Bank Reconciliation (Cambridge (CIE) IGCSE Accounting): Flashcards
Exam code: 0452 & 0985
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From whose point of view is a bank statement written, and what does that mean for its entries?
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From whose point of view is a bank statement written, and what does that mean for its entries?
From the bank's point of view. A debit entry means money has left the account, and a credit entry means money has entered it.
Complete the sentence about a bank statement's balance:
On a bank statement, a
balance means the account is overdrawn.The completed sentence is:
On a bank statement, a debit balance means the account is overdrawn.
Define an unpresented cheque.
An unpresented cheque is one the business has written but which the recipient has not yet paid into their bank. It is in the cash book but has not yet reached the bank statement.
Which items appear on the bank statement but not yet in the cash book?
Bank transfers the business has not recorded, such as direct debits, standing orders, credit transfers and dividends. Also amounts applied by the bank itself, such as bank charges and interest, and any dishonoured cheques.
Define an uncredited deposit.
An uncredited deposit is money the business has paid in but which the bank has not yet cleared. It is in the cash book but has not yet reached the bank statement.
True or False?
A business can correct an error that it finds on its bank statement.
False.
Only the bank can correct its own error, so the business must tell them and ask for it to be put right. Errors in the cash book are the business's own to fix.
How do you enter a bank statement transaction into the cash book?
Debit the cash book if the transaction increased the bank balance, and credit it if the transaction decreased it. The entries are the opposite way round from how they appear on the bank statement.
Give two reasons why a bank might dishonour a cheque.
A cheque may be dishonoured because:
it is not dated or signed
the amount written in words does not agree with the amount in figures
the person who wrote it has insufficient funds to cover it
After updating the cash book, why might the two balances still not match?
Because of timing: cheques written or paid in may not have cleared the bank yet. Those differences cannot be entered anywhere, so a bank reconciliation statement is prepared to explain them.
What is the purpose of a bank reconciliation statement?
It explains why the balance on the bank statement differs from the bank balance in the cash book. It sets out the unpresented cheques, uncredited deposits and errors that account for the gap.
True or False?
Uncredited deposits are debit entries in the cash book that are missing from the bank statement.
True.
They are money the business has paid in that the bank has not yet cleared, so they sit on the debit side of the cash book with nothing to match on the statement. Unpresented cheques are the mirror image, on the credit side.
Why is a reconciliation statement needed rather than simply updating the records?
The cash book can be updated with anything missing from it, but the business cannot alter the bank statement. The differences that remain have nowhere to be entered, so a statement is prepared to show them.
Complete the sentence about working in the reverse direction:
Starting from the cash book balance instead, you
the unpresented cheques and the uncredited deposits.The completed sentence is:
Starting from the cash book balance instead, you add the unpresented cheques and subtract the uncredited deposits.
What must you do before preparing a bank reconciliation statement?
Update the cash book using the bank statement, and work out the new balance. The reconciliation then explains only what is left over after that.
Starting from the bank statement balance, what is added and what is subtracted?
Add the uncredited deposits and subtract the unpresented cheques. Bank errors are added if they left the statement balance too low, and subtracted if they left it too high.
What does a negative figure at the end of a bank reconciliation statement mean?
It means the cash book should show a credit balance, so the business is overdrawn on its own records too. A positive figure means a debit balance, with money in the bank.
A bank statement shows an account $345 overdrawn, with uncredited deposits of $900 and unpresented cheques of $950. What is the cash book balance?
The cash book shows a credit balance of $395, so it is overdrawn as well. Starting at −$345, adding $900 gives $555, and subtracting $950 gives −$395.
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