Basics Flashcards
bank statement?
a list of all cash receipts and withdrawals a business has made over time
managed by the bank
cash book?
accounting record of what a business believes it has in the bank
managed by the business itself (e.g., by an accountant / bookkeeper)
do the B/S and cash book always equal eachother?
no
they often disagree
reasons for differences between b/s and cash book?
- omissions
- timing differences
- errors
omissions?
relates to transactions that appear on the b/s but haven’t been recorded by the business
e.g., missing receipts, interest received, bank fees, bounced cheques
two main timing differences?
- deposits in transit
- outstanding cheques
deposits in transit?
relates to cash received by a bank, but doesn’t appear in the b/s till the following period
outstanding cheque?
cheque sent by a business, but doesn’t appear in b/s till the following period
errors?
errors can be made in the cash book or the b/s causing discrepancies
purpose of bank rec?
to identify discrepancies and bring the cash book into alignment with the b/s
why are bank recs done?
enables the cash book gives an accurate representation of the business
when do bank recs happen?
often happen monthly
large companies may do it weekly or daily
7 steps to prepare a bank rec?
- get copies of b/s and cash book
- set up bank rec template
- tick all of the matching transactions
- calculate adjusted bank statement balance
- calculate adjusted cash book balance
- check that the adjusted totals match
- prepare the necessary journal entries
bank rec template (b/s)
- unadjusted closing balance
- ADD deposits in transit
- DEDUCT outstanding cheques
- ADD/DEDUCT bank errors
- adjusted closing balance
bank rec template (cash book)
- unadjusted closing balance
- ADD/DEDUCT omissions
- ADD/DEDUCT errors in cash book
- DEDUCT bank fees
- DEDUCT bounced cheques
- adjusted closing balance
