Topic 7: Bank Reconciliation Statements

Question 1

What is the purpose of a Bank Reconciliation Statement?

Answer 1

1. It helps check the accuracy of bookkeeping in the Cash Book (detects errors made by us in the Cash Book). It can also detect errors made by the Bank on the Bank Statement (even though not very common), Regular Bank Reconciliations facilitate error-free accounts and accurate financial statements.
2. It helps to check and prevent fraud as the Bank Statement is an independent record produced by the bank. E.g. If an employee makes out a cheque to himself and does not record it in the CB, it will eventually appear in the BS when cashed.
3. Helps to find the correct amount of money held at the bank (to be recorded in the Statement of Financial Position)
4. It helps a business control its Cash Flow.
5. It identifies dishonored cheques, out-of-date cheques, uncredited lodgements, and uncredited cheques.

Question 2

What are the limitations of the Bank Reconciliation Statement?

Answer 2

)1. It is time-consuming and costly to prepare.

2. Accounting knowledge is necessary.
3. Does not identify all possible errors.