Bank Reconciliation Statements

Transcription

1 Chapter 4 Bank Reconciliation Statements Notes to teachers 1 Start with Chapter 4 of Frank Wood s Introduction to Accounting and briefly explain to students the basic principles of recording in the cash book. 2 It is necessary to show a (real or simulated) bank statement to students as most of them would probably have no idea of what one looks like. 3 Most students have difficulty understanding why a debit bank balance appearing in the cash book represents a positive balance while a debit bank balance appearing in the bank statement represents a negative (overdraft) balance. Teachers must clarify a bank deposit from the perspectives of the business and the bank (whether it is treated as an asset or a liability). 4 Most students have the misconception that a bank reconciliation statement is used to make corrections in the cash book and/or the bank statement. Teachers must clarify that the bank reconciliation statement is simply used to show the difference between the bank balances of the cash book and the bank statement. By so doing, a bank reconciliation statement can help spot errors in the cash book or the bank statement. 5 Most students have difficulty understanding why unpresented cheques and uncredited cheques are added to and deducted from the cash book balance, respectively, in arriving at the bank statement balance. Teachers should tell them the purpose is to reconcile both balances. The calculation would be reversed if it starts with the bank statement balance and ends with the cash book balance. 6 The treatment of bank errors is the most difficult task. Teachers should spend more time demonstrating how they should be shown on the bank reconciliation statement and explaining the general principle behind this. 7 In public examinations, this topic is usually combined with other topics in a long question, most probably the correction of errors, which will be taught in Chapter 6. Q1 Q2 A bank overdraft occurs when a firm withdraws more money than it has in its bank account. As a result, the balance at the bank will become negative. A standing order is an instruction given by a bank customer to his bank to pay a fixed sum of money from his account to a named beneficiary (payee) at regular intervals. Example: A fixed amount of money is automatically transferred out of one s bank account to pay property management fees on a fixed date each month. A direct debit is an authority given by the customer to a named payee to claim payments from the customer s bank account and an instruction to his bank to allow the payments to go through. It does not specify the payment amount or the payment date. 50 M01_FWFA_TB_HKG_9645_C04.indd /11/4 3:59:35 PM

2 Example: Money is automatically transferred out of one s bank account to pay electricity charges, but the amount and the date of each transfer is not fixed. Generally, a standing order is used when the bank customer needs to pay a fixed amount at regular intervals. When payments are made at irregular intervals or are of variable amounts, a direct debit would be used instead. Q3 Q4 Q5 Q6 The reason may be one of the following: The drawer does not have enough money in the current account for the payment. There is no signature on the cheque, or the signature does not match the record at the bank. The amount in words differs from the amount in figures. The cheque is not dated. The cheque is a stale cheque (i.e., exceeding six months after the date of issue). The cheque is a post-dated cheque. This means that the date on the cheque has not yet been reached. The drawer s account has been closed. Alterations to the cheque have not been countersigned by the drawer. (Any two of the above) A bank reconciliation statement is prepared at the end of a period in order to show the reasons for the difference between the bank balances of the cash book and the bank statement. Yes. A bank reconciliation statement shows the reasons for the difference between the bank balances of the cash book and the bank statement. The reasons may be errors and omissions made in the cash book or the bank statement. So the preparation of a bank reconciliation statement can help to detect and correct errors. D Yuen Bank Reconciliation Statement as at 30 November 2009 Overdraft balance as per cash book (3,780) Add Unpresented cheque 630 Credit transfer 1,240 1,870 (1,910) Less Uncredited cheque 1,060 Standing order 770 Bank charges 490 (2,320) Overdraft balance as per bank statement (4,230) Q7 (a) M Cheng Bank Reconciliation Statement as at 31 March 2010 Balance as per bank statement 161,800 Add Bank lodgement not yet entered on bank statement 11,500 Bank error Service fee overcharged 1,800 13, ,100 Less Unpresented cheque (16,400) Adjusted balance as per cash book 158, M01_FWFA_TB_HKG_9645_C04.indd /11/4 3:59:36 PM

