John Anderson started a peanut project in St Elizabeth. The following is a summary of his bank transactions for the month of May 2012:

CASHBOOK

DATE.	DETAILS	AMT	DATE	DETAILS	AMT
May 1 May 15 May 22 May 30 June 1	Bal b/d Sales (0167) D. Mattes (3164) G. T. Taylor (5186) Bal b/d	40,000 30,000 20,000 35,000 ---------- 125,000 ====== 59,000	May 1 May 8 May 9 May 16 May18 May 24 May 31	Insurance (0001) Rent (0002) Purchases (0003) K. Owen (0004) M. Price (0005) C. Francis (0006) Bal c/d	4,000 5,000 10,000 20,000 15,000 12,000 59,000 ---------- 125,000 ======

However, the statement received from the bank showed the following details

DATE	DETAILS	DR	CR	BALANCE
May 1 6 11 14 19 25 26 28 30 31	Balance 0001 0002 0003 0167 3164 Credit Transfer 81924 Standing Order Interest	4,000 5,000 10,000 8,000 15,000	30,000 20,000 15,000 2,000	40,000 36,000 31,000 21,000 51,000 71,000 86,000 78,000 63,000 65,000

We now need to prepare the bank reconciliation statement.

Step No.1 Compare the cashbook with the bank statement

A careful examination of both the cashbook and the bank statement reveals the following:

a) Cheque 5168 received from G. Taylor was recorded in the cashbook but not yet recorded in the bank statement. This is a late lodgement

b) Cheques 0004-6 paid out from the cashbook have not yet been cashed. These are un-presented cheques

c) On May 26 the bank added 15,000 to our balance. This is recorded as a credit transfer

d) On May 28 the bank paid out 8,000 by way of cheque # 81924. This is obviously an error since our cheques are numbered 0001-6

e) On May 30 the bank paid out 15,000 from our account. This is recorded as a standing order

f) On May 31 the bank added 2,000 to our account as interest.

Step No. 2 Update the cash book with entries made in the bank statement only

UPDATED CASHBOOK

DATE	DETAILS	AMT	DATE	DETAILS	AMT
June 1 June 1	Bal b/d Credit Transfer Interest Balance b/d	59,000 15,000 2,000 ------------- 76,000 ========= 53,000	June 1	Error (81924) Standing Order Balance c/d	8,000 15,000 53,000 ------------- 76,000 ========

Step No. 3 Complete the reconciliation with the items from the cashbook only

Balance as per Updated Cashbook 53,000

Add Un-presented Cheques 0004 20,000

0005 15,000

0006 12,000

47,000

100,000

Less Late Lodgement 5186 (35,000

Balance as per bank statement 65,000

ALTERNATIVE APPROACH

Another approach that could be taken is to ignore the process of updating the cashbook. In this case, the original balance in the cashbook is reconciled directly with the balance in the bank statement

As a means of ensuring that the items are posted correctly in this approach, the general rule is: starting with the balance in the cashbook, add all credits (whether in the bank statement or the cashbook) and deduct all the debits.

Thus the bank reconciliation statement would be done as follows:

Balance as per cashbook 59,000

Add: Credit Transfer 15,000

Interest Earned 2,000 17,000

76,000

Less: Error (81924) 8,000

Standing Order 15,000 (23,000)

53,000

Add Un-presented Cheques

(0004) 20,000

(0005) 15,000

(0006) 12,000 47,000

100,000

Less Late Lodgement (5186) (35,000)

Balance as per bank statement 65,000

OVERDRAFT BALANCES

In the event of an overdraft situation, the same procedures may be followed, provided that the overdraft amount is shown as a negative figure.

Every effort should be made to prepare the bank reconciliation statement each month. Failure to do so over a period of time will result in an unascertained cash balance. This will have implications for management’s decisions regarding the availability and use of its cash. The bank reconciliation statement also serves as a tool for internal control in the organization. All transactions must be recorded in a transparent manner; hence it will highlight areas of fraud, theft, or inaccuracies.