9

The following facts are discussed in this chapter.

9.1 Bank Account

Recording of cash deposits in the bank account
Recording of cheque deposits in the bank account
Issuing of cheques for payments
Dishonouring of cheques
Bank overdraft

9.2 Bank Reconciliation Statement

Bank Statement
Reasons for the difference between the balance of bank statement
and the bank account of the business
Adjusting the bank account balance
Preparation of bank reconciliation statement

111
For free distribution
9.1 Bank Account
Most businesses like to conduct cash transactions conveniently and securely by
opening a current account. The bank account and the cash book are considered as
asset accounts. Therefore, when the transactions are carried out through the bank
account, they should be recorded according to the double entry principle for assets.

Let us understand how the transactions that are conducted through bank current
account are recorded in a business.

01. Deposit of cash in the bank

A specified amount of cash has to be deposited to open a current account. In addition,

cash received by the business would be deposited in the current account. When a
business deposits cash in the current account, the balance in the current account
increases and the cash balance decreases.

The double entry for deposit of cash is as follows.

Bank account Dr.

Cash book Cr.

When depositing cash, a deposit slip has to be completed and submitted along with
cash to the bank. The bank returns a duplicate of the deposit slip to the business
(depositor) immediately. This document is used as a source document for the
recording of the cash deposit.

02. Deposit of cheques received by the business

Balance in the bank account of the business will increase when cheques are
deposited. As explained earlier, when cheques from debtors and cash sales are
received, they are first debited to the cash book.

When these cheques are deposited to the bank later, the double entry should be as
follows.

Bank account Dr.

Cash book Cr.

112
For free distribution
However, if the received cheques are deposited to the bank at the time of receipt,
instead of debiting to the cash book, they can be directly debited to the bank account
of the business.

Example :-
The cheque received from the sales amounting to Rs. 10 000 was
deposited to the bank account immediately.

Then the double entry is,

Bank account Dr. 10 000

Sales account Cr. 10 000

When received cheques are deposited, a cheque deposit slip should be completed
and submitted to the bank along with the cheques. A duplicate of the deposit slip
is given to the business (depositor) by the bank. This document is used as a source
document when the business records the deposited cheque in the bank account of
the business.

Observe the following cheque deposit slip

Figure 9.1 - A copy of a cheque Deposit Slip

113
For free distribution
03. Issuing of cheques
Payments can be made to creditors, purchases and expenses by issuing cheques.
When a cheque is issued, it is a common practice to complete the cheque and its
counterfoil, which is the remainder of the cheque leaf in the cheque book.
Observe the following cheque and its counter foil

Figure 9.2 - A copy of a cheque

The details of payments made by cheques are recorded in payment vouchers.

Accordingly, when payments are paid by cheques, the payment voucher is used as
the source document to record such transactions in the bank account of the business.
When payments are made by cheques, the balance in the bank account of the
business decreases.
Accordingly, The relevant double entry is as follows.
Expense account or the relevant payment account Dr.
Bank account Cr.
04. Dishonouring of cheques
There are situations where a bank refuses cheques due to cheques being written
disorderly, insufficient balance in the current account, signature on the cheque
is different from the specimen signature, etc. This is known as dishonouring of
cheques.
Accordingly, cheques deposited as well as cheques issued may be dishonoured by
the bank. A cheque return notification is sent by the bank to the business to inform
about dishonoured cheques.

114
For free distribution
Observe the following copy of the cheque return notification.

Figure 9.3 - A copy of a Cheque Return Notification

115
For free distribution
Dishonouring of Deposited Cheques
When cheques are received from cash sales, debtors, etc. and when those cheques
are deposited in the bank, they are debited to the bank account of the business. This
is because the balance in the bank account is increased. However, when a cheque
is dishonored by the bank, in fact, the bank balance does not increase. Therefore,
when a deposited cheque is dishonored, the debit entry made in the bank account of
the business should be reversed. Here, the value of the dishonored cheque should
be cancelled from the bank account and should be recorded as a receivable from the
party who had given the cheque. Accordingly, the double entry for the dishonoured
deposited cheque should be recorded as follows
Debtors/Relevant account Dr.
Bank account Cr.
Example :-
A cheque received from a debtor for Rs. 8 000 and deposited in
the bank had been dishonoured by the bank. The double entry for
recording of this dishonoured cheque is as follows.
Debtor's account Dr. 8 000
Bank account Cr. 8 000
Dishonouring of issued cheques
It is already discussed that when cheques are issued, the relevant expense account
or other relevant account should be debited and the bank account should be
credited. When such an issued cheque is dishonoured by the bank, entries that were
originally recorded should be reversed. This is done by a reversal entry to the entry
that was recorded originally when the cheque was issued. Accordingly, when an
issued cheque is dishonoured it should be recorded as follows.
Bank account Dr.
Expense account/Relevant other account Cr.
Example :-
A cheque issued by the business to a creditor of Rs. 15 000 was
dishonoured when presented to the bank.
When this information is received, the double entry for this dishonored cheque is
as follows.
Bank account Dr. 15 000
Creditors account Cr. 15 000
Example :-
Nethmi's business had the following balances as at 01.06.20xx
Cash Rs. 185 000
Debtors Rs. 55 000
Creditors Rs. 85 000
116
For free distribution
The following transactions had taken place during the month of June.
02.06.20xx Opened a bank current account by depositing Rs. 22 000
03.06 Received a cheque bearing No. 455 from a debtor for Rs. 9 000.
04.06 Deposited the cheque No. 455 of Rs. 9 000 that was received from a debtor
08.06 The cheque No. 562 of Rs. 12 000 that is received for sales has been
deposited at the time of receipt.
12.06 Deposited cash of Rs. 15 000 in the bank current account.
15.06 A creditor was paid by cheque No. 301 amounting to Rs. 7 600 and
a discount of Rs. 400 was received.
18.06 Issued a cheque bearing the No. 302 for the payment of electricity
bill of Rs. 5 000.
20.06 The cheque issued for the payment of the electricity bill has been
dishonoured by the bank.
24.06 A cheque bearing the No. 415 was received from a debtor for Rs. 13 000
26.06 Deposited the cheque No. 415 received from a debtor
28.06 The cheque No. 415 has been dishonoured by the bank
29.06 The cheque bearing the No. 632 was received from a debtor for
Rs. 5 [Link] discount of Rs. 300 has been allowed. This cheque
has been deposited at the time of receipt.
Recording the above transactions in the bank account and posting them to the
relevant ledger accounts are as follows.
Dr. Bank account Cr.
L. Dis. Value L. Dis. Value
Date Description Date Description
F. allo. Rs. F. rece. Rs.
02.06.20xx Cash 22 000 15.06.20xx Creditor (301) 400 7 600
04.06 Cash (455) 9 000 18.06 Electricity (302) 5 000
08.06 Sales (562) 12 000 28.06 Debtor (415) 13 000
12.06 Cash 15 000
20.06 Electricity (302) 5 000
26.06 Cash (415) 13 000
29.06 Debtor (632) 300 5 700

