Topic 7 - Bank reconciliation statements

Question 1

What is a bank statement?

Answer 1

A record of customer’s account held by the bank.

Question 2

What reasons could there be for differences between the bank statement and the cash book?

Answer 2

• Omissions from the bank statement for timing reasons
• Omissions from the cash book for timing reasons

Question 3

What omissions could there be from the bank statement for timing reasons?

Answer 3

• Unpresented cheques
• Uncredited lodgements

Question 4

What omissions could there be from the cash book for timing reasons?

Answer 4

• Standing order
• Direct debit
• Bank Giro Credit (BGC) Transfer
• Bank charges
• Interest receivable
• Dishonoured cheques
• Dividends paid and received

Question 5

What is the bank reconciliation statement?

Answer 5

A statement that identifies and resolves the differences between the cash book and the bank statement and brings into agreement the 2 balances. Agreement of the bank reconciliation statement shows that the differences between the cash book and bank statement balances are duo to delays in entries by either party and not due to errors.

Question 6

What is the purpose of a bank reconciliation statement?

Answer 6

• Helps check accuracy of bookkeeping in the cash book or detect rare errors made by bank on bank statement
• Helps check and prevent fraud as the bank statement is an independent record
• Helps find correct amount of money held at bank
• Helps business control its cash flow
• Identifies dishonoured cheques, out of date cheques, uncredited lodgements and unpresented cheques

Question 7

What are the limitations of a bank reconciliation statement?

Answer 7

• Time consuming and costly to prepare
• Accounting knowledge is necessary
• Does not identify all possibly errors