Saturday, October 15, 2022

LECTURE NOTE ON BANK RECONCILIATION STATEMENT

 

DEFINITION OF BANK RECONCILIATION STATEMENT

Bank Reconciliation Statement is the agreement of the balance on a company`s cash book with the balance shown on the bank statement sent by the bank in respect of such account.

 

THE CAUSES OF BANK RECONCILIATION STATEMENT

The following are the major causes of the difference between bank balance as shown on the cash book and that of the bank statement:

i.  Unpresented Cheques    

ii. Uncredited Cheques       

iii. Errors by the bank

iv. Items that should have been credited to the cash book but was not done because of delay in receiving debit advice from bank. E.g. standing order, cheque book charges, bank charges, dishonoured cheques.

v. Items that should have been debited to the cash book but not done because of delay in receiving credit advice from bank e.g. credit transfer, dividend warrantee.

vi. Errors by the book keeper.

 

ILLUSTRATION 1:

On 31st December 2021, Sogbae cash book showed a debit balance of N29,520.

His bank statement showed a credit balance of N25,260.

The reasons for the difference were follow:

i.                   A cheque of N1,960 was received and entered in the cash book but was not recorded in the bank statement.

ii.                Unpresented cheques totalled N3,740.

iii.             The payment side of the cash book had been undercasted by N2,000.

iv.             Standing order for N1,260 appearing in the bank statement was yet to be posted in the cash book.

v.                A bill of exchange of N1,340 had matured and the bank had paid on Sogbae behalf but it had not been recorded in the cash book.

vi.             A withdrawal of N1,440 by Banuso, another customer of the bank had been charged in error to Sogbae account.

You are required to prepare:

a.     Adjusted cash book

b.    Bank Reconciliation Statement.

 

 SOLUTION

(a)               SOGBAE

ADJUSTED CASHBOOK

FOR THE MONTH OF DECEMBER 31, 2021

Balance B/f              29,520

Undercasted                  2,000


Standing Order              1,260


Bill of Exchange            1,340


Balance C/f                  24,920

29,520

29,520

Balance B/f                24,920

 

 

(b)        SOGBAE

BANK RECONCILIATION STATEMENT

AS AT 31ST DECEMBER,2021

                                                                        N

Balance as per adjusted cashbook              24,920

Add: Unpresented Cheque                           3,740

                                                                28,660

Less: Uncredited Cheque       1,960

         Bank Error                    1,440

                                                                  3,400

Balance as per bank statement                    25260

 

 ILLUSTRATION 2:

Foyegbe Nigeria Limited has the following transactions in its cashbook and bank statements for September 2017.

 

CASHBOOK

 

Lodgements:

N

Payments:

N

CHQ. 6789

28,000

CHQ. 123456

8,000

CHQ. 4591

24,000

CHQ.123457

12,000

CHQ. 4826

19,000

CHQ. 123458

15,000

CHQ. 4725

38,000

CHQ. 123459

25,000

CHQ.4228

18,000

CHQ. 123460

16,000

Cash

132,000

CHQ. 123461

3,000



Balance C/d

180,000


259,000

 

259,000

Balance B/d

180,000

 


 


BANK STATEMENT



DR

N

CR

N

BALANCE

N

CHQ.123459

25,000


25,000

CHQ. 123458

15,000


40,000

CHQ. 4826


19,000

21,000

CHQ. 6789


28,000

7,000

CHQ. 123460

16,000


9,000

CHQ.4826 CONTRA

19,000


28,000

ICAN

500


28,500

COT

1,000


29,500

Commission

3,500


33,000

CHQ. 4228


18,000

15,000

CHQ. 123457

12,000


27,000

Cash


132,000

105,000

You are required to:

(a) Prepare an adjusted cash book

(b) Reconcile the adjusted cash book balance with the bank statement.

 

SOLUTION

FOYEGBE NIGERIA LIMITED

ADJUSTED CASH BOOK

Balance b/f

180,000

Standing Order

500



Bank Chages-COT

1,000



Bank Chages-Commission

3,500



Balance c/d

175,000


180,000

 

180000

Balance b/d

175,000

 


 

BANK RECONCILIATION STATEMENT

AS AT 31ST SEPTEMBER, 2017

                                                                     N                  N

Balance as per adjusted cash book                            175,000

Add: Unpresented Cheques:

Cheque 123456                                        8,000

Cheque 123461                                        3,000           11,000

                                                                   186,000

Less: Uncredited Lodgement:

Cheque 4591                                             24,000

Cheque 4826                                             19,000

Cheque 4725                                             38,000       81,000

Balance as per Bank Statement                               105,000

  

VIDEOS EXPLANATION OF BANK RECONCILIATION STATEMENT BY CORPORATE FINANCE INSTITUTE AND SAHEB ACADEMY (PART 1-5).

Enjoy the videos by clicking those links bleow:

By Corporate Finance Institute:

https://www.youtube.com/watch?v=baViKIx58fo

By Saheb Academy:

Part 1:

https://www.youtube.com/watch?v=_RfayQTf5zU 

Part 2: 

https://www.youtube.com/watch?v=8oVhHmX39mw

Part 3:

https://www.youtube.com/watch?v=S9iOvY5FkDQ  

Part 4:

https://www.youtube.com/watch?v=sG3QXo2-IdQ

Part 5:

https://www.youtube.com/watch?v=mLEdgZPkhVA  

 

REVIEW QUESTIONS

1.  Ajimatanraeje`s cash book showed a debit balance of N3,344 on 31st  May, 2022. His bank statement for May 2022 however showed a credit balance of N3,424.

