Bank reconciliation: practice questions

How to approach these questions

A bank reconciliation question is two tasks in sequence. First, update the cash book. Second, prepare the reconciliation statement that explains the remaining difference between the corrected cash book balance and the bank statement balance.

Read the requirement first. Some questions ask for the updated cash book only, some for the statement only, and some for both. Then decide, for each item, whether it belongs in the cash book adjustment or in the statement.

The two records differ for two reasons. Some items are on the bank statement but not yet in the cash book, such as bank charges, interest, direct debits, standing orders and dishonoured cheques. Enter these in the cash book, because the business did not know about them until the statement arrived.

Other items are in the cash book but have not reached the bank. These are unpresented cheques and uncredited lodgements. Unpresented cheques are ones the business has written but the bank has not yet paid out.

Uncredited lodgements are ones the business has paid in but the bank has not yet credited. These timing differences go in the reconciliation statement and not the cash book, because the business's own record is already right.

Work in this order. First, adjust the cash book balance for every unrecorded item. Add receipts such as interest credited.

Deduct payments such as charges, standing orders and a dishonoured cheque. For example, the cash book shows RM3,200. Add bank interest of RM50, and deduct charges of RM80 and a dishonoured cheque of RM120.

The corrected balance is 3,200 + 50 − 80 − 120 = RM3,050. Present this as a small updated cash book so each adjustment is visible. Method marks depend on the working.

Second, build the statement from the corrected balance of RM3,050. An unpresented cheque has not yet left the bank account, so the bank statement is temporarily higher than the cash book. So add unpresented cheques and deduct uncredited lodgements to reach the bank statement figure.

If you start from the bank statement figure instead, reverse every sign. Choose one direction, state your starting point and stay consistent.

Watch these traps. An overdraft is a liability, so treat it as a negative figure throughout. A dishonoured cheque reduces the cash book, because the receipt the business expected did not arrive.

Bank charges and interest received go in opposite directions. An item is either a cash book adjustment or a statement adjustment, never both. If you use the same item twice, you have misclassified it.

The statement must end on the exact balance shown on the bank statement. If it does not, one item is in the wrong place or has the wrong sign.

Test each timing difference by asking whether it has cleared the bank yet. Label the starting balance and show which balance is the cash book and which is the bank statement.

A reconciliation confirms that the business's records agree with an independent record from the bank. That helps detect errors and omissions.

If you lose marks on which items go in the cash book and which in the statement, we can help. One of our teachers can sort a set of past-paper items with you until the rule is clear. Book a trial class