Bank reconciliation Cambridge IGCSE Accounting revision
Not started
Learn it
In plain words
The business keeps its own record of its bank account, in the cash book. The bank keeps one too, and sends a copy: the bank statement. At any date the two balances are almost never the same, and a bank reconciliation explains why.
There are only two kinds of reason. Some items the bank knows about and the business does not yet. Others the business has recorded and the bank has not yet.
6 things to know
- A bank statement is the bank's record of the account. It is written from the bank's point of view, so money in the account is a credit balance on the statement, and an overdraft is a debit balance.
- Step 1: update the cash book with items that are on the statement but not yet in the cash book. Debit: credit transfers received and bank interest received. Credit: bank charges, bank interest paid, direct debits, standing orders and dishonoured cheques. Correct any errors in the cash book as well.
- Step 2: prepare the bank reconciliation statement. Start with the balance on the bank statement. Add uncredited deposits, which are amounts paid in that the bank has not yet recorded. Deduct unpresented cheques, which are cheques paid out that have not yet reached the bank. The result should equal the updated cash book balance.
- An error made by the bank is adjusted in the reconciliation statement, not in the cash book.
- Purposes: to check the accuracy of the cash book and the bank's records, to find errors and missing items, and to give the correct bank balance for the statement of financial position.
- Payments by card and by online transfer reach the bank account almost at once, so with digital transactions there are fewer timing differences to reconcile.
Worked example
The cash book shows a debit balance of $2140. The bank statement shows bank charges of $35 and a credit transfer from a customer of $420, neither in the cash book. Cheques of $610 are unpresented, and a deposit of $380 is uncredited. Find the updated cash book balance and the balance on the bank statement.
- Update the cash book: 2140 − 35 + 420 = $2525.
- The unpresented cheques have not yet been taken out of the bank's figure, so the bank shows $610 more.
- The uncredited deposit has not yet been added to the bank's figure, so the bank shows $380 less.
- Bank statement balance = 2525 + 610 − 380 = $2755.
Tips and tricks
- Do the cash book first. Only timing differences and bank errors belong in the reconciliation statement itself.
- Starting from the bank statement: add uncredited deposits, deduct unpresented cheques. Starting from the cash book, it is the other way round.
It lands in your notebook with its questions as flashcards.
Bank reconciliation: 6 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
On a bank statement, what does a credit balance mean?
The bank owes that money to the business, so in the bank's books it is a credit.
What is an unpresented cheque?
It is in the cash book but not yet on the bank statement.
Which item is entered on the debit side of the cash book when it is updated?
It is money received.
Which item appears in the bank reconciliation statement, not in the cash book update?
The business has already recorded them. The bank has not.
The updated cash book balance is $1800 (debit). Unpresented cheques are $300 and uncredited deposits are $200. What is the balance on the bank statement?
1800 + 300 − 200.
A cheque from a customer has been dishonoured. How is the cash book updated?
The money was not received after all, so the earlier debit is cancelled.
Quiz
6 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
Bank reconciliation
Cambridge IGCSE Accounting 0452 · 8 marks · papermunch.org
Name ______________________________ Date ______________
State three items that would be entered on the credit side of the cash book when it is updated from the bank statement.[3]
Show answerHide answer
Bank charges, direct debits and standing orders. (Also: bank interest paid and dishonoured cheques.)
The bank statement shows a credit balance of $3200. There are unpresented cheques of $750 and uncredited deposits of $410. Calculate the balance that should appear in the updated cash book.[3]
Show answerHide answer
$2860. 3200 + 410 − 750.
State two purposes of preparing a bank reconciliation statement.[2]
Show answerHide answer
To check that the cash book and the bank's records are accurate. To find the correct bank balance for the statement of financial position. (Also: to identify errors and out-of-date cheques.)
Answers: Bank reconciliation
- 1. Bank charges, direct debits and standing orders. (Also: bank interest paid and dishonoured cheques.)
- 2. $2860. 3200 + 410 − 750.
- 3. To check that the cash book and the bank's records are accurate. To find the correct bank balance for the statement of financial position. (Also: to identify errors and out-of-date cheques.)