Understand the basics of bank reconciliation with these concise "cheat sheet" notes. Includes understanding the difference between the bank statement and the business books, control, abbrieviations, the procedure and a summary of each procedure regarding different items (outdated cheques/late chequ...
• Reflects the general ledger which is prepared with all cash received and paid.
• Favourable = debit.
• Unfavourable = credit.
BANK STATEMENT
• Reflects the deposits into and payments out of the account.
• Favourable = credit.
• Unfavourable = debit.
WHY IS BANK RECON NECESSARY?
• An important tool for internal control of transactions.
• Confirms the accuracy of all transactions recorded in the cash journals and the balance of
the bank account.
• Enables a business/individual to keep track of outstanding cheques/deposits, dishonoured
cheques, stale cheques, bank charges, service fees, electronic transfers and direct
deposits, interest on overdrafts and interest earned.
• Provides accurate figures that are essential to make short- and long-term forecasting.
• Ensure that the cashbook/bank account is kept up to date with information from the bank
statement.
DIFFERENCES BETWEEN BOOK AND BANK
A transaction appears in the bank statement but not in the cashbook:
1) Do we agree that the transaction was incurred by the business?
If yes = record it in the cashbook.
If no = record it in the bank recon as an “error”.
2) Did the transaction appear on last month’s recon?
If yes = remove from this month’s bank recon.
If no = follow the first bullet.
A transaction appears in the cashbook but not in the bank recon:
1) Do we agree that the transaction was incurred, and the amount is correctly recorded?
If yes = record it in the bank recon UNTIL the bank records it.
If no = correct the amount (if necessary) in the cashbook.
CONTROL OVER CASH RECEIVED
Guidelines for internal cash control measures:
1) At least two persons should be present during the opening of mail.
2) Details of cash receipts recorded daily in a remittance register and persons responsible
should initial next to the specific receipt.
, BANK RECONCILIATION
3) Cash received is allocated to business or trust receipts as identified.
4) Cash is immediately sent to persons responsible for issuing receipts.
5) An independent person should reconcile the information daily.
CONTROL OVER CASH PAYMENTS
CHEQUE AND EFT
Guidelines for internal cash control measures:
1) A specific person should be appointed to authorise the payment of expenses incurred and
to sign cheques or EFT payment requests.
2) Payment requests should be accompanied by valid documents such as invoices and
account statements.
3) A cheque or EFT payment request should only be signed once the details have been
agreed to.
4) All cheques must be made out in the name of a beneficiary and crossed with the words
“not transferable”.
5) All EFT payments should only be made from an approved beneficiary list.
6) Information should subsequently be forwarded to persons responsible for keeping two
cashbooks for recording purposes.
PETTY CASH PAYMENT
Guidelines for internal cash control measures:
1) A fixed petty cash float that is determined and a business cheque for that amount is
received by the petty cash cashier.
2) Petty cash payments are recorded on pre-numbered petty cash vouchers.
3) A petty cash voucher is accompanied by a supporting document that must be signed by
the petty cash cashier and recorded in a petty cashbook.
4) An independent person should reconcile petty cash and petty cash vouchers.
5) A cheque is issued to restore the petty cash float as discussed.
BANK STATEMENT
ABBREVIATIONS
R/D = refer to drawer IN = interest
SF = service fees Cr = credit balance
SD = sundry debits Dr = debit balance
COM = commission EFT = electronic funds transfer
CB = chequebook EC = error correction
GENERAL
• The bank statement commences with the opening balance of the bank account at the
beginning of the month.
• Transactions are presented in chronological order.
• Payments are recorded on the debit side.
• Receipts/deposits are recorded on the credit side.
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