Lecture Notes 2

Now that you understand what a bank reconciliation is and the factors that account for the difference in balances between the Cash Book and the Bank Statement, we will now focus our attention on the preparation of an updated cash book and the bank reconciliation statement.

Steps in preparing the Updated Cash Book and Bank Reconciliation Statement
1. Finding Common Items and Identifying Differences Match the Receipts Cash Book [DR side] with the Lodgements [CR column]of the Bank Statement Place a tick beside common items and an 'x' beside single items. - items on the cashbook, but not on the bank statement, represents late lodgements or      lodgements not yet credited. These items are dealt with in the Bank Reconciliation Statement. - items on the Bank Statement, but not in the Cash Book, will increase the Cash Book balance. They are therefore debited to the updated Cash book balance.

Match the Payments Cash Book [CR side] with the Withdrawals [DR column] of the Bank Statement Place a tick beside common items and an 'x' beside single items. - items in the cash book, but not on the bank statement, represents unpresented cheques. These are dealt with in the Bank Reconciliation Statement. - items on the bank statement but not in the Cash Book, will decrease the cash book balance. They are therefore credited to the updated cash book.

2. Correcting the Cash Book Balance Having matched the documents, the next step is to correct the or update the cash book. Be sure to: a. use the correct heading b. start with the closing balance on the old Cash Book c. enter all items identified in step 1 on the correct sides d. balance the updated cash book

3. Reconciling the Cash Book and the bank Statement You will notice that the balances on the cash book and the bank statement are still different. The final step is to prepare the Bank Reconciliation Statement with the items identified in the cash book, but not on the bank statement. Be sure to: use the correct heading a. start with the new Balance on the Corrected Cash Book b. enter all items identified in step 1. c. add unpresented cheques d. subtract late lodgements or logdements not yet credited See sample layout of the Bank Reconciliation Statement.

Alternate layouts of the Bank Reconciliation Statement It is possible that you might start the Bank Reconciliation Statement with either of the following: a. an overdraft balance as per cash book The procedure remains the same, however you must take into account the fact that adding to a      negative figure. b. the balance as per bank statement In this instance, you will need to do the opposite, that is, add what is normally subtracted and and subtract what is normally added. See samples.

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