Chapter 2: Bank Reconciliation

Question 1

Accounting Standards:

Answer 1

• Bank reconciliation is not directly addressed by a specific PFRS or PAS. However, it is essential for ensuring that financial statements comply with standards related to cash and cash equivalents, such as PAS 1 (Presentation of Financial Statements) and PAS 7 (Statement of Cash Flows).

Question 2

Scope of the Applicable Standard:

Answer 2

• PAS 1: Ensures the proper presentation of financial statements.
  
  • PAS 7: Governs the reporting of cash flows, which would include reconciliations to ensure accuracy.

Question 3

Bank reconciliation

Answer 3

A process that compares and matches the balances of an entity’s accounting records for a cash account to the corresponding information on a bank statement.

Question 4

Recognition

Answer 4

• Initial Recognition: When transactions involving cash or cash equivalents occur, they are recorded in the company’s accounting system as per PAS 1.
  
  • Subsequent Recognition: Regular reconciliations are performed to ensure that recorded cash transactions align with bank statements, adjusting for any discrepancies.

Question 5

Measurement

Answer 5

• Initial Measurement: Cash and cash equivalents are measured at their nominal value at the time of the transaction.
  
  • Subsequent Measurement: Adjustments are made during bank reconciliation to reflect the accurate cash position, considering outstanding checks, deposits in transit, bank fees, and errors.

Question 6

Journal Entries:

Answer 6

Example Journal Entries:
- To record bank fees not previously accounted for:
Dr. Bank Fees Expense
Cr. Cash in Bank

• To correct an error in recording a payment:
  Dr. Accounts Payable (or relevant expense account)
  Cr. Cash in Bank

Question 7

Presentation

Answer 7

• In financial statements, reconciled cash balances are presented as cash and cash equivalents on the balance sheet, as required by PAS 1 and PAS 7.

Question 8

Disclosure

Answer 8

• Disclosures related to cash and cash equivalents should be made in the notes to the financial statements. This may include:
• The policy for determining cash and cash equivalents.
• Any significant cash management arrangements.
• Details of any restrictions on cash balances (PAS 7).