Theory question 102
Banking and Bank Reconciliation(a) What is a Bank Reconciliation Statement?
(b) State three reasons for preparing a bank reconciliation statement.
(c) Explain the following terms: (i) unpresented cheques; (ii) standing order; (iii) credit transfer.
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(a) A statement prepared by a current account holder at a given date to show why the bank column of the cash book and the bank statement balance differ, and to bring them into agreement.
(b) Any three: to explain the difference between the two balances; to discover errors or omissions in the cash book or by the bank; to update the cash book with items such as bank charges and standing orders; to detect fraud; to confirm the correct bank balance for the balance sheet.
(c)(i) Unpresented cheques: cheques issued and entered in the cash book but not yet presented to the bank for payment.
(ii) Standing order: a customer's instruction to the bank to pay a fixed amount to a named person at regular intervals.
(iii) Credit transfer: money paid directly into a customer's bank account by a third party (e.g. a debtor), often not yet in the cash book.
Give one clear sentence for each term.