Bank Reconciliation Statement

How to calculate bank reconciliation statemen without cash book.

What is Bank Reconciliation

Bank Reconciliation Statement s the verification of all the entries in the bank statement with the bank book of the business. First, let understand what bank statement and cash book mean. A bank statement is the financial statement showing the details of all the transactions that the business had made through the bank account. While cash book is subsidiary book in which all cash transactions of receipts and payments are recorded.

Definition of Terms

Bank charges: This is money deducted from the entity account by the Bank to cover the cost of looking after the account.

Unpresented cheque: Is a cheque draw but not yet been presented at the drawer’s bank.

Uncleared cheque/ effect: Are bank cheque that passed through the clearing system but not yet cleared. It appears on the debit side of the cash book.

Dividend: This is direct dividend receive into bank account.

Standing order: This is an order given to the bank to pay a fixed sum of money at regular intervals from one’s bank account to a designated payee. e.g. paying rent, paying utility bill etc.

Advantage of standing order

  • It helps to save the repeated drawing cheque;
  • They help to save spending money on stationery and postage and
  • it is certain that payments are made on the due date.

Disadvantages of standing order

  • There are bank charges for such services.

Dishonoured Cheque: This is cheque rejected by Bank.  Top 11 of what will give rise to dishonoured cheque

  • When cheques are not signed or signed incorrectly (i.e. Irregular Signature)
  • No date shown on the cheque
  • When the cheque is mutilated
  • Insufficient funds in the account to meet the cheque
  • Alteration on the cheque without endorsement by the drawer’s signature.
  • Stale cheque: This is one that is more than 6months old. But is still valid after 6months if confirm from the drawer by the bank.
  • The death of the drawer
  • Non-existing account
  • Frozen account
  • Posted dated cheque: When the drawer of a cheque has insufficient funds to meet the amount of the cheque but expects to have sufficient in the future date the cheque in advance of the drawing date.
  • When payment is stopped by government authority.

Top 5 discrepancies between cash book and bank statements?

  • Dishonored  Cheque (debit bank Statement).
  • Standing Order (debit bank statement).
  • Bank charges (debit bank statement)
  • Credit Transfer (Credit bank statement)
  • Dividend (Credit bank statement)

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How to prepare bank reconciliation statement