Lecture on Bank Reconciliation Statement

Introduction

• Bank Reconciliation Statement: A financial document used to reconcile the business records with the bank statement.
• Purpose: To ensure that the records of cash transactions in the books match those provided by the bank.

Key Concepts

• Business and Bank Relationship:
  • The bank considers the business a creditor since it holds the business's money.
  • The business considers the bank a debtor as it holds the business's money.

Recording Transactions

• Books vs. Bank Statement:
  • Cash deposits in the business books are recorded as debits (asset increase).
  • In the bank statement, deposits appear as credits.
  • Withdrawals are credits in the books and debits in the bank statement.

Reasons for Differences

• Cash deposited late (e.g., end of the month) might not appear in the current bank statement.
• Errors by either the bank or business.
• Dishonored checks.
• Bank charges and interest might only be known after receiving the bank statement.
• Direct deposits or debit orders not yet recorded in the books.

Bank Reconciliation Process

1. Update Cash Journals: After receiving the bank statement, update the business's cash journals.
2. Transactions in Reconciliation Statement:
   • Record bank errors or missing transactions in the bank reconciliation statement.
   • Carry forward outstanding items from the previous month's reconciliation.

Handling Specific Items

• Outstanding Checks: Enter in the reconciliation statement if not in the bank statement.
• Direct Deposits: Record in the cash receipts journal.
• Bank Charges: Combine all charges except interest and record them in the cash payments journal.
• Errors: Adjust business errors in the cash journals; bank errors in the reconciliation statement.

Practical Example

• Task: Complete a bank reconciliation statement for Roteach Furnishers for October 2019.
• Steps:
  • Begin with the totals from cash journals before receiving the bank statement.
  • Identify differences between the books and bank statement through comparison.
  • Correctly place entries that didn’t appear in either the cash journals or bank statement.

Example Entries

• Discrepancies Noted:
  • Dishonored checks are corrected in the cash payments journal.
  • Debit orders direct from the bank need recording in the cash payments journal.
  • Bank charges and interest adjustments are made in the cash payments journal.
  • Direct account deposits are updated in the cash receipts journal.

Closing Process

• Confirm the balance in the reconciliation statement (debit and credit sides should equal).
• Use the updated general ledger balances to finalize the reconciliation statement.

Conclusion

• Understanding the bank reconciliation process is vital for accurate financial records.
• Regular reconciliations ensure discrepancies are identified and corrected in a timely manner.
• Thorough knowledge of credit, debit, and ledger entries is crucial for successful reconciliation.