13 - Bank reconciliations

Question 1

what is the cash book used for

Answer 1

to record the detailed transactions of receipts and payments into and out of the bank account

Question 2

what is a bank statement used for

Answer 2

provides an independent record of the balance on the bank account but this is unlikely to agree exactly to the cash book balance so a reconciliation is required

Question 3

what are the main differences between the cash book balance and the bank statement

Answer 3

1. timing differences
2. the cash book has not yet been updated to include items that already appear on the bank statements

Question 4

what are the timing differences between the cash book balance and the bank statement

Answer 4

main time differences:

1. unrecorded lodgements = money paid into the bank but not appearing as a receipt on bank statement
2. unpresented cheques = the time difference between receiving a cheque and it clearing is a temporary time difference

Question 5

examples when the cash book has not yet been updated to include items that already appear on the bank statements

Answer 5

• standing orders (SO)
• direct debits (DD)
• BACS direct credits (eg salaries and money received electronically from credit customers)
• bank charges
• interest (received or changed)
• counter credit (cash/cheques paid into a business bank account by someone in business)