3 M Cheng Bank Reconciliation Statement as at 31 March 2010 Balance as per cash book 156,500 Add Unpresented cheque 16,400 Creditor Stale cheque 12,000 Opening balance understated 10,000 Direct credit 18,600 57, ,500 Less Bank lodgement not yet entered on bank statement 11,500 Bank error Service fee overcharged 1,800 Debtor Dishonoured cheque 19,000 Payment understated 13,000 Loan interest 5,000 Electricity Direct debit 1,400 (51,700) Balance as per bank statement 161,800 A2 A4 When a firm keeps money in the bank, it is the same as the firm lending money to the bank. Therefore, the firm s positive bank balance is treated as a liability by the bank and not an asset. Adjusting entries in the drawer s cash book: Dr Cash book (bank column) Cr Creditor s account ASSESSMENT Short Questions 1 (a) Cash Book Jun 30 Balance b/d 2,833 Jun 30 Union Credit Standing order 44 " 30 RS Ltd Credit transfer 90 " 30 Bank charges 70 " 30 Balance c/d 2,809 2,923 2,923 C Chan Bank Reconciliation Statement as at 30 June 2009 Corrected balance as per cash book 2,809 Add Unpresented cheque 57 2,866 Less Uncredited cheque (624) Balance as per bank statement 2, M01_FWFA_TB_HKG_9645_C04.indd /11/4 3:59:37 PM

4 2 (a) Cash Book Dec 31 K Sung Direct credit 180 Dec 31 Balance b/d 3,922 " 31 Balance c/d 4,007 " 31 Mercantile Ltd Standing order 200 " 31 Bank charges 65 4,187 4,187 C Hung Bank Reconciliation Statement as at 31 December 2008 Corrected overdraft balance as per cash book (4,007) Add Unpresented cheque 84 (3,923) Less Uncredited cheque (211) Overdraft balance as per bank statement (4,134) 3X (a) Cash Book Mar 31 K Tong Direct credit 57 Mar 31 Balance b/d 5,280 " 31 Balance c/d 5,300 " 31 BKS Ltd Direct debit 49 " 31 Bank charges 28 5,357 5,357 K Woo Bank Reconciliation Statement as at 31 March 2009 Overdraft as per corrected cash book (5,300) Add Unpresented cheque 490 (4,810) Less Uncredited cheque (160) Overdraft as per bank statement (4,970) 4X (a) Cash Book May 31 Balance b/d 141,030 May 31 C Yeung Returned cheque 4,800 " 31 Dividend revenue 16,280 " 31 Bank charges 820 " 31 Balance c/d 151, , ,310 DD Ltd Bank Reconciliation Statement as at 31 May 2009 Adjusted balance as per cash book 151,690 Add Unpresented cheques (2, ,270) 19, ,750 Less Uncredited deposit (29,140) Balance as per bank statement 141, M01_FWFA_TB_HKG_9645_C04.indd /11/4 3:59:37 PM

5 5 (a) Cash Book Dec 31 Balance b/d 4,500 Dec 31 Insurance Standing order (i) 600 " 31 Dividend revenue (ii) 720 " 31 Bank charges (iii) 90 " 31 HK Finance Ltd Refund (iv) 780 " 31 C Ho Dishonoured cheque (vi) 210 " 31 Transfer from savings a/c (v) 4,200 " 31 Balance c/d 9,300 10,200 10,200 K Tang Bank Reconciliation Statement as at 31 December 2009 Corrected balance as per cash book 9,300 Add Unpresented cheques ( ) 1,620 10,920 Less Uncredited cheque (2,070) Balance as per bank statement 8,850 Application Problems 6 (a) Cash Book Apr 30 Balance b/d 53,000 Apr 30 Bank charges (i) 150 " 30 Cheque wrongly recorded on " 30 Rent Standing order (ii) 20,000 credit side (6,200 2) (iv) 12,400 " 30 Debtor Dishonoured cheque (iii) 3,560 " 30 Credit transfer (v) 5,800 " 30 Balance c/d 48,680 " 30 Dividend revenue (vii) 1,190 72,390 72,390 Panda Club Bank Reconciliation Statement as at 30 April 2010 Corrected balance as per cash book 48,680 Add Loan interest undercharged (vi) 2,400 Unpresented cheque (viii) 700 Balance as per bank statement 51,780 or Panda Club Bank Reconciliation Statement as at 30 April 2010 Balance as per bank statement 51,780 Less Loan interest undercharged (vi) (2,400) Unpresented cheque (viii) (700) Corrected balance as per cash book 48,680 (c) See text, Section 4.5 of Frank Wood s Introduction to Accounting. 7X (a) Cash Book Oct 31 Balance b/d 76,230 Oct 31 Debtor Dishonoured cheque (vi) 2,720 " 31 Dividends received (iv) 930 " 31 Insurance (vii) 8,250 " 31 Rates refund (5,500 2) (v) 11,000 " 31 Discounts allowed (viii) 30 " 31 Balance c/d 77,160 88,160 88, M01_FWFA_TB_HKG_9645_C04.indd /11/4 3:59:38 PM

