Bank reconciliation and petty cash (including cash books)
What the examiner tests
This section tests whether you can reconcile the cash book bank column with the bank statement and operate a petty cash imprest.
Core rules
- The cash book bank column is the business's record; the bank statement is the bank's record. A debit balance in the cash book corresponds to a credit balance on the statement.
- Timing differences: unpresented cheques (cash book credit, statement not yet debit) and deposits not yet credited (cash book debit, statement not yet credit).
- Items only on the statement: bank charges, interest, standing orders, direct debits, dishonoured cheques and bank errors. These must be entered in the cash book first.
- Petty cash imprest: a fixed float is restored by reimbursing the exact value of vouchers paid. Vouchers support every payment and are analysed into expense columns.
Worked example
Cash book bank column shows N$3,100 debit. The bank statement shows N$3,200 credit. Unpresented cheques are N$700; deposits not credited are N$500; bank charges are N$100. Adjusted cash book: 3,100 − 100 = N$3,000. Reconciliation: statement 3,200 + deposits not credited 500 − unpresented cheques 700 = N$3,000. Petty cash: imprest N$1,000, vouchers N$640, cash in hand N$360. The reimbursement is N$640, which restores the float to N$1,000 and records the expenses.
Traps
Do not add bank charges to the cash book; they reduce it. Do not put unpresented cheques on the same side as the statement balance. Do not reconcile before updating the cash book. Do not treat the petty cash reimbursement as a profit or as a new expense total; it is the sum of the vouchers.