Lesson Notes By Weeks and Term - Senior Secondary 2

Term: 1^st Term

Week: 9

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. Differentiate between bank reconciliation and bank statement
2. Interpret bank statement
3. Enumerate the causes of discrepancies between cash book and bank statement

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

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

NOTE

BANK RECONCILIATION

A Bank Statement and a Bank Reconciliation Statement are often considered as same. But there are differences between them. A Bank Pass Book is the true copy of the account of the customer in the books of the bank, whereas a Bank Reconciliation Statement is a statement prepared mainly to reconcile the differences between the ‘Bank Balance’ shown by the Cash Book and Bank Pass Book. 

Bank Statement/Bank Pass Book:

 A copy of the account, of the account holder in the books of the bank, is known as Bank Statement or Bank Pass Book. It is issued by the bank to the account holder so that entries in the Bank Reconciliation Statement or Bank Pass Book can be compared with the entries in the Cash Book and the difference is determined.

A debit balance in the Bank Statement or Bank Pass Book means an amount payable by the account holder to the bank, whereas a credit balance means an amount payable by the account holder, i.e., an amount receivable by the account holder from the bank.

Bank Reconciliation Statement: 

A statement prepared by the account holder on a particular date (any date of the year) to reconcile the Bank Balance as per the Cash Book(record of the account holder) with the balance as per Bank Statement or Bank Pass Book (record of the bank) showing entries that are reasons for the difference between the two balances is known as Bank Reconciliation Statement

Difference between Bank Statement/Pass Book and Bank Reconciliation Statement

Causes of Difference in Bank Reconciliation Statement (BRS)

Reconciliation statement is a record book which lists the changes that appear in either book (cashbook or passbook). Here are the causes of discrepancies in the bank statement and cash book;

1. Errors a Bank or Business make

Sometimes there is no discrepancy in comparing entries because there is a discrepancy in posting! This causes a difference between the bank balance statement and the cash book balance shown.

2. Errors committed by Firm

Wrong totaling of notes while depositing, omission or wrong recording of amounts of cheques issued, etc. are some major drawbacks. The reconciliation addresses this major issue and resolves it.

3. Errors committed by Bank

Wrong recording of transactions related to cheque while posting it or wrong totaling results in a difference in cashbook and passbook.

4. Time Difference in Recording Entry

When a bank cross checks bank statement and business cash book, there are innumerable errors present due to the time gap. The factors affecting this time gap are as follows:

5. Cheques issued by the bank but not yet presented for payment

The bank works in advance to provide faster services. It adds money to the beneficiary’s account as it encounters a cheque. Afterward, it looks for the credited amount in the supplier’s account. If it is unable to find the balance amount, it deducts from the beneficiary’s account and returns the cheque with fault charges.

The bank statement excludes it but the cash book might have recorded it. therefore, it becomes a time discrepancy.

6. Cheques paid but not collected

When a firm receives a cheque, the cash book posts the entry for the business firm. Whereas a bank takes 34 days to clear a cheque and the entry then finds a place in the bank statement.

That too on working days. it might take longer. The time difference leads to a cause of discrepancy in bank balance and cashbook entries.

7. Direct debits made by Bank

The services provided by a bank requires a nominal fee. The bank deducts money from the firm’s account without them knowing it. The firm gets to know this directly through the bank statement.

For example, interest on overdraft, cheque bounced or stopped charges, incidental charges, etc. As a result, the balance in passbook will be less than the balance in cash book.

8. Amount directly deposited in the bank

There may be a situation where a debtor submits an amount to a firm’s account and the firm receives no message regarding the same. In this situation, the passbook balance rises and the cashbook balance doesn’t.

9. Interests collected by the bank

The bank directly adds interest to a firm’s account and the only medium of its knowledge is bank statement. The firm jots down the interest after issuing the bank statement. They are noted in the final balance additions in the cash book.

EVALUATION:    1. Differentiate between bank reconciliation and bank statement

2. Discuss the causes of discrepancies in the bank statement and cash book

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively