BANK RECONCILIATION STATEMENTS
IT very rarely
happens in practice that the bank balance as shown by the Cash Book agrees with
the balance as shown by the Bank Statement. The three factors which contribute
to this difference are:
1. Unpresented cheques.
2. Uncredited cheques.
3. Errors and omissions.
1. Unpresented Cheques.
These are cheques which have been
dis- patched to suppliers in payment of their accounts, but which have not been
presented for payment to the payer's bank. According to the circumstances, a
period of from one to three days, will elapse before the cheque is presented
for payment, even assuming that the recipient pays the cheque promptly into his
own bank. In effect they are items which are entered on the credit side of the
Cash Book, and have not as yet been entered in the Bank Statement, so that the
latter will show a balance more in the customer's favour than that shown by the
Cash Book to the extent of such unpresented cheques, i.e. a larger balance due
to the customer or a smaller overdraft.
2. Uncredited Cheques.
These may be considered as the
reverse of unpresented cheques. As soon as cheques are paid into the bank the
Bank column of the Cash Book is debited. The bank, however, may not give credit
for these cheques immediately owing to the lateness of the hour or for other
reasons, so that the Cash Book will show a balance more in the customer's
favour than the Bank Statement.
3. Errors and Omissions.
An error, either on the part of the
customer, or the banker, will obviously create a discrepancy between the two
balances; further, at the end of every half-year the bank will enter in the
Bank Statement sums representing interest (in the event of the account having
been overdrawn) and commission, the exact amounts of which are unknown to the
customer until such time as he has seen the Bank Statement. In addition,
receipts or payments against Banker's Orders, and dividends and Bills of
Exchange collected or paid by the Bank may not have been entered in the Cash Book.
Banks do not normally allow interest on current accounts nowadays, but the
account may be credited with interest on a deposit account.
FORM OF THE BANK RECONCILIATION STATEMENT Subject to these
considerations, the balances shown by the Cash Book and the Bank Statement
should agree. It is usual to draw up a statement which effects the adjustments
necessitated by the unpresented and uncredited cheques. This statement is known
as a Bank Reconciliation Statement, and is drawn up on the following lines.
All the unticked items in the Cash Book (subject of course to any clerical errors) will be the unpresented cheques. The uncredited cheques will be found in a similar manner. The Bank Statement balance will then (a) be decreased by the amount of the unpresented cheques, or, in the case of an overdraft, increased by such amount, and (b) increased by the amount of the uncredited cheques, or, in the case of an overdraft, decreased by such amount. The figure now obtained (subject to errors) should be the same balance as shown by the Cash Book. If the student should at any time be at a loss as to which balance should be used as a base from which to start, to any errors or omissions arising therein, is the true and correct figure he should remember that the balance as shown by the Cash Book, subject
which forms the natural conclusion to the Statement
Many questions are set in which, in addition to particulars unpresented and uncredited cheques, the candidate is informed that there are various clerical errors in the Cash Book, e.g. incorrect figures, entries on incorrect sides or in wrong columns, omissions, etc. When dealing with a question of this type the true Cash Book balance should always be ascertain separately and the Reconciliation Statement prepared from the Bank Statement balance.
It is assumed that the Bank Statement is headed 'Bank in
account with A,' but in the accounting records of the bank the amount of £1,200
will actually be in credit, in which form Bank Statements are often written up,
the heading then being 'Customer in account with Bank'.
Detection of Errors
Errors 'not Affecting Balance. Although the Trial Balance
totals may agree, it is only the total arithmetical accuracy of the books that
may be said to be correct, though even then perfect accuracy is not assured,
for compensating errors may arise, e.g. both the Sales and Purchases figures
may be undercast to the extent of £100 each. The types of errors that may
remain undetected are as follows:
1. Errors of Omission.
The omission of both debit and credit
aspects of a transaction will not affect the agreement of the Trial Balance.
