Term: 1^st Term

Week: 10

Class: Senior Secondary School 2

Age: 16 years

Duration: 40 minutes of 2 periods each

Date:       

Subject:      Financial accounting

Topic:-       Bank reconciliation

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

1. Prepare adjusted cash book
2. Prepare bank reconciliation statement, bank overdraft

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

PRESENTATION	TEACHER’S ACTIVITY	STUDENT’S ACTIVITY
STEP 1 INTRODUCTION	The teacher reviews the previous lesson on manufacturing account	Students pay attention
STEP 2 EXPLANATION	She shows the learners how to prepare an adjusted cash book	Students pay attention and participates
STEP 3 DEMONSTRATION	She shows the learners how to prepare bank reconciliation statement and bank overdraft	Students pay attention and participate
STEP 4 NOTE TAKING	The teacher writes a summarized note on the board	The students copy the note in their books

 

NOTE

BANK RECONCILIATION

Bank Reconciliation Statement is prepared to compare the balances of cash book and passbook and correct the mistakes recorded in them. The balance of deposits held at the bank is referred to as the debit balance. The same balance becomes the credit balance in the passbook. In some cases, a bank reconciliation statement is prepared firstly by correcting the cash book while generally, instead of correcting the cash book a statement is prepared to record all the rectifications. 

Preparation of Bank Reconciliation Statement:

 

Case 1: When Debit (Dr.)  Balance of Pass Book is given 

Illustration 1:

From the following particulars prepare a Bank Reconciliation Statement for John Brothers:

1. Dr. Balance as per Pass Book ₹2,20,000
2. Cheques issued but not presented in the bank for payment amounting to ₹1,30,000
3. Cheques deposited in the bank but not yet cleared amounting to ₹80,000
4. Bank charges amount to ₹500
5. Interest credited by the bank amounts to ₹1,500
6. Balance as per Cash Book ₹2,71,000

Solution:

Illustration 2:

On 31st March 2023, the Pass Book of Mr. Jindal showed a Dr. balance of ₹1,30,000, whereas Cash Book showed a balance of ₹1,14,450.

The following differences were identified:

1. Cheques issued amounting to ₹50,000, out of which only ₹22,000 were presented for payment.
2. Cheques amounting to ₹10,000 recorded in the cash book but not deposited in the bank.
3. Interest credited by bank amounting to ₹1,000 and bank charges debited ₹200.
4. Deposited an amount of ₹20,750 in the bank but not recorded in the cash book.
5. Cheques deposited amounting to ₹55,100 have not cleared yet.

Prepare a Bank Reconciliation Statement.

Solution:

Case 2. When Credit (Cr.)  Balance of Pass Book is given:

Illustration 1:

From the following particulars prepare a Bank Reconciliation Statement by taking the balance of pass book into consideration for Jindal Enterprises:

1. Balance as per Pass Book ₹5,00,000
2. Cheques issued but not presented in the bank amounting to ₹1,50,000
3. Cheques deposited in the bank but not yet cleared amounting to ₹80,000
4. Bank charges amount to ₹2,500
5. Interest credited by the bank amounts to ₹1,050
6. Balance as per Cash Book ₹4,31,450

Solution:

Illustration 2:

On 31st March 2023, the Pass Book of Geeks Ltd. showed a balance of ₹ 2,50,000, whereas Cash Book showed a balance of ₹2,13,750.

The following differences were identified:

1. Cheques deposited amounting to ₹ 20,500 have not been cleared yet.
2. Cheques amounting to ₹ 14,900 recorded in the cash book but not deposited in the bank.
3. Interest credited by bank amounting to ₹ 1,050 and bank charges debited ₹350.
4. Deposited an amount of ₹40,950 in the bank but not recorded in the cash book.
5. Cheques issued amounting to ₹65,000, out of which only ₹35,000 were presented for payment.

Prepare a Bank Reconciliation Statement.

Solution:

PREPARATION OF BANK RECONCILIATION STATEMENT WITH AMENDED CASH BOOK

A statement showing all the items of difference between the bank column of the Cash Book and the bank balance depicted in the Pass Book on a particular date and for a particular period of time is called Bank Reconciliation Statement. It is a statement prepared on a particular date to reconcile the bank balance of the Cash Book with the balance as per the Pass Book or vice-versa.

