Modern Approach of Bank Reconciliation Statement

Arjun EP

Published on: June 25, 2020

What is the modern approach of bank reconciliation statement?

Under modern approach, a bank reconciliation statement is divided into two sections.

The first section starts with the balance as per the bank statement (pass book) and ends with the adjusted bank statement.

The second section begins with the balance as per the cash book and ends with the adjusted cash balance.

Both adjusted balance must be equal to establish the reality of the two records.

For first section (pass book or bank statement), no need to prepare Journal entries.

Because bank balance will be correct automatically when not presented cheques are presented for payment and uncleared cheques are cleared.

Second sections (cash book) are to be journalised.

Transactions recorded in pass book but not adjusted in cash book are journalized.

ABC Company

Bank Reconciliation Statement

For the month of ……

Particulars			Amount	Amount
Balance as per bank statement				xxxx
Add:	Deposit in transit:
	Cash recorded in depositor’s book but not in bank statement
Less:	Outstanding cheques (checks):	Cheque 1 Cheque 2
Add:	Errors (more amount error recorded in bank statement)
Less:	Errors (lower amount error recorded in bank statement)
	Adjusted bank statement			xxxx

Balance as per depositor’s book (DB)				xxxx
Add:	Cheques, cash directly deposited by customer Notes receivables collected by bank but not recorded in DB Income (interest, dividend etc) credited in bank statement but not in DB
Less:	Dishonoured cheques (NFS) Expenses and charges debited in bank statement but not in DB
Add:	Errors (more amount error recorded in cash book)
Less:	Errors (lower error amount recorded in cash book)
	Adjusted cash balances			xxxx

NSF cheques = Non-Sufficient Funds cheques. It is similar to bounced or dishonoured cheque

PROBLEM: 8

The bank statement for KP Traders on 30^th June 2020 indicates a balance of $91,000. The cash book records indicate $48,250 balance for the month of June:

Comparing the bank statement with cash book, the following reconciliations have been identified:

a. The bank has collected $10,300 for bills receivable; the face value of the bill was $10,000.

b. Bank credited interest on deposit $100.

c. A deposit of $18,500 representing receipts for June does not figure in the bank statement

d. Cheques issued but not presented for payment amounted to $30,000 and $22,000

e. A cheque drawn for $1,300 had been incorrectly charged by the bank as $3,100.

f. A cheque for $300 was recorded in the cash book as $2,400. The cheque was for the payment of purchase of office stationery on account.

g. Deposited check of $1,200 by the traders has been back as NSF.

h. Bank service charges for the month of June was $250.

Required: Prepare the bank reconciliation statement at the end of July.

[Answer: Adjusted cash balance = $59,300]

SOLUTION:

KP Traders

Bank Reconciliation Statement

For the month of March

			Amount $	Amount $
Balance as per bank statement June end 2020				91,000
Add:	Deposit in transit			18,500
	Cash recorded in depositor’s book but not in bank statement
Less:	Outstanding cheques (checks):	$30,000 + $22,000		(52,000)
Add:	Errors (error in charging 3,100 instead of 1,300)			1,800
	Adjusted bank statement			$59,300

Balance as per depositor’s book (DB)				48,250
Add:	Cheques/cash directly deposited by customers Bill receivables collected by bank but not recorded in DB Interest revenue on bill credited in bank statement Interest credited by bank on deposit money		– 10,000 300 100	10,400
Less:	Dishonoured cheques (NFS Check) Service charge debited by bank in bank statement but not in DB		1,200 250	(1,450)
Add:	Errors (cash book error recorded as 2,400 instead of Rs 300)			2,100
	Adjusted cash balance			$59,300