Introduction
The bank reconciliation statement is commonly asked question in either IGCSE/O Level/AS Examination by the Cambridge University Accounting Examination in which they may seek various definitions, purposes, and the calculations related to this topic. I will discuss all along with bank reconciliation statement to clarify the answers to the questions being asked in the examinations.
What is Bank Reconciliation Statement?
It is a statement prepared by the businesses to reconcile the cash book balances with the bank statement balance at a particular date.
Purpose of Bank Reconciliation Statement
- Identifying and adding the items missing from cash book such as credit transfer, direct debit, standing order, and any bank service charges or commission etc.
- Identifying and adding the items missing from the bank statement and including them in the bank reconciliation statement, e.g. any cheque issued but not presented into the bank statement, any cheque received but not yet credited by the bank etc.
- Identifying any cash book error and correcting it in the business records
- Identifying any bank error and correcting it in the business records
Preparation of Bank Reconciliation Statement
Step # 1: Updated cash book is prepared with the items missing from cash book, e.g. credit side or the receipt side of the bank statement is compared with the debit side of the cash book, and debit side or the payment side of the bank statement is compared with the credit side of the cash book. Once done then balance carried down is calculated to bring the brought down on the opposite side of the updated cash book.
The debit or credit balance of the updated cash book is taken to the statement of financial position of the business either part of current asset if it is a debit balance and current liabilities if it is a credit balance.
Step # 2: Bank Reconciliation Statement is prepared with the items missing from the bank statement. This is done by comparing debit side of the cash book with the credit side of the bank statement. This will provide All the Uncredited Cheques or cash. On contrary to this, credit side of the cash book is compared with the debit side of the bank statement to identify any cheques issued to someone but not yet presented in the bank statement.
Finally, it is important to remember if the cash book balance is reconciled with bank statement balance and cash book balance is debit then unpresented cheques are added and uncredited cheques are subtracted. However, vice versa will apply if balance of cash book is credit balance.
The cash book errors are adjusted in the updated cash book and the bank errors are adjusted in the bank reconciliation statement.
Conclusion
Overall, Bank Reconciliation statement is settlement between business records and bank records to overcome any discrepancy among these two parties. The accuracy in calculation can be achieved by the students when they practice multiple questions.