There are a number of differences that occur in the cash book balance and passbook balance due to various reasons. Thus, it is recommended to record these items in the cash book first and then find out the adjusted balance, also known as the amended balance, and then prepare the bank reconciliation statement. This will ensure that the number of items gets reduced, the differences also get reduced and the amount of balance in the balance sheet is thus correctly recorded.

 

Preparation of Bank Reconciliation Statement:

Steps Involved in the Preparation of Amended Cash Book

Step 1: Amended Cash Book is prepared with the bank column only and the balance of the cash book is transferred to Amended Cash Book.

Step 2: Necessary entries in the amended cash book will be made as follows:

 A.

1. Amount recorded in the passbook but not yet recorded in the cash book such as:
2. Interest allowed by the bank.
3. Interest charged by the bank on the overdraft balance.
4. Dividend directly collected by the bank.
5. Bank charges debited by the bank.
6. Payment made by the bank as per standing order.
7. Dishonor of cheques and bills receivables not yet recorded in the cash book.

 B.

1. All errors that have taken place in the cash book such as:
2. Overcasting in the debit/credit column of the cash book.
3. Undercasting in the debit/credit column of the cash book.
4. Double entry of any amount of the cash book.
5. Wrong entry of any amount in the cash book.
6. Amount omitted to be recorded in the cash book.

 

Step 3: After making all the above adjustments, the revised balance is calculated by balancing the amended cash book.

Step 4: Bank reconciliation statement is then prepared with the amended balance of the cash book by leaving all those items that are already adjusted in the amended cash book. It should be noted that the following items must not be recorded in the amended cash book:

1. Cheque was issued but not yet presented in the bank for payment.
2. Cheque was deposited but not yet credited by the bank.
3. Any wrong entry in the passbook.

 

Illustration 1:

On 31st December 2022, the cash book of GG Ltd. showed a Dr. balance of ₹7,928.  All receipts are banked, and payments are made by cheques. The following differences were noted:

1. Bank charges of ₹1,550 entered in the bank statement have not been entered in the cash book.
2. Cheques drawn amounting to ₹2,975 have not been presented to the bank for payment.
3. Cheques received totaling ₹5,840 have been entered in the cashbook and deposited in the bank, but have not been credited by the bank until January 2023.
4. A cheque for ₹248 has been entered as a receipt in the cash book instead of as payment.
5. A cheque for ₹592 has been debited by the bank in error.
6. A cheque received for ₹815 has been deposited by the bank but dishonored, no adjustment had been made in the cash book.
7. All dividends receivable are credited directly to the bank account. During December, an amount of ₹780 was credited by the bank and no entry is made in the cash book.
8. A cheque drawn for ₹659 has been incorrectly entered in the cash book as ₹695
9. Casting error in the bank column of cash book (excess credit) amounting to ₹639.

Prepare Bank Reconciliation Statement after preparing the Amended Cash Book.

Solution:

Illustration 2:

 The bank overdraft of Vijay on December 31, 2022, as per the cash book is ₹20,000. Prepare Bank Reconciliation Statement by taking the following into consideration: –

1. Cheques not presented for payment of ₹9,000
2. Uncleared cheques ₹2,500
3. Bank interest debited in the passbook only ₹500
4. Bills collected and credited in the passbook only ₹1,800
5. Cheque of Haris Brothers dishonored ₹2,000
6. Cheque issued to Birla Ltd. has not been yet entered in the cashbook ₹520.

Solution:

EVALUATION:    1.

From the following data, prepare a bank reconciliation and determine the correct available cash balance for Reed Company as of 2010 October 31.

Balance per bank statement, 2010 October 31	$13,974
Ledger account balance. 2010 October 31	8,088
Proceeds of a note collected by bank not yet entered in
ledger (includes $500 of interest)	6,000
Bank service charges not yet entered by Reed Company	18
Deposit in transit	1,680
Outstanding checks:
No. 327	654
No. 328	288
No. 329	390
No. 331	252

 

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively