9. BANK RECONCILIATION:
9.1. Definition:
This section deals with the method, necessity and procedures for the reconciliation of transactions in a bank statement with OLOG’s Ledger account for the same bank.
9.2. Controls and Responsibilities:
9.2.1. One of the most common cash control procedures is the bank reconciliation. Every bank statement should be promptly reconciled by a person not otherwise involved in the cash receipts and disbursements functions. The reconciliation is needed to identify errors, irregularities, and adjustments for the bank account. Having an independent person prepare the reconciliation helps establish separation of duties and deters fraud by requiring collusion for unauthorized actions. To serve this purpose, a member of the PFC should undertake the responsibility for bank reconciliation.
9.2.2. The reconciliation compares the amount of cash shown on the monthly bank statement (the document received from a bank which summarizes deposits and other credits, and cheques and other debits) with the amount of cash reported in the general ledger. These two balances will frequently differ.
9.2.3. Differences are caused by items reflected on Parish records but not yet recorded by the bank; examples include deposits in transit (a receipt entered on parish’s records but not yet processed by the bank) and outstanding cheques (issued cheques which have not cleared the bank). Other differences relate to items noted on the bank statement but not recorded by the parish; examples include insufficient funds cheques, bank service charges and interest earnings.
9.2.4. The format shown in the next page is typical of one used in the reconciliation process. Note that the balance per the bank statement is reconciled to the "correct" amount of cash; likewise, the balance per company records is reconciled to the "correct" amount. These amounts must agree. Once the correct adjusted cash balance is satisfactorily calculated, journal entries must be prepared for all items identified in the reconciliation of the ending balance per company records to the correct cash balance.
9.3. Procedure for bank reconciliation:
9.3.1. Compare the bank statement with the bank account in the cash book. Remember to compare the debit of the general ledger bank account against the credit of the bank statement, and the credit of the general ledger bank account against the debit of the bank statement. Place a tick against those items which appear in the both records.
9.3.2. Bring the bank account in the cash book up to date by entering any items which appear on the bank statement but which have not yet been entered in the bank account. Such items may include:
(a) Items debited on the bank statement, e.g. bank charges, standing orders paid ,etc . These should be credited in the bank account in the parish’s cash book.
(b) Items credited on the bank statement, e.g. credit transfers and standing orders paid directly into the bank. These should bed debited in the bank account in the parish’s cash book.
(c) Correct any errors in the cash book.
(d) Balance the cash book. The balance on the parish’s bank account should now be the true bank balance of the business and this is the figure that will be shown in the balance sheet.
9.4. How to prepare the bank reconciliation statement:
9.4.1. Start with the balance shown on the bank statement.
9.4.2. Add on any items that have been debited in the cash book but not yet credited on the bank statement. i.e. amounts not yet credited.
9.4.3. Deduct any items that have been credited in the cash book but not yet debited on the bank statement, i.e . cheques not yet presented.
9.4.4. Make any necessary adjustments for bank errors. Add back any amounts debited in error by the bank and deduct any amounts credited in error by the bank.
9.4.5. The resulting figure should equal the updated bank balance shown in the cash book. See example below:
| OLOG BANK RECONCILIATION | ||
| AS AT 31 MARCH 2010 | ||
| Ending balance per bank statement | RM 50,739.57 | |
| Add: | ||
| Amounts not credited by bank: | ||
| payment from Mr. ABC | RM 3,000.00 | |
| payment from Mdm. Tan | RM 585.93 | RM 3,585.93 |
| RM 54,325.50 | ||
| Less: | ||
| Cheques not yet cleared by bank: | ||
| Cheque No: 125464 | RM 525.00 | |
| Cheque No: 125471 | RM 30.30 | |
| Cheque No: 125473 | RM 1,196.69 | |
| Cheque No: 125474 | RM 50.00 | RM 1,801.99 |
| Ending balance per cash book | RM 52,503.51 | |