Principles of Bookkeeping controls Bank Statement and Cash Book Flashcards
lesson 2
What two accounts need to be compared to do a bank reconcillaition
Cash Book and Bank statement
Our bank statement and bank account are two different things and their DR and CR are swapped round. The bank statment is what we use for the reconcillaiton.
What is a DR and CR on the bank statement
Usually DR is assets in the bank.
For the bank statement, assets in the bank are CR
What would a balance c/f on the CR of a bank statement mean
money in the bank
(Usually DR is assets in the bank. For the bank statement, assets in the bank are CR)
When we complete a bank reconciliation, we compare the Bank statement and Cash book. This is due to timing differences. What are the two timing differences
- Outstanding lodgements - business has banked the money but it has not yet gone through. Its in the cash book but not in the statement
- Unrepresented checks - business has written a cheque but not yet gone through. Its in the statement but not in the Cash book
Reconciling process - going through both Bank statement and Cash book. Matching them off and then noting down the things that dont match in a statement.
In exam examples the balance b/f on both statements wont match and they will have the difference in a payment somewhere
In this example, the balance b/f on both do not match when they should.
What is the difference between the two and where can this difference be rectified
Difference is £126.28. f we look at the bank statement, there is a cheque for that same amount, so this difference can be matched to that
In the bank statement, there are two unmatched transactions in pink. These need to be added to the Cash Book. Which side of the Cash book will it be recorded?
Cash book DR (money in/ reciepts), CR (money going out)
On the CR side as it is cash going out.
Payments in the bank account means payments we are making
Where do we get the ‘Balance as per Bank Statement’ number from on the Bank Statement to put into the reconciliation statement
The right column details the balance of the account (swings into DR balance or CR balance depends on what is coming in and out). At the bottom of the statement, that is the final transaction, so whatever is noted there is the final amount.
Dr is always minus, and CR is plus (CR side is all the assets (opposite to bank account))
photo showing the bottom bank number being put into the reconciliation statement
In the cash book, what do the DR and CR sides mean
All cash receipts are recorded as DR (payments coming in) , and all cash payments are recorded by date as CR (payments going out)
Fill out the Reconciliation Statement using the Bank account and Cash Book
-The things not highlighted are the things not matching to anything
- We only use what is missing in the cash book to do bank reconcillation and it is stuff getting added to the bank statement that are missing.
TO ADD - things on the DR cash book (money coming in)
LESS - things on CR cash book (money going out).
anything going into DR cash book is CR on Bank Statement so the add/less statements are interchangable
What is BACS (direct credits) and BACS (direct debits)
Different payment methods
BACS (direct credits): business use this to make regular payments of variable amounts (wages, regular suppliers). Set up by person who is making the payment. Takes 3 working days
BACS (direct debits): same thing but set up by person who is receiving the payment
What is a bank draft and what sort of payments is it used for
Different payment methods
Bank draft is a written document created by the bank stating who it is paying and how much. It cannot bounch back even if the account doesnt have sufficient funds
use for large, high-cost items that the seller needs guarantee of payment (e.g car/caravan)
How long does a cheque take to clear
3 days
Describe each payment method
1. Faster payments
2. Debit card
3. Standing order
- Faster payments- same day electronic transfer. Takes about 2 hours
- Debit card - everyday expenses and cash withdrawl
- Standing order - regular payment of same amount
CHAPS is a type of payment method. What is it
- CHAPS: clearing house automated payments system : high value same day payments (buying property)
Answer- Bank draft as it is a large, high-cost item that the seller required guarantee payment will be made. Bank draft is written document created by the bank stating who it is paying and how much. Cannot bounce back
cash as small amount and the retailer is physically taking the parcel there
match this Cash Book and Bank Statement
highlighted in green do not match the Cash Book
Any payments in statement goes in CR of cash book
note- All cash receipts are recorded as DR (payments coming in) , and all cash payments are recorded by date as CR (payments going out)
What is an unpresented cheque and what side of the Cash Book would this be on if we recieved one from a customer
note- All cash receipts are recorded as DR (payments coming in) , and all cash payments are recorded by date as CR (payments going out)
check that a payer has created, but which the bank on which the check is drawn has not yet made a corresponding payment to the payee
Would be in DR side as the money is coming in, it just hasnt got to the bank yet
What is a dishonoured cheque and what side of the Cash Book would this be on if we recieved one from a customer
note- All cash receipts are recorded as DR (payments coming in) , and all cash payments are recorded by date as CR (payments going out)
When a bank refuses to process a cheque you have submitted. One from a customer means we have not received the payment from the customer.
DR side of cash book - similar to unpresented cheque as they both mean payment is owed/coming in, but just has not been recieved yet