On investigation, it was discovered that:

i. The opening balance in the cash book for the month had been wrongly brought down as N1,505 instead of N1,550.

ii. Payment of rent N250 had been debited in the cash book.

iii. A customer had paid N600 direct into the bank.

iv. The bank had paid on a standing order N300 to an insurance company

v. A cheque for N870 deposited in the bank on 25th May, 2022 was credited until 3rd June, 2022.

vi. Cheques paid to suppliers totaling N1,875 had not been presented for payment.

vii. Cost of cheque book and other charges by bank totaling N90 had not been entered in the cash book.

viii. The bank had paid a cheque of N680 in error from Ajimatanraeje`s Account.

You are required to prepare:

(a) Adjusted Cash Book for the month of May 2022.

(b) Bak Reconciliation Statement as at 31st May, 2022.

 

2. The following was the cash book (bank column) of Odebeodero Nigeria Limited for the month of May 2022:

CASH BOOK ( BANK COLUMN) FOR THE MONTH OF MAY 2022


N

 

N

Balance 01/05/2022

2010

Favour-Cheque No. ABX

605

Adetutu-Cheque No. 102

670

Frank-Cheque No. AXY

210

Bassey - Cheque No. 12X

335

Mary- Cheque No. X2

130

Cynthia - Cheque No. 2B1

1,225

Salaries

7,000

Cash

770

Purchases

550

Sales

3,000

Samuel- Cheque No. 001

312

Balance 31/05/2022

797

 



8807

 

8807



Balance 01/06/2022

797

Upon investigations, it was discovered that:

i.  Bank Charges of N50 reflected on the bank statement have not been posted into the cash book.

ii. Cheque No. 2B1 for N1,225 was dishonoured on presentation. No entry has been effected to reflect the dishonour.

iii. The opening balance in the cash book should have been N2,100.

iv. The bank has settled a standing order of N600 payment to insurance company.

v. All cheques issued and receipts have been paid and credited by the bank respectively except the following:

1. Cheque No. 12X               N335

2. Cheque No.001                 N312

3. Cheque No.ABX               N605

4. Cheque No.X2                  N130

vi.  The bank statement shows an overdrawn balance of N1,870.

Required:

(a) Revised cash book entries of Odebeodero Nigeria Limited for the month of May 2022.

(b) Bank Reconciliation Statement as at  May 31, 2022.

 

3.  Feyikogbon`s cash book showed a debit balance of N6,688 on 31st  May, 2022. His bank statement for May 2022 however showed a credit balance of N6,848.

On investigation, it was discovered that:

i. The opening balance in the cash book for the month had been wrongly brought down as N3,010 instead of N3,100.

ii. Payment of rent N500 had been debited in the cash book.

iii. A customer had paid N1,200 direct into the bank.

iv. The bank had paid on a standing order N600 to an insurance company

v. A cheque for N1,740 deposited in the bank on 25th May, 2022 was credited until 3rd June, 2022.

vi. Cheques paid to suppliers totaling N3,750 had not been presented for payment.

vii. Cost of cheque book and other charges by bank totaling N180 had not been entered in the cash book.

viii. The bank had paid a cheque of N1,360 in error from Feyikogbon `s Account.

You are required to prepare:

(a) Adjusted Cash Book for the month of May 2022.

(b) Bank Reconciliation Statement as at 31st May, 2022.

 

4. The following was the cash book (bank column) of Odebeodero Nigeria Limited for the month of May 2022:

CASH BOOK ( BANK COLUMN) FOR THE MONTH OF MAY 2022


N

 

N

Balance 01/05/2022

4,020

Favour-Cheque No. ABX

1,210

Adetutu-Cheque No. 102

1,340

Frank-Cheque No. AXY

420

Bassey - Cheque No. 12X

670

Mary- Cheque No. X2

260

Cynthia - Cheque No. 2B1

2,450

Salaries

14,000

Cash

1,540

Purchases

1,100

Sales

6,000

Samuel- Cheque No. 001

624

Balance 31/05/2022

1,594

 



17,614

 

17,614



Balance 01/06/2022

1,594

Upon investigations, it was discovered that:

i.  Bank Charges of N100 reflected on the bank statement have not been posted into the cash book.

ii. Cheque No. 2B1 for N2,450 was dishonoured on presentation. No entry has been effected to reflect the dishonour.

iii. The opening balance in the cash book should have been N4,200.

iv. The bank has settled a standing order of N1,200 payment to insurance company.

v. All cheques issued and receipts have been paid and credited by the bank respectively except the following:

1. Cheque No. 12X               N670

2. Cheque No.001                 N624

3. Cheque No.ABX               N1,210

4. Cheque No.X2                  N260

vi.  The bank statement shows an overdrawn balance of N3,740.

Required:

(a) Revised cash book entries of Feyikogbon Nigeria Limited for the month of May 2022.

(b) Bank Reconciliation Statement as at  May 31, 2022.

 

Click the link below:

BRIEF LECTURE NOTE ON ACCOUNTING CONCEPTS:;

https://objunityonlineclasses.blogspot.com/2022/10/brief-lecture-note-on-accounting.html 

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