Queuing Analysis

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Lecturer: Troy J. Wishart

ACT 1100Introduction to Accounting Summer CourseACT 1100Is EASY POP!

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Because, Excellence is my Style!Bank ReconciliationLecture Notes 8Bank ReconciliationIntroductionMonies deposited in and paid out of the businesss bank account are usually recorded in the Bank Column of the cash Book.The bank also keeps such a record of items deposited and paid from the account, which should obviously match with the business record.Bank ReconciliationIntroductionHowever, there might be items paid into and out of our account at the bank which we have not recorded in the cash book.

Bank ReconciliationIntroductionBank ReconciliationIntroductionThere may also be items that are recorded in the cash book, but not showing up on the bank account.

Bank ReconciliationIntroductionAs such, a Bank Reconciliation Statement should be prepared in order determine why there is a difference.

Bank ReconciliationDefinitionA calculation comparing the cash book with the bank balance.Made up of two (2) words Bank & Reconciliation

Bank ReconciliationDefinitionBank Closing balances onBank Column of the Cash BookBank Statement balance of the business bank account

Bank ReconciliationDefinitionReconciliation - is a process that comes from the root To Reconcile, which means:To Make agreeTo explain disagreement in order to make agree

Bank ReconciliationDefinitionReconciliation - is a process that comes from the root To Reconcile, which means:To bring into agreement or harmony; Make compatible or consistent: To reconcile differing statements; To reconcile accounts.

Bank ReconciliationDefinitionIt should show whether or not errors have been made either in the bank columns of the cash book or on the bank statement.

Bank ReconciliationDefinitionIt is not a statement of double entry but just one explaining the difference between the bank balance and the cash book bank column.

Bank ReconciliationWhy do we need it?The bank reconciliation statement is drawn up so as to cause the bank statement balance to agree with the cash book bank balance.

Bank ReconciliationWhy do we need it?To determine the items responsible for the difference and to correct the cash book bank balance, since the bank balance is needed for the balance sheet.

Bank ReconciliationReasons for DifferencesReasons for difference between the two sources of information are broadly categorized as:Bank ReconciliationReasons for DifferencesSpecific factors responsible for cash book balance and balance as shown by the bank statement being different:-Deposits in transitUnpresented chequesBank chargesBank creditsBank or depositors errorsBank ReconciliationDeposits in TransitCash deposits made at the end of the month into the business bank in one month but received and recorded by the bank in the following month.

Bank ReconciliationDeposits in TransitDeposits in transit at the end of one months would be included in the next month bank statement Therefore it must be deducted from the deposits for the month as per bank statementTo ascertain those deposits received during the month for that month.

Bank ReconciliationUnpresented Cheques These are cheques which have been paid and dispatched to individuals or business, but which have not been presented for payment at the payers bank.

Bank ReconciliationUnpresented Cheques In effect these are items that are entered on the credit side of the cash book and had not yet been entered in the banks records.

Bank ReconciliationUnpresented Cheques Unpresented cheques at the end of one month may be presented during the next month.

Bank ReconciliationUnpresented Cheques Those presented outstanding cheques from the previous period must be deducted from the cheques received during the month to derive those cheques paid and encashed at the bank during the month under consideration.

Bank ReconciliationBank ChargesThese are charges which have been dispatched to the depositors balance for such items as:Bank Services, Printing Cheques, Safe Deposit Rentals and Not Sufficient Funds (NSF) Cheques. The depositor may not be aware of these charges until the receipt of the bank statement.

Bank ReconciliationBank CreditsCollection or deposits by the bank for the benefit of the account holder that may not be known to them until the bank statement is received.

Bank ReconciliationBank or Depositors ErrorsErrors on either the part of the bank or the part of the depositor causing the bank balance to disagree with the depositors book balance.

Bank ReconciliationStanding OrderA standing order is a request by a customer for the bank to make payments to third parties on a periodic basis.

Bank ReconciliationStanding OrderThe customer records the transaction in his books on receipt of his bank statement, as he is unaware as to when or if the bank had made the payment on his behalf.

