Topic 2 B: Cash book and the bank reconciliation

statement.

LECTURER: DR. E. F. MABONESHO

OFFICE: E007 – BLOCK E
BY THE END OF THIS TOPIC YOU SHOULD BE ABLE TO
• Prepare cash book
• Explain the meaning of bank reconciliation concept
• Explain the importance of bank reconciliation
• Discuss the causes of different balance between cash book and bank
statement.
• Explain the bank reconciliation procedures
• Prepare an adjusted cash book
• Prepare a bank reconciliation statement
DONE IN THE LAST
LECTURE
A bank reconciliation is a report prepared by a company/a
business at a point in me. It identifies discrepancies between
the cash balance reported on the bank statement and the
cash balance reported in a business’s Cash account in the
general ledger.
 It is prepared from time to time to check discrepancies
between the bank column of the cash book and the bank
statement balances
 The discrepancies checked and reconciled, the act of
reconciling is called bank reconciliation
 To identify errors in Cash book and thereafter rectify them,
that is to check the accuracy of the cash book
 Detection of any delay or error that has been committed by
the bank
 Discourages any manipulation by accountants
 Finding out actual position of bank balance and cash book
 Timing differences
1. Cheque deposited but not cleared (uncredited cheques)
2. Cheque issued but not presented for payment (unpresented
cheques)
3. Bank Charges/Interest debited/credited in bank account.
4. Direct payment/receipt by bank
5. Deposit in transit
 Differences due to different treatments in Cash book and Bank
Statement(on different dates)
 Transaction not recorded or double recorded in cash book.
 Other differences due to clerical errors such as wrong amount, wrong
casting, etc in cash book
 Timing
differences
1. Cheque deposited but not cleared (uncredited cheques)
 Received and debited to C/B not yet credited in the bank statement
 Cash book shows more favourable balance than that of bank statement
 Adjustment - crediting (removing) the amount in C/B to reconcile with that
of bank statement
2. Cheque issued but not presented for payment (unpresented cheques)
 Paid and credited to C/B not yet debited in the bank statement
 Cash book shows more unfavourable balance than that of bank statement
 Adjustment - debiting (adding) the amount in C/B to reconcile with that of
bank statement
 Timingdifferences
3. Bank Charges/Interest debited/credited in bank account.
 Debited in (reduced) in the bank statement but not yet credited (reduced) in (C/B)
 To adjust C/B, Credit the C/B to reduce the amount as in bank statement
4. Direct payment/receipt by bank
 Credited in (increase) in the bank statement but not yet credited (reduced) in (C/B)
 To adjust C/B, debit the C/B to increase the amount as in bank statement
5. Deposits in transit (outstanding deposits). You have recorded these deposits,
but the bank has not. Add deposits in transit on the bank reconciliation.
There are FOUR important steps:
1. Check the bank statement and the cash book to identify the
difference
2. Compare entries in the Cash Book and Bank statement, mark
the common entries.
3. Update the cash book with any omissions, errors, items which
are on the bank statement but not in the cash book.
Example: Credit transfers (debit cash book)
Bank interest (debit cash book)
Bank charges (credit cash book)
4. Prepare the bank reconciliation statement buy adjusting the
bank statement using the entries found in the cash book but not
in the bank statement
 Traditionally,
the comparison of the cash book with the bank
statement is done manually by using a tick (√) symbol to mark
every transaction in the cash book against the corresponding
item on the bank statement.

 Currently,
with information technology, this process can be
performed by reconciliation software.
 There are two common forms of bank reconciliation:
1. The cash book balance is adjusted to reconcile with the bank
statement balance. Or the bank statement balance is reconciled
to the cash book balance or
2. Both the bank statement balance and the cash book balance are
reconciled to a correct bank balance (entries found in the bank
statement but not in cash book are recorded in cash book and
those not found in bank statement but found in cash book are
adjusted in bank statement)
 Required:
May Dr. Cr. Balance Prepare the bank reconciliation
1 Opening balance -57,000
3 123456 150,000 -207,000 statement as at 31st May 2020
14 Sundry credit 210,000 3,000 a) From the cash book and the bank
18 Interest 24,000 -21,000
20 Sundry credit 350,000 329,000
statement to the corrected bank
22 123457 220,000 109,000 balance
24 Standing order – rent 10,000 99,000 b) By adjusting the C/B balance to
25 Sundry credit 531,000 630,000
26 Credit transfer – Mills 25,000 655,000
bank statement balance.
28 423460 100,000 555,000
31 123459 405,000 150,000

Cash Book (Bank Column)

May TZS May TZS
14 Cheque from G. Smith 210,000 1 Balance b/d 57,000
20 Cash Sales 350,000 3 Electricity 123456 150,000
25 Cheque from F Jones 410,000 22 Wages 123457 222,000
25 Cheque from R Black 121,000 23 Purchases 123458 415,000
31 Cheque from W Wayne 196,000 30 Rent 123459 405,000
31 Balance c/d 9,000 31 Purchases 123460 47,000
1, 296,000 1 296,000
 Bank Reconciliation Statement as at 31st May 2020
Corrected Cash Book Balance
Details TZS
Balance as per cash book -9,000
Add : Credit transfer - Mills 25,000
Error related to wages payment in the cash book 2,000
18,000
Less: Bank interest charge 24,000
Standing order 10,000
Corrected bank balance -16,000
Balance as per bank statement 150,000
Add : Uncredited deposit 196,000
Bank error – cheque drawn by the other client 100,000
446,000
Less: Unpresented cheques - 123458 415,000
-123460 47,000
Corrected bank statement balance -16,000
 Bank Reconciliation Statement as at 31st May 2020
Adjusting Cash Book Balance
Details TZS
Balance as per cash book -9,000
Add : Credit transfer - Mills 25,000
Error related to wages payment in the cash book 2,000
Unpresented cheques - 123458 415,000
-123460 47,000
480,000
Less : Bank interest charge 24,000
:Standing order 10,000
: Uncredited deposit 196,000
Bank error – cheque drawn by the other client 100,000
Balance as per bank statement 150,000
Example 2
Mr. S. Shama cash book balance on 30th April, 2020 showed an overdrawn
position of TZS 3,630,000, however the his bank statement show a debit balance
of TZS 3,078,000. Detailed examination of the two records revealed the following:
1. The debit side of the cash book had been undercast by TZS 300,000.
2. A cheque for TZS 1,560,000 in favour of Miss. Aisha has been presented to
the bank but the bank has wrongly debited to another Asha bank account.
3. A deposit of TZS 1,080,000 on 30th April had not been credited by the bank.
4. Interest amounting to TZS 228,000 had been debited by the bank but not
entered in the cash book.
Required:
a) Reconcile the balance of the cash book and bank statement to the correct
bank balances
b) Reconcile the cash book balance to the balance of the bank.
Suggested Solutions
Bank Reconciliation Statement as at 30.4.2020 Bank Reconciliation Statement as at
TZS 30.4.2020
Balance as per cash book (3,630,000) TZS
Add: Debit side of cash book undercast 300,000Balance as per cash book (3,630,000)
Add: Debit side of cash book 300,000
(3,330,000)
undercast
Less: Interest not entered in cash book 228,000Less: Unpresented cheque 1,560,000
Balance as per corrected cash book 3,558,000 (Bank error)
balance (1,770,000)
Less: Interest not entered in 228,000
Balance as per bank statement (3,078,000) cash book
Less: Uncredited deposit 1,080,000
Add: Deposit on transit 1,080,000 (Deposit in transit)
(1,998,000) Balance as per bank 3,078,000
Less: Cheque omitted (Bank error) 1,560,000 statement
Balance as per corrected cash book (3,558,000)
balance
EXAMPLE: Reconcile the Cash Book and the Bank Statement Balances of Mr. Key - 30th May 2020
Cash Book (Bank Column) Required:
May TZS May TZS Prepare the bank
1 Cheque from A Smith 1,900,000 1 Balance b/d 160,000
15 Cheque from B Roy 1,000,000 9 Rates 123462 2,300,000 reconciliation statement
16 Cash Sales 4,500,000 19 Purchases 123463 5,050,000 as at 31st May 2020
30 Cheque from X York 1,100,000 29 Wages 123464 1,200,000 a) From the cash book
30 Cheque from Z Rock 3,010,000 30 Balance c/d 2,800,000 and the bank
1 1,510,000 1 1,510,000 statement to the
Bank statement corrected bank
May Dr. Cr. Balance balance
1 Opening balance -160,000 b) By adjusting the C/B
1 Sundry credit 1,960,000 1,800,000 balance to bank
1 Cheque deposited from Suppliers 1,900,000 3,700,000 statement balance.
9 Cheque paid in by Mr. B. Boy 1,000,000 4,700,000
9 123462 2,300,000 2,400,000
25 Sundry credit 5,500,000 7,900,000
29 123464 1,200,000 6,700,000
30 Closing balance 6,700,000