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.
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