Bank Reconciliation Statements and Control Accounts
Bank Reconciliation Statements and Control Accounts
This domain tests reconciliation of the cash book with the bank statement and the use of receivables and payables control accounts.
Bank reconciliation rules
- The cash book bank column records the business's view; the bank statement records the bank's view.
- Timing differences include unpresented cheques and uncredited lodgements.
- Items known to the bank but not the business include bank charges, interest, standing orders and direct credits; adjust the cash book first.
- Errors must be traced to the correct book before adjusting either balance.
Control accounts
Receivables and payables control accounts summarise the individual ledger balances. Sources include credit sales, credit purchases, cash receipts and payments, returns, discounts, bad debts and contra settlements. The control account balance should agree with the list of individual balances.
Worked example
Cash book debit balance is ₦120,000. Bank charges of ₦5,000 are not yet recorded, so the adjusted cash book is ₦115,000. The bank statement shows a credit balance of ₦130,000. Unpresented cheques are ₦40,000 and uncredited lodgements are ₦25,000. Reconciliation: ₦130,000 + ₦25,000 − ₦40,000 = ₦115,000. The two views now agree.
Traps that cost marks
- Adding unpresented cheques instead of deducting them.
- Forgetting to adjust the cash book for bank charges first.
- Treating a bank error as a cash book error.
- Assuming a control account replaces the individual ledgers.
- Missing contra settlements between receivables and payables.