Transcript Bank Reconciliation - Wynberg Boys' High School

Bank Reconciliation
•Businesses keep track of their money in the bank by
completing a Cash Receipts Journal, a Cash Payments Journal
and then posting these to the Bank account in the General
Ledger.
•Similarly, the bank keeps track of all the money transactions
with each business.
•The Bank’s version of what has happened will be a mirrorimage of the business’s version. i.e. it will be the opposite.
•This is because to the business, money in the bank is an
asset, whereas to the bank, the business is a creditor to whom
they owe money.
The bank account in the ledger and
the current account at the bank
• Therefore when the bank says we have a
credit balance, it means we have money in
the bank, but if the bank says we have a
debit balance, then we are in overdraft.
• Every time we put money into the bank we
will enter this in the CRJ and thus debit the
bank account, while the bank will credit our
account. (and vica versa)
Bank Statements
• Banks keep a separate account for every
person and every business who has an
account with them.
• At the end of each month they send a copy of
these accounts to each of their customers.
This copy is called a bank statement.
Example of a Bank Statement
The bank account in the ledger and the
bank balance at the Bank
• One would think that the balance which
appear in the bank statement at the end of
the month would be the same as the balance
in the businesses bank account in the General
Ledger.
• However this is almost never the case!
• WHY?
The bank account in the ledger and
the bank balance at the Bank
• The reason for this is time and information.
• The bank will always have information that the
business is unaware of as yet (such as how much
has been charged by the bank for bank charges
for the month).
• There will be information which the business
knows about, but the bank is still unaware (such
as a cheque that has been issued by the business,
but not yet presented at the bank for payment).
The purpose of Bank Reconciliation
• The objective of Bank Reconciliation is to ensure
that all entries in the Cash Receipts Journal and
the Cash Payments Journal appear on the Bank
Statement
• And to ensure that all entries of the Bank
Statement appear in the business’s Cash journals.
• The Bank Reconciliation Statement shows the
entries which the Bank still has to process, while
we will add any missing entries from the Bank
Statement in our CRJ and CPJ.
The steps of bank reconciliation
1.Compare the businesses records with the
bank’s records (note all differences).
2.Complete the Cash Receipts Journal and Cash
Payments Journal (add on the missing Bank
statement information)
3.Post the updated CRJ and CPJ to the Bank
account in the General Ledger.
4.Complete the Bank Reconciliation Statement
(add on the missing CRJ/CPJ information)
1.
Compare the businesses records with
the bank’s records
• Each entry in the Bank column of the Cash Receipts
Journal represents a deposit into the bank.
• Tick off each entry that appears in the Bank column
and in the Bank Statement. Circle any entry that does
not appear in both places. You may have circled items
in the Cash Receipts Journal – these are the items the
business knows about, but not the Bank; and you may
have circled items in the Bank Statement – these are
the items the Bank knows about before the business.
2.
Complete the Cash Receipts Journal
and Cash Payments Journal
• The business is now in a position to update its
books (i.e. The Cash Journals), with all the
entries which only the bank knows about.
• In other words all deposits which are circled in
the Bank Statement must be inserted into the
Cash Receipts Journal, and all cheques and
payments which are circled in the Bank
Statement must now be inserted into the Cash
Payments Journal. The journals are then totalled
3.
Post to the Bank account in the
General Ledger
• The updated totals of the Bank columns from
the CRJ and the CPJ in the journals are posted
to the Bank account in the General Ledger and
the account is balanced.
• The business can now compare the balance to
that of the Bank Statement, but it is still
unlikely to balance since you have not yet
updated the banks information.
4.
Complete and balance the Bank
Reconciliation Statement
• The Reconciliation Statement is used to enter
transactions which the bank still needs to
process. Those items that are circled in the Cash
Receipts Journal and Cash Payments Journal (i.e.
the items which only the business has recorded
so far) must be inserted into the Bank
Reconciliation Statement
• First insert the balance as per the bank statement
and the balance as per the bank account.
• The Bank Reconciliation Statement should
balance if you have done everything correctly.
Note to remember
• In practice the Cash Journals are not totalled
until the Bank Statement has been received
and the information updated.
• However, for our purposes we total the Cash
Journals before the comparison with the Bank
Statement so that you begin your journals
with the totals for the month so far, rather
than having to rewrite all the entries for the
month.
Worked example
• Check the circled amounts in CRJ/CPJ and Bank
statement.
General Rules
• Circled CRJ amounts go to Bank Recon Credit
column
• Circled CPJ amounts go to Bank Recon Debit
column
• Bank statement credits go to CRJ
• Bank statement debits go to CPJ
• NB – first check Additional information!!