Dunman Sec Notes on Bank Reconciliation with Annotations

1 DUNMAN SECONDARY SCHOOL NAME: __________________________ ( ) CLASS: ____ CHAPTER 8: BANK RECONCILIATION 8.1 Bank Statement Bank statement is a statement that the bank sends to the business at regular intervals to update the business on its Bank Account. It gives details of the money drawn out and deposits made by the business. Dunman Trading ACCOUNT NO : 5467890-1 21 Tampines Street 45 Page : 1 of 1 Singapore 529093 Consolidated Bank Statement from 1 January 2021 to 31 January 2021 Date Particulars Withdrawal Dr ($) Deposit Cr ($) Balance ($) Jan 1 Balance b/d 10 000 Cr 13 Cheque no. 12341 100 9 900 Cr 18 Credit transfer – Rental 1 000 10 900 Cr 25 Standing order – insurance 200 10 700 Cr 25 Cheque 3 000 13 700 Cr 29 Cheque no. 12342 600 13 100 Cr 31 Bank charges 10 13 090 Cr  Debit column of the bank statement: Records all payment from the bank account  Credit column of the bank statement: Records all deposits into the bank account  Balance column of the bank statement: shows the balance in the bank after each transaction. o Credit balance indicates a positive balance in the bank. o Debit balance indicates an overdraft balance in the bank.

2 Business Perspective DBS Bank Perspective I received a cheque of $1 000 from a debtor and deposit it into the DBS bank. I shall record $1 000 as a debit in the Cash at Bank Account as it is my asset. We received $1 000 from our customer Dunman Trading for safekeeping. The money does not belong to us. We shall treat the amount as our liability as the bank “owe” Dunman $1 000. Debit means deposit. Credit means withdrawal. Credit means deposit. Debit means withdrawal. 8.2 Purpose of Bank Reconciliation Bank reconciliation is usually performed at the end of the month when the bank statement is received. It is to reconcile the differences between the cash at bank account and the bank statement. Bank reconciliation also checks for errors in the cash at bank account and bank statement. The difference between the ending balances in the business cash at bank account and the bank statement is due to timing differences in recording. Timing differences happen when: Business has recorded the transaction but the bank has not. Business has not recorded the transaction but the bank has.

3 8.3 Examples of Timing Differences     

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5 8.4 Bank Reconciliation Same opening balances Step 1: Circle the differences between Cash at bank account and Bank statement. Cash at bank account Date Particulars Cheque Dr ($) Cr ($) Bal ($) 2021 Apr 1 Balance b/d 500 Dr 5 Rozz Trading 0545 15 485 Dr 9 Sales revenue 300 785 Dr 14 Andrew Co 40 825 Dr 26 Phoenix Ltd 0546 25 800 Dr May 1 Balance b/d 800 Dr Bank statement Date Particulars Withdrawal Deposit Balance 2021 $ $ $ Apr 1 Balance b/d 500 Cr 7 Cheque no. 0545 15 485 Cr 10 Cash 300 785 Cr 18 Standing order – rent 120 665 Cr 29 Credit transfers – commission 50 715 Cr Step 2: Update the Cash at bank account Cash at bank account Date Particulars Dr ($) Cr ($) Bal ($) 2021 Apr 30 Balance b/d 800 Dr 30 Rent expense 120 680 Dr 30 Commission income 50 730 Dr May 1 Balance b/d 730 Dr

6 Step 3: Prepare the bank reconciliation statement Hartini Bank reconciliation statement as at 30 April 2021 $ $ Balance as per bank statement 715 Add: Deposits in transit Andrew Co 40 755 Less: Cheques not yet presented Phoenix Ltd (25) Adjusted balance as per cash at bank account 730

