’ that is, the banks on which the cheques are drawn may have refused to pay them, either because the drawers have not enough funds standing to their credit to meet them, or because there were some irregularities in the drawing of the cheques.

On the dishonour of a cheque, the collecting banker, (who has previously credited his customer with the amount of the cheque) will debit his account therewith, but the customers may not yet have made the necessary entry in his own cashbook.

When a cheque is first paid into the bank, the bank column of the cashbook is debited, but when the cheque is dishonoured (and the banker debit our cashbook), our cashbook must now be credited to reverse the entry; while the personal account of our debtor which had to be credited will be re-opened by a debit entry to the value of the debtedness and perhaps plus any charge arising from the dishonour.

In order to ensure that we reconcile the balance appearing in the cashbook with that shown by the bank statement, in the first place, it is necessary to compare and “tick of” the debits in the cashbook with credits in -the bank statement and vice-versa. If it is thee found that any item falling into categories 3,4,5 and 6 as shown above are not ticked in the bank statement, these must be entered on the appropriate sides of the cashbook and then posted therefore to the relevant account in the ledger.

Any discrepany still existing must now be attributed to factors 1 or 2 above or both of them. If cashbook had not been ticked, these will represent cheques drawn but not yet presented and let us assume that the account was not overdrawn, they must be deducted from the balance as per the bank statement in order to reconcile it with the cashbook balance. Unticked items on the debit side of the cashbook must be added to the balance as they represent sums included in the cashbook balance but not yet included in. the balance shown by the bank statement.

It has -been found out that in the process of ticking and unticking the item before reconciling, that there are two methods of reconciling which are: (I) the bank balance and (ii) the cashiers balance. These methods are the cashbook balance and the bank statement balance methods.

Note that the cashbook is sometimes adjusted with certain information as may be discovered in the bank statement. This is called the Revised/Adjusted cashbook.

Leave a Comment

not allowed!