Theory question 101
Banking and Bank ReconciliationSection A (answer two questions only from this section)
1. (a) What is a (i) bank statement? (ii) bank reconciliation statement? (b) State four reasons for the need for a bank reconciliation.
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(a)(i) A bank statement is a copy of the customer's account as kept by the bank, sent regularly, showing deposits, withdrawals, charges and the balance.
(ii) A bank reconciliation statement is a statement prepared by the customer to explain the difference between the cash book (bank column) balance and the bank statement balance on a date.
(b) Any four reasons/causes it is needed: unpresented cheques (issued but not yet paid by the bank); uncredited lodgements (paid in but not yet credited); bank charges and interest not yet in the cash book; standing orders and direct debits; direct credits/transfers by customers and dividends received; dishonoured cheques; errors in the cash book or by the bank. It also helps detect fraud and confirms the correct bank balance for the balance sheet.
Define each statement in one sentence, then give four clear causes of difference.