Bank Reconciliation and the Cash Book
Bank Reconciliation and the Cash Book
This domain tests the cash book's bank column and the reconciliation of the cash book balance to the bank statement. SPM questions commonly require an adjusted cash book and a bank reconciliation statement, including overdrafts.
Core rules
- The cash book records the business's record of bank receipts and payments; the bank statement records the bank's view.
- Items already in the cash book but not the bank statement: unpresented cheques and deposits not yet credited.
- Items in the bank statement but not the cash book must first be entered in the cash book: bank charges, interest, standing orders, direct debits, dishonoured cheques and bank errors.
- After updating the cash book, reconcile: Bank statement balance + deposits not credited - unpresented cheques = adjusted cash book balance (reverse signs for overdrafts).
Worked example
Cash book debit balance RM3,200. The bank statement shows bank charges RM150 and a standing order RM250 not yet in the cash book. Adjusted cash book = RM3,200 - RM150 - RM250 = RM2,800. The statement also shows unpresented cheques RM900 and deposits not credited RM600. Bank statement balance = RM2,800 + RM900 - RM600 = RM3,100. Check: RM3,100 - RM900 + RM600 = RM2,800.
Traps
- Preparing the reconciliation before updating the cash book.
- Adding unpresented cheques instead of deducting them.
- Treating a bank overdraft as a positive balance.
- Forgetting that a dishonoured cheque is reversed in the cash book.
Key points
- Update cash book first
- Unpresented cheques reduce statement balance
- Deposits not credited increase it
- Bank charges reduce cash book
- Overdrafts need opposite signs