INTERNAL CHECK ON ACCURACY OF CASH BOOK

Untitled Slide

• Bank statement = copy of customer’s account in books of bank
• However,
• Cash book balance different from bank statement balance (should be same)

REASONS FOR DIFFERENCES

• Timing differences
• Information differences
• Errors (in cash book or bank statement)

TIMING DIFFERENCES

• Unpresented cheques
• Uncredited deposits/ uncredited lodgement/ uncredited cheques

WHAT ARE UNPRESENTED CHEQUES?

• Issued as payment by bank but
• Cheques not yet presented for payment
• When cheques are presented for payment, then the firm’s account will be debited

UNCREDITED DEPOSITS

• Cheques deposited at bank but
• Not yet been credited by bank yet
• In general, few days taken in clearing the cheques

UNPRESENTED CHEQUES AND UNCREDITED DEPOSITS USED TO PREPARE BANK RECONCILIATION STATEMENT

INFORMATIONAL DIFFERENCES

• On the other hand
• Transactions appear on bank statement but not in cash book
• These transactions will be used to update the cash book

EXAMPLES OF INFORMATIONAL DIFFERENCES

• Standing order (fixed)
• Direct debit (not fixed, irregular payments)
• Bank charges
• Interest on overdraft
• Cheque dishonoured
• Credit transfer
• Interest received
• Dividend received

STEPS TO PROCEED

STEPS

• Prepare updated cash book (search for informational differences)
• Prepare bank reconciliation statement ( using timing differences)

WORKED EXAMPLE

EXAMPLES

• At 31st July 2018, Ben had a debit balance of $8000 in his cashbook, his bank statement showed a credit balance of $5600 at the same date

EXAMPLE CONTINUED..

• The following discrepancies were found
• Bank charges $150
• Dividend received $450
• Uncredited cheques $3500
• Cheque dishonoured $1200
• Unpresented cheques $2000

REQUIRED: I) UPDATED CASH BOOK

QUESTIONS WHERE A BANK STATEMENT AND A CASH BOOK IS GIVEN

STEPS TO PROCEED

• Compare the entries in the cash book with the bank statement
• Tick items that are found in both cash book and bank statement
• Be sure to tick all of the items in both places.
• Use the ‘untick’ items in the bank statement to prepare the updated cash book
• Prepare a bank reconciliation statement by using ‘untick items’ from the cash book

UNTICK ITEMS IN CASH BOOK

NOTE

• In cash book:
• Cash at bank = debit balance
• Bank overdraft = credit balance

HOWEVER, FROM BANK’S POINT OF VIEW

IN BANK STATEMENT

• Cash at bank = credit balance ( represents a liability for the bank; must pay that money on demand)
• Bank overdraft = debit balance( represents an asset for bank; customer owes money to the bank )

TO THE FIRM, A DEPOSIT AT BANK = ASSET

TO THE BANK, A DEPOSIT AT BANK = LIABILITY

WHEN THE BANK IS CREDITING YOUR ACCOUNT, WHAT DOES IT MEAN?