6 Glory Ltd Bank Reconciliation Statement as at 31 October 2009 Adjusted balance as per cash book 77,160 Add Unpresented cheque (ii) 1,840 79,000 Less Uncredited deposits (i) 5,650 Bank error (10,000 2) (iii) 20,000 (25,650) Balance as per bank statement 53,350 (c) The reason could be: (i) The creditor had not deposited the cheque into his bank account. (ii) The cheque had been deposited but had not yet been processed by the bank by the end of the period. 8 (a) Cash Book Mar 31 Balance b/d 93,596 Mar 31 Bank interest charges (iii) 184 " 31 Paul Lee Incorrect amount " 31 Rates Autopay (iv) 2,688 entered (ii) 1,080 " 31 David Ho Dishonoured cheque (vi) 2,080 " 31 Peter Pang Credit transfer (v) 3,256 " 31 Balance c/d 95,484 " 31 Sales receipts omitted (viii) 2, , ,436 Anne Lo Bank Reconciliation Statement as at 31 March 2010 Balance as per bank statement 91,600 Add Uncredited cheque (vii) 8, ,344 Less Unpresented cheques (i) (4,860) Corrected balance as per cash book 95,484 (c) In Hong Kong, when a cheque is deposited into the bank, it takes at least one full working day for the cheque to clear. As the cheque was deposited on 31 March 2010, it would only be cashed in early April Thus, it did not appear on the bank statement for the month ended 31 March X (a) Cash Book Dec 31 Balance b/d 137,900 Dec 31 Trade subscription (iii) 11,060 " 31 Dividend revenue (ii) 1,365 " 31 Interest expenses (iv) 210 " 31 Mr Sin (v) 3,210 " 31 Mr Wo Dishonoured cheque (vi) 1,246 " 31 Thomas Wong (v) 2,530 " 31 Balance c/d 139,209 " 31 Cheque received from Mr Ma previously recorded on the credit side (3,360 2) (viii) 6, , , M01_FWFA_TB_HKG_9645_C04.indd /11/4 3:59:38 PM

7 Bank Reconciliation Statement as at 31 December 2010 Corrected balance as per cash book 139,209 Add Unpresented cheques: (i) Mr Ma 860 Mr Man 190 1, ,259 Less Overdraft interest wrongly charged (vii) (840) Balance as per bank statement 139,419 or Bank Reconciliation Statement as at 31 December 2010 Balance as per bank statement 139,419 Add Overdraft interest wrongly charged (vii) ,259 Less Unpresented cheques (i) (1,050) Corrected balance as per cash book 139, (a) Cash Book May 7 Sales 1,630 May 1 Balance b/d 3,340 " 10 Capital 10,000 " 4 Van 5,000 " 29 AB Ltd 555 " 18 D Ming Ltd 237 " 31 Dividend revenue (ii) 280 " 30 Wages 470 " 31 Bank charges (i) 110 " 31 Insurance Standing order (iv) 920 " 31 Sales Dishonoured cheque (v) 75 " 31 Balance c/d 2,313 12,465 12,465 B Mok Bank Reconciliation Statement as at 31 May 2010 Adjusted balance as per cash book 2,313 Add Unpresented cheque (vi) 237 2,550 Less Uncredited cheque (iii) (555) Balance as per bank statement 1,995 (c) See text, Section X (a) No. A bank reconciliation statement is prepared to explain the difference between the bank balances of the cash book and the bank statement. (i) Cash Book Mar 31 Balance c/d 24,275 Mar 31 Balance b/f (balancing figure) 5,894 (found in the bank reconciliation " 31 Creditor (5, ,016) (iii) 10,296 statement) " 31 Chung Hwa Ltd Dishonoured cheque (v) 2,484 " 31 Overdraft interest (vi) 862 " 31 Electricity (vii) 4,739 24,275 24, M01_FWFA_TB_HKG_9645_C04.indd /11/4 3:59:38 PM