The Bank Reconciliation MODEL

Bank ReconciliationModel

NAMEBANK RECONCILIATION STATEMENT FOR MONTH, YEARBALANCE AS PER CASH BOOK 000

Add:Note Collectible, Direct Deposit Bank Credit 00Interest on Note 00Interest Earned 00Cash Book Error: Understated Deposit 00Cash Book Error: Overstated Cheque 00Cash Book Error: Omitted Deposit 00 000 000

Less:Deductions

BALANCE AS PER Bank Statement 000

Add:Deposits in transit 00Bank Error: Understated Deposit 00Bank Error: Overstated Cheque 00Bank Error: Incorrect Deductions 00Bank Error: Omitted Deposit 00 000 000

Less:Deductions

Bank ReconciliationModel

NAMEBANK RECONCILIATION STATEMENT FOR MONTH, YEARBALANCE AS PER CASH BOOK 000

Add:Additions

Less:Bank Charges 00Standing Order 00Interest Paid 00Dishonoured Cheques 00Cash Book Error: Overstated Deposit 00Cash Book Error: Understated Cheque 00Cash Book Error: Omitted Cheque 00 (000) Corrected Cash Book Balance 000BALANCE AS PER Bank Statement 000

Add:Additions

Less:Unpresented Cheques 00Bank Error: Overstated Deposit 00Bank Error: Understated Cheque 00Bank Error: Incorrect Increases 00Bank Error: Omitted Cheque 00 (000)

Corrected Bank Statement Balance 000Bank ReconciliationDishonoured ChequesWhen a cheque is received from a customer and paid into the bank, it is recorded:Debit Side of the Cash Book Bank ColumnCredit Side of the Bank Statement.

Bank ReconciliationDishonoured ChequesIf at a later date the customers bank refuses to pay us the amount due on the cheque This is known as a Dishonoured Cheque.

Bank ReconciliationDishonoured ChequesThere are several reasons for this as shown in this example Let us suppose that K. King gave us a cheque for $5,000 on May 20, 2002. We bank it and a few days later the bank returns the cheque to us. Figures and Words Dont Match If King had put $5,000 in figures, but had written in words five thousand five hundred dollars on the cheque This cheque would not be honoured by the bank and would have to be returned to King for amendment.Bank ReconciliationDishonoured ChequesThere are several reasons for this as shown in this example Let us suppose that K. King gave us a cheque for $5,000 on May 20, 2002. We bank it and a few days later the bank returns the cheque to us. Stale Dated Cheques Cheques are considered stale dated after six (6) months after the date on the cheque. The bank will not pay cheques 6 months old.

If King had put 2001 on the cheque instead of 2002 then the cheque would be returned by the bank.Bank ReconciliationDishonoured ChequesThere are several reasons for this as shown in this example Let us suppose that K. King gave us a cheque for $5,000 on May 20, 2002. We bank it and a few days later the bank returns the cheque to us. Not Sufficient Funds Cheques If King only had a balance of $2,000 in his account the bank will not honour the cheque of $5,000 because it will result in a overdraft on his account.The bank will write on the cheque refer to drawer and return in to us as a dishonoured cheque.Bank ReconciliationDishonoured ChequesAccounting Entries

20022002K. KingMay 1Balance b/d5,000May 20Bank5,000May 25Bank: Dis Chq5,00020022002Bank AccountMay 20K King5,000May 25Bank: Dis Chq5,000Bank ReconciliationBank OverdraftAn overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn".It is shown by a credit balance in the cash book or a debit balance on the bank statement.The adjustment needed to reconcile the bank overdraft is the complete opposite of an account that is not overdrawn.

Bank ReconciliationBank Overdraft ComparisonBalances Overdraft $ $Balance/Overdraft as per cash book 0000 0000AdjustmentsUnpresented Cheques Plus LessBank lodgments Less PlusBalance/Overdraft per Bank Statement 0000 0000