The Importance of Rendering Bank Statement and Reconciliation.

 

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INTRODUCTION

Accounting, is a system for collecting, summarizing, analyzing, and reporting, in monetary terms, information about an organization. In accounting, a record is made only of those facts that can be expressed in monetary terms. The cheques that you write or (hopefully) that you receive, the bank statement, the bills which you are expected to pay, all these are part of the accounting system. Before proceeding to discuss the importance of Bank Statements and Reconciliation it is important to explain the importance of cash book and Banking.

A Cash Book is essentially a book in which are recorded detailed particulars of all moneys received and paid. Primarily, the function of the banker is the acceptance of deposits of money from people on the understanding that the banker will repay such money, or a portion of it, as and when required, to the depositors or to any person or persons nominated by them. For ordinary business purposes you maintain Current Accounts with banks, to which you make lodgments and on which you draw cheques in favor of your creditors.

TYPES OF ACCOUNTS MAINTAINED IN BANKS V

1.      Current accounts

2.      Savings accounts.

3.      Deposit accounts:

a.       On call-deposit

b.      Term deposits.

4.      Foreign currency domiciliary accounts (FCDA) etc.

Our focus here will be on current account.

A Current Account is an account that a customer maintains with a bank from which he may withdraw funds with no advance notice being required, usually by writing out cheques, or using an automated teller machine. (A value card/smart card is issued to the customer); Smartcard has an embedded microchip capable of holding money in an electronic form hence the name
“Electronic Purse”.

The Main Features of Current Account are:

•           Cheque book is issued

•           Statement issued periodically

•           Commission On Turnover charged (COT)

•           Loan, overdraft may be available

•           Possibility accessing accounts through ATM

•           Interest may be paid on credit balances.

Here, emphasis will be on Bank Statement Rendition

 
A statement is a copy of the customer’s current account in the books of the bank.
It contains a listing of all cheques, charges on the accounts and all deposits made for a given period together with balance of the account.
Statements are prepared up to date as daily transactions take place and dispatched to customers at regular intervals.

In spite of this however, statements are produced and dispatched whenever:

•           The customer specifically request for it.

•           At specific periods in accordance with the customers instructions

•           An account is closed and the balance transferred

•           A statement controlled dispatched exercise is carried out.

THE IMPORTANCE OF RENDERING BANK STATEMENTS

Ideally, Cash Book is ruled to provide separate columns on Receipt and Payment sides for cash and Bank Balances. When rule off the balance under cash column should equate cash in the safe, while that under Bank column should equate amount of cash in the Bank Account. In a cash Book, balance on Debit side indicate credit while that on credit side is overdrawn account. However, in practice, bank balance shown in the cash book if compared with that shown in the Bank statement seldom agrees. This under lies the need for rendition of Bank statement to enable the customer;

1.      Reconcile the books with the bank.

2.      Knowing how much money is available helps in decision making e.g. idle money, overdraft etc.

3.      Clear all discrepancies and errors in accounts as they exist in Bank records and in the cash book.

4.      Verify cheques, drafts etc. received and accounted for in the books and also any other sums of money remitted to the bank from outside sources; cheques drawn on the bank and amounts withdrawn from the bank.

RECONCILIATION

Efforts made, aimed at equating these two balances is reconciliation. And the statement of account attachments issued thereafter is called Bank Reconciliation statement

Reasons for Reconciliation

        i.            Cheques issued in the office may not yet be presented to bank.

      ii.            Credit advice on Bank lodgments may not yet be received in the office

    iii.            Cheques may be dishonored and those received from customers may be dishonored too to increase or reduce the bank balance in the cash book and bank statement respectively

    iv.            The debit advice for bank charges seen on the bank statement may not have been received in the office for necessary action.

Causes of differences in the Cash Book and bank statement

1.      Uncredited cheques

2.      Standing order

3.      Unpresented cheques

4.      Bank charges

5.      Dishonored cheques

APPROACHES TO RECONCILING CASH BOOK AND BANK STATEMENT

From Cash Book to Agree with Bank Balance

  I.            Cash Book balance at date                                                     xxx

   II.            

Add: (a) unpresented cheques                                                            xxx
(b) credits in Bank and not in cash book                                xxx

                                                                                             -----------                                                                                                                          

Sub - Total                                                                                         xxxx

Deduct (c) Debits in Bank not in cash Book                          xx
            (d) credits in cash book and not in bank                     xxx     (xxxx)

Agreeing with Bank Statement                                                          xxxx

From Bank Balance to agree with cash book

Balance as per Bank Statement                                                            xxx

Add: (a) Debits in Bank not in cash Book                             xxx

(b)Credits in cash book and not in Bank Statement    xxx        xxx

                                                                                                ----------

Sub-total                                                                                    xxx
Deduct

(c) Unpresented cheques                                             xxx

(d) Credits in Bank and not in

Cashbook                                                                   xxx            xxx

Balance as per cash book                                                                         xxx    

      

After ticking agreeable items on the cash book with Bank Statement, there are unticked items left on both documents as possible differences thus;

1)       
Items on debit side of the cash book will probably be sums of money paid into the Bank (transfer) which may not yet have been credited.

2)      Items unticked on the credit side of the cash book will be cheques issued out which have not been presented to the bank for payment and therefore could not be debited to the account.

3)      Items unticked on the debit column of the bank statement are usually standing orders and bank charges which the bank debited to the account without sending the advices.

4)      Items unticked on the credit column of the bank statement are very rare. They are items which have been added to the account without credit advices issued to the customer by the bank.

CONCLUSION

It is dangerous to delay the reconciliation of accounts. Oftentimes, mistakes, frauds and problems of unbalanced bank reconciliation statements stem from delays in preparing such statements when due. In view of the foregoing, the need for the rendition of bank statements, can therefore not be over emphasized.