(a) What is a Bank Reconciliation Statement? (b) State three reasons for preparing a bank reconciliation statement (c) Explain the following terms: i. unpre...

Answer Details

(a) What is a Bank Reconciliation Statement?

A bank reconciliation statement is a statement prepared to explain and reconcile the difference between the balance shown by the cash book (bank column) and the balance shown by the bank statement (pass book) on a particular date.

(b) Three reasons for preparing a bank reconciliation statement

• To detect errors and omissions made in the cash book or by the bank.
• To identify the causes of the difference, such as unpresented and uncredited cheques and bank charges.
• To reveal dishonoured cheques and possible fraud, and to bring the cash book up to date so the true bank balance is known.

(c) Explanation of terms

• Unpresented cheques: cheques drawn and issued by the firm and already entered (credited) in the cash book, but not yet presented to or paid by the bank.
• Standing order: a written instruction by a customer to the bank to make fixed, regular payments on the customer's behalf on stated dates (e.g. rent, insurance).
• Credit transfer: money paid directly into the firm's bank account by a third party (e.g. a debtor) without passing through the firm's cash book until discovered.