The main reason for comparing the cash at bank general ledger account and the bank statement is to identify any errors or omissions and to correct them. When the reason for an error or omission is not clear, the problem should be brought to the attention of the appropriate person in the business.
Errors may occur because a cash receipt or payment is entered as the wrong amount. This should be discovered when comparing the general ledger account with the bank statement. When an error occurs, the general ledger account should be amended, and the correct amount entered.
It is also possible that some items on the bank statement may not yet have been entered in the general ledger account. For example, bank charges, standing order payments and direct debit payments (or receipts) and receipts by BACS transfer may not have been recorded in the general ledger account. It should be updated and these entries recorded.
Occasionally, a transaction may have been omitted from the general ledger account in error. The bank statement should provide enough information to track down the omitted item to be able to record it correctly in the general ledger accounts.
FA1: RECORDING FINANCIAL TRANSACTIONS
A bank reconciliation identified that two additional receipts which total $300 are shown on the bank statement but do not appear in the cash at bank general ledger account
The receipts comprise $200, dividend receipts from owning shares in another company and $100, interest received from the bank on current account balances
How should these omissions be dealt with?
For a suggested answer, see the 'Answers' section at the end of the book
For a suggested answer, see the 'Answers' section at the end of the book
Given below is the cash at bank general ledger account for a business and the most recent bank statement, together with the previous bank reconciliation statement as at 31 March 20X7.
| Balance as per bank statement | $ | 65.60 |
| Unpresented cheques: | ||
| 144680 | 100.00 | |
| Balance as per cash at bank ledger | 34.40 OD |
| Date | Details | Reference/ Cheque number | Receipts Debit | Payments Credit | Balance |
|---|---|---|---|---|---|
| 20X7 | |||||
| April | Opening balance | $ | $ | 34.40 Cr | |
| 1 | Turner Ltd | 110.29 | 75.89 | ||
| 1 | Collins & Co | 144682 | 41.28 | 34.61 | |
| 1 | Long Ltd | 144683 | 25.67 | 8.94 | |
| 1 | Jimmy Dino | 144684 | 171.93 | 162.99 Cr | |
| 2 | Danton & Co | 144685 | 231.71 | 394.70 Cr | |
| 3 | Water rates | SO | 98.20 | 492.90 Cr | |
| 4 | Simone Ltd | 338.97 | 153.93 Cr | ||
| 5 | M Smith | 10.15 | 143.78 Cr | ||
| 10 | Grossman | 144686 | 319.06 | 462.84 Cr | |
| 19 | Butch Ltd | 144687 | 86.21 | 549.05 Cr | |
| 21 | Grape & Co | 430.06 | 118.99 Cr | ||
| 22 | Mothball Ltd | 341.36 | 222.37 | ||
| 25 | Betty Ltd | 144688 | 89.24 | 133.13 | |
| 28 | South Ltd | 144689 | 303.13 | 170.00 Cr | |
| 29 | Oak & Sons | 144690 | 475.00 | 645.00 Cr | |
| 30 | ABC & Co | 549.19 | 95.81 Cr | ||
| 30 | PD Plant | 144691 | 61.35 | 157.16 Cr | |
Larry Bank
5 High Cross
Edinburgh EH1 2WS
Account number 34267115
Sheet number 247
| Date | Details | Payments | Receipts | Balance |
|---|---|---|---|---|
| 20X7 | ||||
| 1 April | Balance b/f | 65.60 | ||
| 2 April | BGC: 47619 | 110.29 | 175.89 | |
| 3 April | SO: Tartan Water | 98.20 | 77.69 | |
| 4 April | 144684 | 171.93 | ||
| 144682 | 41.28 | |||
| 144680 | 100.00 | 235.52 O/D | ||
| 7 April | 144683 | 25.67 | 77.78 | |
| BGC: 47620 | 338.97 | |||
| 8 April | BGC: 47621 | 10.15 | ||
| 144685 | 231.71 | 143.78 O/D | ||
| 13 April | 144686 | 319.06 | 462.84 O/D | |
| 24 April | BGC: 47622 | 430.06 | ||
| 144687 | 86.21 | 118.99 O/D | ||
| 25 April | BGC: 47623 | 150.00 | 372.37 | |
| BGC: 47624 | 341.36 | |||
| 30 April | Bank interest | 3.40 | ||
| Bank charges | 27.50 | |||
| Balance c/f | 348.27 | |||
SO standing order
DD direct debit
BGC bank giro credit
O/D Overdrawn
Reconcile the opening balances on the bank statement and in the general ledger account. Then compare all the entries in the two documents and tick off the matching items.
Identify any errors and other discrepancies. Explain how the BGC item dated 25 April for $150.00 should be dealt with.
Correct any errors or omissions identified in the cash at bank general ledger account, and enter any transactions that have been omitted.
Balance off the cash at bank general ledger account. Show the balance carried down at 30 April 20X7 and the balance brought down as at 1 May.
Prepare a bank reconciliation statement as at 30 April.
For a suggested answer, see the 'Answers' section at the end of the book.