Theory question 101
Banking and Bank Reconciliation(a) Describe the following: (i) bank statement; (ii) bank reconciliation statement.
(b) Explain five causes of disagreement between the cash book and the bank statement balances.
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(a)(i) Bank statement: a copy of the customer's account prepared by the bank, showing dates, details, debits (withdrawals), credits (lodgements) and the running balance.
(ii) Bank reconciliation statement: a statement prepared by the customer at a date to explain the difference between the cash book bank balance and the bank statement balance, item by item.
(b) Any five: unpresented cheques (issued and entered in the cash book but not yet paid by the bank); uncredited lodgements (paid in but not yet credited by the bank); standing orders and direct debits paid by the bank but not in the cash book; bank charges and commission not yet entered in the cash book; credit transfers/dividends received directly by the bank; dishonoured cheques; errors in the cash book; errors by the bank.
Think of items one side knows about and the other does not yet.