8 (ii) Bank Reconciliation Statement as at 31 March 2009 Adjusted bank balance as per cash book (balancing figure) (24,275) Add Personal cheque wrongly deposited into bank (i) 1,320 Unpresented cheques (ii) 11,763 13,083 (11,192) Less Lodgement not yet entered on bank statement (iv) (3,180) Overdraft balance as per bank statement (14,372) (iii) The bank balance to be shown in the balance sheet as at 31 March 2009 would be 24,275 (overdraft). 12 (a) Cash Book Feb 28 Balance b/d 2,716 Feb 28 Bank charges 562 " 28 Jasper Ltd Credit transfer 1,375 " 28 Government rates Direct debit 231 " 28 Jacob Co Dishonoured cheque 350 " 28 Trade subscriptions Standing order 375 " 28 Balance c/d 2,573 4,091 4,091 Amy Ko Bank Reconciliation Statement as at 28 February 2009 Balance as per bank statement 1,429 Add Uncredited item 2,000 3,429 Less Unpresented cheques: Telephone (No. 4149) 106 Wages (No. 4152) 750 (856) Corrected balance as per cash book 2,573 (c) Accounts Receivable Ledger Jacob Co Feb 1 Balance b/d 719 Feb 24 Bank 350 " 28 Bank Dishonoured cheque 350 " 28 Balance c/d 719 1,069 1,069 13X (i) Bank receipts and payments should be recorded in the cash book on the dates that they are made. This is the time when the corresponding liability is settled. For example, a cheque payment should be recorded when the cheque is drawn and not when it is presented to the bank. Making entries on the basis of the bank statement could miss some cheques that have been drawn but have not been presented during the period. (ii) These items are usually debited or credited automatically to the bank account without prior notification. The account holder can only ascertain these items upon receiving the bank statement. (iii) Actually, these cheques or deposits were recorded in the cash book when they were drawn or made. Adjustments for such items are just for the purpose of explaining the difference between the bank balances of the cash book and the bank statement. (iv) As explained in part (i), bank receipts and payments should be recorded in the cash book when they are made. So the bank balance shown in the balance sheet should be the adjusted balance of the cash book. 57 M01_FWFA_TB_HKG_9645_C04.indd /11/4 3:59:39 PM

9 Past Exam Questions 14 (a) Cash Book Mar 31 Balance b/f 225,000 Mar 31 Dishonoured cheque (iii) 6,800 " 31 Trade creditors (i) 800 " 31 Payment to supplier (2,750 2) (iv) 5,500 " 31 Credit transfer (vii) 6,600 " 31 Standing order Rent (viii) 34,000 " 31 Balance c/f 186, , ,400 Bank Reconciliation Statement as at 31 March 2006 Balance as per corrected cash book 186,100 Add Unpresented cheque (v) 1, ,500 Less Overdraft interest wrongly debited (ii) 1,000 Uncredited cheque (vi) 20,150 (21,150) Balance as per bank statement 166,350 (c) (i) To discover any errors or irregularities, and (ii) To detect any missing transactions in the cash book. 15X (a) Cash Book Dec 31 Balance b/d 186,400 Dec 31 Trade debtors (i) 7,800 " 31 Trade debtors (vii) 3,900 " 31 Overdraft interest (ii) 2,660 " 31 Trade debtors (iv) 19,000 " 31 Insurance (vi) 6,000 " 31 Balance c/d 154, , ,300 Bank Reconciliation Statement as at 31 December 2006 Balance as per corrected cash book 154,840 Add Unpresented cheques (iii) 8,800 Bank errors (viii) 20,000 28,800 Less Uncredited deposit (v) (36,680) Balance as per bank statement 146,960 (c) A bank reconciliation statement provides: (i) verification of firm s records with aspects not yet known by the bank such as uncredited deposits and unpresented cheques. (ii) verification of the amounts recorded as received and paid. (iii) a check on the time differences between when a deposit is recorded as received (or paid) and when it is banked (or withdrawn from bank). (iv) an update of the firm s records with aspects not yet known by the firm, that is, direct deposits such as interest received, direct withdrawals such as bank fees and dishonoured cheques. (v) a check for errors in either the firm s records or the bank s records (as reported in the bank statement). (Any one point) 58 M01_FWFA_TB_HKG_9645_C04.indd /11/4 3:59:39 PM

10 16 (a) Cash Book Mar 31 Balance b/d 235,930 Mar 31 Salary (iii) 33,870 " 31 Dishonoured cheque (vi) 5,100 " 31 Machinery (17,000 10,700) (iv) 6,300 " 31 Credit side overstated (viii) 15,600 " 31 Bank charge (vi) 100 " 31 Balance c/d 216, , ,630 Bank Reconciliation Statement as at 31 March 2007 Balance as per corrected cash book 216,360 Add Unpresented cheques: Cheque drawn by Mr Chan (i) 5,650 Cheque paid to Mr Luk (v) 6,320 11,970 Less Uncredited deposit (ii) 2,000 Overdraft interest wrong charged (vii) 1,400 (3,400) Balance as per bank statement 224,930 (c) A bank reconciliation statement provides: (i) verification of firm s records with aspects not yet known by the bank such as uncredited deposits and unpresented cheques. (ii) verification of the amounts recorded as received and paid. (iii) a check on the time differences between when a deposit is recorded as received (or paid) and when it is banked (or withdrawn from bank). (iv) an update of the firm s records with aspects not yet known by the firm, that is, direct deposits such as interest received, direct withdrawals such as bank fees and dishonoured cheques. (v) a check for errors in either the firm s records or the bank s records (as reported in the bank statement). (Any two points) 59 M01_FWFA_TB_HKG_9645_C04.indd /11/4 3:59:40 PM