chapter 11: bank reconciliation

Question 1

define bank reconciliation

Answer 1

document prepared by the business to reconcile the bank balance according to the bank statement and the bank balance of the cashbook

Question 2

explain the need to compare the bank account with the bank statement

Answer 2

• to identify deposits/ credit transfers which are not yet reflected on the bank statement
• identify EFT payments done by the business but not yet appearing on the bank statement
• to identify errors in the bank account or bank statement
• to assist in revealing any fraud or embezzlement that might have been committed in the business

Question 3

explain the causes and effects of differences between the bank statement and bank account (mostly causes)

Answer 3

because of:
items appearing in the bank statement but not the cash book
- bank charges and other interests on our account
- debit orders, standing/ stop orders or direct debits
- money directly deposited or credit transfers into the bank account
- errors and omissions made in the bank statement
items appearing in the cashbook but not in the bank statement
- EFT payments not reflected
- outstanding deposits
- errors and omissions made in the cash book

Question 4

describe the procedure to reconciling the bank account with the bank statement

Answer 4

step 1; check if the cashbook bank balance is different from the last balance in the bank statement
step 2; if different, compare the debit side of the cash book with the credit side of the bank statement (scratch out all entries that are the same)
step 3; then compare the credit side of the cash book with the debit side the bank statement
step 4; items that are not in the cashbook must be used to update the bank account of the cashbook
step 5; items not in the bank statement must be used to prepare a ank reconciliation statement