Bank Reconciliation Statements and Control Accounts
What the domain tests
This domain tests reconciliation of the cash book bank balance with the bank statement, and the preparation of receivables and payables control accounts. You must distinguish timing differences from errors and know which items enter the adjusted cash book.
Bank reconciliation rules
Items appearing in the bank statement but not the cash book are entered in the adjusted cash book: bank charges, interest, standing orders, direct debits, dishonoured cheques, and dividends or transfers credited by the bank. Items in the cash book but not yet on the statement are timing differences: unpresented cheques and uncredited deposits. Errors by the trader are corrected in the cash book; errors by the bank are notified to the bank.
The reconciliation is: balance per adjusted cash book + unpresented cheques − uncredited deposits = balance per bank statement.
Control accounts
- Receivables (sales ledger) control: opening debit balance + credit sales − receipts − discount allowed − sales returns − bad debts + interest charged = closing debit balance.
- Payables (purchase ledger) control: opening credit balance + credit purchases − payments − discount received − purchases returns = closing credit balance. Contra entries reduce both control accounts. A credit balance in the receivables ledger is a payable and is shown separately.
Worked example
Cash book bank column shows a debit balance of 500,000 FCFA. The statement shows bank charges of 20,000 and a standing order of 10,000, neither in the cash book. Unpresented cheques total 120,000; deposits not yet credited total 80,000.
- Adjusted cash book: 500,000 − 20,000 − 10,000 = 470,000.
- Bank statement: 470,000 + 120,000 − 80,000 = 510,000. The 40,000 difference between the original cash book and the statement is explained entirely by the two charges and the two timing items.
Traps
Do not put unpresented cheques in the adjusted cash book; they are timing differences. A dishonoured cheque reduces the cash book and is also reversed in the customer's account. Do not treat a bank overdraft as a negative asset in the reconciliation; label it clearly. In control accounts, opening balances must be on the correct side, and contra entries affect both controls.