Bank Reconciliation and Control Accounts
What the exam tests
This domain tests reconciliation of the cash book to the bank statement, treatment of timing differences and bank charges, and the purpose of receivables and payables control accounts. Expect adjusted cash book and reconciliation statement calculations.
Core rules
- Items on the bank statement but not in the cash book are adjusted in the cash book: bank charges, interest, standing orders and direct debits/credits.
- Items in the cash book but not yet on the statement are timing differences: unpresented cheques and deposits not yet credited.
- A receivables control account summarises total receivables; a payables control account summarises total payables. They help locate errors and deter fraud.
Worked example
Cash book shows a debit balance of 1,500. The bank statement shows bank charges of 50 not yet recorded. Adjusted cash book = 1,500 - 50 = 1,450. There are unpresented cheques of 600 and deposits not credited of 300. Balance per bank statement = 1,450 + 600 - 300 = 1,750 credit. The charges are a cash book adjustment; the cheques and deposits are reconciliation items only.
Traps
Do not add unpresented cheques to the cash book balance. Do not put bank charges in the reconciliation statement after already adjusting them in the cash book. Watch debit and credit balances: a cash book debit balance is an asset, while a bank statement credit balance means money at the bank. Do not use control accounts as substitutes for individual ledger records.
Key points
- Adjust the cash book for items appearing only on the statement.
- Reconcile using unpresented cheques and deposits not credited.
- Bank charges reduce the cash book balance.
- Control accounts summarise many individual balances.