Bank Reconciliation

Question 1

State two reasons why a business should COMPARE its bank statement to its cashbook

Answer 1

• In cashbook but not on bank statement:
  
  • CHEQUES not PRESENTED for payment at bank
  • DEPOSITS not yet CREDITED by the bank
• On bank statement but not in cashbook:
  
  • Standing orders, credit transfers, direct debits, bank
    charges, bank interests, dishounored cheques

Question 2

Explain why a POSITIVE bank balance appears as a debit in the cashbook, but as a credit on the bank statement

Answer 2

The cashbook is the business’ record where it is an ASSET. Bank statement is the bank record where the business is a CREDITOR.

Question 3

Define bank reconciliation

Answer 3

To reconcile the bank balance according to the bank statement with the bank balance of the Cash Book

Question 4

What is the PURPOSE of a Bank Reconciliation Statement?

Answer 4

The main purpose is to explain the difference between the Cash Book and the Bank Statement.

Question 5

Why is it possible that there would be DIFFERENCES in the records?

Answer 5

• Different times of recording: unpresented cheques & uncleared deposits.
• A business not recording certain items in the Cash Book but which has already being recorded by the bank. Eg. Bank charges

Question 6

Define a BANK OVERDRAFT

Answer 6

It is the balance owed to the bank, because more money

was spent than was available in the current account.