7 Example 1 The cash at bank account of Phil Laundry for the month of November 20X8 is shown below. Cash at bank account Date Particulars Cheque Dr ($) Cr ($) Bal ($) 20X8 Nov 1 Balance b/d 6 230 Dr 3 T-machine Trading 2135 280 5 950 Dr 10 Drawings 2136 450 5 500 Dr 17 Winterly Co 670 6 170 Dr 22 Inventory 2137 2 230 3 940 Dr 26 Karly Ltd 2138 940 3 000 Dr 28 Service fee revenue 1 500 4 500 Dr Dec 1 Balance b/d 4 500 Dr Phil Laundry received the following bank statement dated 30 November 20X8. Bank statement Date Particulars Withdrawal Deposit Balance 20X8 $ $ $ Nov 1 Balance b/d 6 230 Cr 5 Cheque no. 2135 280 5 950 Cr 11 Cheque no. 2136 450 5 500 Cr 15 Credit transfers – rental 1 210 6 710 Cr 19 Standing order – wages and salaries 880 5 830 Cr 27 Cheque no. 2138 940 4 890 Cr 30 Cash 1 500 6 390 Cr

8 REQUIRED (a) Update the cash at bank account for the month ended 30 November 20X8. Bring down the balance to the next month. Cash at bank account Date Particulars Dr ($) Cr ($) Bal ($) 20X8 Nov 30 Balance b/d 4 500 Dr 30 Rent income 1 210 5 710 Dr 30 Wages and salaries 880 4 830 Dr Dec 1 Balance b/d 4 830 Dr (b) Prepare the bank reconciliation statement as at 30 November 20X8. Phil Laundry Bank reconciliation statement as at 30 November 20X8 $ $ Balance as per bank statement 6 390 Add: Deposits in transit Winterly Co 670 7 060 Less: Cheques not yet presented Inventory (2 230) Adjusted balance as per cash at bank account 4 830 (c) State the effect of bank reconciliation statement on the profit as at 30 November 20X8. The profit for the period increased by $330. ($1 210 – $880) (d) State how the adjusted cash at bank balance as at 30 November 20X8 is presented on the statement of financial position. Current assets, cash at bank $4 830.

9 Example 2 The cash at bank account of Madeline’s Snacks for the month of May 20X2 is shown below. Cash at bank account Date Particulars Cheque Dr ($) Cr ($) Bal ($) 20X2 May 1 Balance b/d 1 020 Dr 5 Sales revenue 520 1 540 Dr 11 Gavin 0420 660 880 Dr 18 Rent expense 0421 445 435 Dr 22 Julia 290 725 Dr 27 Insurance 0422 1 100 375 Cr 30 Inventory 0423 420 795 Cr Jun 1 Balance b/d 795 Cr Madeline’s Snacks received the following bank statement dated 31 May 20X2. Bank statement Date Particulars Withdrawal Deposit Balance 20X2 $ $ $ May 1 Balance b/d 1 020 Cr 12 Cheque no. 0420 660 360 Cr 15 Standing order – utilities 240 120 Cr 20 Cheque no. 0421 445 325 Dr 23 Cheque 290 35 Dr 27 Rejected cheque from 22 May 290 325 Dr 29 Cheque no. 0422 1 100 1 425 Dr 31 Interest 80 1 345 Dr

10 REQUIRED (a) Update the cash at bank account for the month ended 31 May 20X2. Bring down the balance to the next month. Cash at bank account Date Particulars Dr ($) Cr ($) Bal ($) 20X2 May 31 Balance b/d 795 Cr 31 Utilities expense 240 1 035 Cr 31 Trade receivables, Julia (dishonoured cheque) 290 1 325 Cr 31 Interest income 80 1 245 Cr Jun 1 Balance b/d 1 245 Cr (b) Prepare the bank reconciliation statement as at 31 May 20X2. Madeline’s Snacks Bank reconciliation statement as at 31 May 20X2 $ $ Balance as per bank statement (1 345) Add: Deposits in transit Sales revenue 520 (825) Less: Cheques not yet presented Inventory (420) Adjusted balance as per cash at bank account (1 245) (c) State the effect of bank reconciliation statement on the profit as at 31 May 20X2. The profit for the period decreased by $160. ($80 – $240) (d) State how the adjusted cash at bank balance as at 31 May 20X2 is presented on the statement of financial position. Current liabilities, bank overdraft $1 245.