Bank Reconciliation Statements (Cambridge (CIE) IGCSE Accounting)

Revision Note

Purpose of a Bank Reconciliation Statement

What is the purpose of a bank reconciliation statement?

  • If the balance on the bank statement is different to the bank balance in the cash book, then the business produces a bank reconciliation statement

  • This is a statement which explains why the balances are different

  • The cash book can be updated with missing transactions that are on the bank statement

  • However, the business cannot update the bank statement with missing transactions that are in the cash book

    • A bank reconciliation statement is needed to show these

  • It contains details of any:

    • Unpresented cheques

    • Uncredited deposits

    • Errors

Preparing a Bank Reconciliation Statement

How do I prepare a bank reconciliation statement?

  • STEP 1
    Update the cash book using the bank statement

    • Calculate the updated balance

  • STEP 2
    Start the bank reconciliation statement with the balance shown on the bank statement

    • Make sure you check whether the balance represents money in the bank or the amount that the bank account is overdrawn

      • A debit balance on the bank statement represents an overdraft

  • STEP 3
    Add any uncredited deposits

    • These are the debit entries in the cash book that are missing from the bank statement

    • If there is more than one, then

      • Add these amounts together in the left column of the bank reconciliation statement

      • Put the total in the right column

    • Add the total to the balance shown on the bank statement

  • STEP 4
    Add any bank errors that have decreased the balance on the bank statement

    • Total these together with the previous entries

  • STEP 5
    Subtract any unpresented cheques

    • These are the credit entries in the cash book that are missing from the bank statement

    • If there is more than one, then:

      • Add these amounts together in the left column of the bank reconciliation statement

      • Put the total in the right column

    • Subtract the total from the current amount in the right column in the statement

  • STEP 6
    Subtract any bank errors that have increased the balance on the bank statement

    • Total these together with the previous entries

  • STEP 7
    Check that this amount is equal to the bank balance shown in the cash book

    • If the balance is negative, then the cash book should have a credit balance

Add the uncredited deposits to the balance on the bank statement and then subtract the unpresented cheques.
Example of a bank reconciliation statement

Examiner Tips and Tricks

Compare the cash book and the bank statement. If a transaction appears on both of them, then put a tick next to the transaction in the cash book and on the bank statement. Then you just need to use the unticked entries in the cash book to complete a bank reconciliation statement.

Can I start the bank reconciliation statement with the balance shown in the cash book?

  • You can create the bank reconciliation statement using the reverse order:

    • Start with the balance shown in the cash book

    • Add the unpresented cheques

    • Subtract the uncredited deposits

    • Check that it is equal to the balance shown on the bank statement

Examiner Tips and Tricks

Always double-check whether the balance is positive or negative. This is the main reason why students lose marks in an exam!

Worked Example

Leo is a sole trader. On 31 March 2024, his bank statement showed that his business bank account was $345 overdrawn. On the same date, his cash book showed a credit balance of $395. Leo identified that some transactions were entered into his cash book but did not appear on his bank statement. These transactions are shown in the following extract of the cash book.

Extract of Cash Book (Bank columns)

Date

Details

$

Date

Details

$

Mar 9

Jacob

500

Mar 5

Pru

200

29

Commission receivable

300

23

Wages

750

Leo also noticed an error on his bank statement. A cheque paid for $100 for office expenses had been mistakenly processed twice by the bank.

Prepare the bank reconciliation statement for Leo at 31 March 2024.

Answer

  • Leo’s business bank account is overdrawn

    • So the bank reconciliation statement will start with a negative amount

  • The debit entries are the uncredited deposits

    • Their total will need to be added to the bank statement balance

  • The credit entries are the unpresented cheques

    • Their total will need to be subtracted from the bank statement balance

  • The error has caused his bank balance to be lower than it should be

    • Therefore, the amount of the bank error will need to be added to the bank statement balance

  • The cash book has a credit balance

    • Therefore this is a negative amount

Leo
Bank Reconciliation Statement at 31 March 2024

$

$

Balance on bank statement

(345)

Add:

Uncredited deposits

     Jacob

500

     Commission receivable

300

Bank error

100

900

555

Less:

Unpresented cheques

     Pru

200

     Wages

750

(950)

Balance in cash book

(395)

Last updated:

You've read 0 of your 5 free revision notes this week

Sign up now. It’s free!

Join the 100,000+ Students that ❤️ Save My Exams

the (exam) results speak for themselves:

Did this page help you?

Dan Finlay

Author: Dan Finlay

Expertise: Maths Lead

Dan graduated from the University of Oxford with a First class degree in mathematics. As well as teaching maths for over 8 years, Dan has marked a range of exams for Edexcel, tutored students and taught A Level Accounting. Dan has a keen interest in statistics and probability and their real-life applications.

Lucy Kirkham

Author: Lucy Kirkham

Expertise: Head of STEM

Lucy has been a passionate Maths teacher for over 12 years, teaching maths across the UK and abroad helping to engage, interest and develop confidence in the subject at all levels.Working as a Head of Department and then Director of Maths, Lucy has advised schools and academy trusts in both Scotland and the East Midlands, where her role was to support and coach teachers to improve Maths teaching for all.