F3-bank-reconciliation

ACCA–PaperF3FINANCIALACCOUNTINGLecture20Presentedby:AimeeLinTopiclists1.BankreconciliationsCh15Bankstatement•Bankstatement–Sentbyabanktoitscustomer–Itemizingthebalanceontheaccountatthebeginningoftheperiod,receipts,paymentandthebalanceattheendoftheperiod.–Creditbalanceinthebankstatement•There’smoneyinyourbankaccount•Bankowesumoney–Debitbalanceinbankstatement•Donothavemoneyinyourbankaccount•CustomeroweBankmoneyBankReconciliation•Comparethebalanceinthecashbookinthebusiness’srecordstothebalanceheldbythebank(bankstatement)•Difference–shouldbeidentifiedandsatisfactorilyexplainedWhatmakesthedifferences?1.Timedifferences:–Unrecordedlodgments(moneypaidintothebankbythebusinessbutnotyetappearingasareceiptonbankstatement)–Outstanding/unpresentedcheques(chequespaidoutbybusinesswhichhavenotyetappearedonbankstatement).2.Errorsbythebusiness(i.e.inthecashbook):Omissions,suchas:StandingordersDirectdebitsBankchargesinterestTranspositionerrorsCastingerrors3.ErrorsbythebankWhatmakesthedifferences?Terminologyusedfortypicalreconcilingitems•Bankcharges.Bankdonotusuallysendusaninvoiceforbankcharges,instead,theywilldirectlytakeoutthemoneyfromourbankaccount.•Debtorspaydirectlyintothebankinsteadofsendingusacheque.•Unpresentedcheque.Eg.AchequehadbeenpaidtoMonJan30.HebankedinathisbankonJan31butitwasnotpresentedtobankuntilFeb2.Terminologyusedfortypicalreconcilingitems•Banklodgment–notyetcredited.Eg.Althoughwehadreceivedachequefor$470fromJonJan31,wedidnotbankituntilFeb1.thiswillbeknownasa“banklodgmentnotyetcredited”toourbank’saccount(lodgmentoutstanding)•Standingorder.–Afirmcaninstructitbanktopayregularamountsofmoneyatstateddatestopersonorfirms.Forinstance,youmayaskyourbanktopay$200amonthtoanfinancecompanytorepayahirepurchase.Terminologyusedfortypicalreconcilingitems•Directdebits.•Thesearepaymentswhichhavetobemade,suchasinsurancepremiumsandsimilaritems.Insteadofuaskingthebanktopaythemoney,aswithstandingorders,yougivepermissiontothecreditortoobtainthemoneydirectlyfromyourbankaccount.•Withstandingorders,thebankchargethepaymentsdirectlyfromuraccountwithoutreminders.Awordofwarning•Inthebooksofthebusiness:–Positivebankbalance=asset=debit–Negativebankbalance(overdraft)=liability=credit•Butfromthebank’spointofview:–Positivebalance=liability=credit(thebankowesyouyourmoney)–Negativebalance(overdraft)=asset=debit(youowethebank–thisisanassetforthebank)StepsforPreparingabankreconciliationa)Comparethebankstatementtothecashaccountandtickoffallitemswhichagree.b)Remainingitemsmustrepresenttimingdifferencesorerrors–decidewhich!c)Updatecashbookforitemsnotyetrecordedd)Itemsrecordedinthecashbookbutnotyetappearinginthebankstatement-reconcilingitemsTIPS!!!!a)Onreconciliation,putoverdraftsandpaymentsinbrackets.b)ItisthecorrectedcashaccountbalancewhichisshownontheSOFP.Formatofabankreconciliationstatement•Bankreconciliationstatementasat...$BalanceasperBankstatementXAdd:DepositsnotyetcreditedX(chequepaidin&recordedincashbookbutnotyetRecordedinbankstatement-outstandinglodgementLess:Unpresentedcheque(X)BalanceasperCashBookX•Or$BalanceasperCashBookXAdd:UnpresentedchequeXLess:Depositsnotyetcredited(X)BalanceasperBankstatementX•Inclassactivity–bankreconciliation(TSmith)