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Items on bank reconciliation statement

The following items appear on the bank statement but not in the cash book. They need journalized entries for them to be adjusted in the company’s books and accounts. They appear as adjustment items on the bank reconciliation statement.


Bank lodgements

Bank lodgements are the company’s cash deposits into own bank account. All cash deposits are shown on the bank statement except those made on the last few days of the month. They may not appear on the bank statement of the same month. They appear on the following month’s statement and these are the deposits in transit. Deposits in transit cause the bank statement to understate the company’s actual cash balance. As all cash deposits will have been recorded correctly in the cash book by the end of the month, those not appearing on the bank statement must be added to the balance as per bank statement.


Bank interest and service charges

Banks impose various charges on account holders such as account fees, charges for dishonoured cheques, rental fees for safe-deposit boxes, printing fees, interest on overdraft and other charges. These are some of the items whose amounts a keeper of the cash book does not know until the bank statement on which these charges appear is received. Once the statement is received, the charges are adjusted in the cash book. These charges are deducted from the cash book balance on the bank reconciliation statement.

Interest earned. Banks pay interest on current accounts and this is an income to the company as account holder. This interest income is not known and not taken into the company’s cash book until the bank statement is received. It is added to the cash book balance on the bank reconciliation statement.


Bank charges are an expense item and so should be debited as shown on this journalized adjusting entry

Date Accounts Folio Debit Credit
$ $
20XX
Jun 30 Bank charges 45
Cash 45
(Bank charges now taken in)


Unpresented cheques

Cheques that are sent as payments to creditors will take time to reach them. It takes time too for them to be processed and presented to the bank for payment. By the time some of the cheques, especially those issued close to the end of the month, are presented to the bank, it could well be days or even weeks later in the following month, and so they are not shown on the bank statement for the current month.

As long as a cheque is not cleared, it remains an unpresented cheque. If a cheque issued in the previous month is not cleared this month, it is still an unpresented cheque next month. It continues to be an unpresented until it is cleared with the bank. If an unpresented cheque is presented to the bank this month, it will be shown on this month’s bank statement, and it is no longer necessary to show it as an adjusting item on the bank reconciliation.

Unpresented cheques which are also called outstanding cheques overstate the actual bank statement balance as the cheques have not been presented to the bank and so no deduction of the cheque amounts has been made from the statement balance. But since they have already been recorded in the bank account in the cash book, they must be deducted from the closing balance on the bank statement.


Automatic payments and deposits

These are unfailing payments or transfers of funds made from or to bank account through direct debit or standing order. These items appear on every bank statement until they are terminated. It is very possible for them to be left out of the record in the cash book and the bank statement is relied on to include these items in the cash book. Examples of these payments and receipts are payments for loans or utility bills, and regular transfer of funds from debtors or other sources into the company’s bank accounts.

Direct debits: These are payments that have to be made such as insurance premiums, rates, etc. With direct debit, you allow your creditors to get direct payments from your bank account.

Standing orders: These are your instructions to your bank to make regular fixed payments at specified dates to someone. They could also be instructions to transfer funds. In preparing bank reconciliation statement, these automatic transfers of fund to the bank account must be added to the balance per cash book, and deducted if they are automatic payments.

Journalized entries are written up for them before they are posted to their respective accounts in the general ledger.


Errors

Errors do occur in the cash book as well as on the bank statement though on the bank statement they rarely happen. If an error is detected on a bank statement, the bank must be promptly informed so that corrective action can be taken. In the meantime, an adjusting entry is made on the bank reconciliation statement. For example, if a company’s deposit of $65 is wrongly entered by the bank as $56 in the account, the company’s account balance is understated by $9. An adjustment must be made to the bank statement balance to increase it by $9.

If, on the other hand, the above error is discovered in the cash book, the adjustment has to be included on the bank reconciliation. A journalized correcting entry is written up for posting to the affected accounts in the ledger.

Last Updated (Friday, 03 September 2010 19:09)