Bank Reconciliation Statements and Control Accounts
What the exam tests
This domain tests reconciliation of the cash book with the bank statement and the use of receivables and payables control accounts. It examines timing differences, bank errors and ledger control totals.
Core rules
- Adjust the cash book first for items the bank has recorded but the entity has not: bank charges, interest, standing orders, direct credits, dishonoured cheques and bank errors.
- Then reconcile using outstanding items: unpresented cheques and uncredited deposits.
- Bank statement balance = adjusted cash book balance + unpresented cheques - uncredited deposits (for a debit cash book balance).
- Receivables control account: opening balance + credit sales - returns inwards - receipts - discounts allowed - bad debts = closing balance.
- Payables control account mirrors this with purchases, returns outwards, payments and discounts received.
Worked example
Cash book shows a debit balance of N120,000. Bank charges are N5,000 and a customer's direct credit is N30,000. Adjusted cash book = 120,000 - 5,000 + 30,000 = N145,000. Unpresented cheques are N40,000 and uncredited deposits are N25,000. Bank statement balance = 145,000 + 40,000 - 25,000 = N160,000. If the statement shows N160,000, the reconciliation is proved.
Traps
Do not adjust the cash book for unpresented cheques; they are already recorded. Do not reverse the signs: unpresented cheques increase the statement balance relative to the cash book, uncredited deposits reduce it. A control account balance is not absolute proof against fraud or error.