Dr. Cash Book Cr.

L. Dis. Value L. Dis. Value
Date Description Date Description
F. allo. Rs. F. rece. Rs.
01.06.20xx Balance b/f 185 000 02.06.20xx Bank 22 000
03.06. Debtors 455 9 000 04.06 Bank (455) 9 000
24.06 Debtors 415 13 000 12.06 Bank 15 000
26.06 Bank (415) 13 000

117
For free distribution
 Dr. Debtors account Cr.
L. Value L. Value
Date Description Date Description
F. Rs. F. Rs.
01.06.20xx Balance b/f 55 000 03.06.20xx Cash 9 000
Debtor (415) 13 000 24.06 Bank 13 000
28.06
29.06 Bank 5 700
29.06 Discounts allo. acc. 300

Dr. Creditors account Cr.
L. Value L. Value
Date Description Date Description
F. Rs. F. Rs.
15.06.20xx Bank account (301) 7 600 01.06.20xx Balance b/f 85 000
15.06 Discount rec. acc. 400

Dr. Sales account Cr.

L. Value L. Value
Date Description Date Description
F. Rs. F. Rs.
08.06.20xx Bank (562) 12 000

Dr. Electricity charges account Cr.

L. Value L. Value
Date Description Date Description
F. Rs. F. Rs.
18.06.20xx Bank account (302) 5 000 20.06.20xx Bank 5 000

Dr. Discounts allowed account Cr.
L. Value L. Value
Date Description Date Description
F. Rs. F. Rs.
30.06.20xx 300

Dr. Discounts received account Cr.
L. Value L. Value
Date Description Date Description
F. Rs. F. Rs.
30.06.20xx Creditors 400

118
For free distribution
 Activity 01

The following balances were in the books of Sahan Abeynayaka's business as at

01.06.20xx
Rs.
Cash 90 000
Debtors 60 000
Capital 70 000
Creditors 80 000

The following transactions were taken place during the month of June 20xx

05.06.20xx - Opening a bank current account by depositing Rs. 25 000

08.06 - Bought goods for resale by issuing a cheque No. 40
amounting to Rs. 20 000
10.06 - Deposited the following cheques
Cheque No. 68 of Rs. 12 000 received from a debtor
Cheque No. 75 of Rs. 18 000 received from the cash sales of goods
Cheque No. 66 of Rs. 18 000 received from a debtor
15.06 - Rs. 10 000 of cash was deposited in the current account
16.06 - A cheque received (Cheque No. 68) from a debtor and had been
deposited in the bank was dishonoured by the bank.
20.06 - Issuing of the following cheques
Cheque No. 41 Rs. 8 000 for rent
Cheque No. 42 Rs. 15 000 to the creditors
24.06 - The Cheque issued for payment for rent has been dishonoured Rs. 8 000
28.06 - A new cheque bearing rent No. 43 for Rs. 8 000 was issued instead
of the dishonoured cheque.
27.06 - The cheque valued Rs. 17 000 bearing the No. 105 received from
cash sales was deposited at the same time
Required,
01. Prepare the bank account for the month ended 30.06.20xx and balance it.
02. Post the entries to other ledger accounts and balance them.

119
For free distribution
Bank overdraft
There are situations where banks allow their customers to issue cheques for more
than the existing balance in their current accounts. This facility is known as a bank
over draft. If the business issues cheques exceeding the existing bank balance, the
total of the credit side of the bank account of the business exceeds the total of the
debit side of the bank account. As a result, a credit balance appears in the bank
account. This credit balance of the bank account is known as bank overdraft, which
is considered as a liability of the business. Accordingly, when cheques are issued
in excess of the existing bank balance and when the bank makes payment on them,
the account holder becomes a debtor to the bank and that debit balance in the bank
is known as the bank overdraft.
Example :-
There was a favourable balance (debit balance) in the bank account
of Samadhi's business of Rs 12 000 as at 01.07.20xx. Following
transactions took place during the month of July.
05.07.20xx Cash deposited in the bank Rs 8 000
Deposited cheques
08.07.20xx Cheque that had been received from cash sales Rs. 9 000
(Cheque No. 20)
15.07.20xx Cheque that had been received for rent of income Rs. 7 000
(Cheque No. 114)
20.07.20xx A cheque that had been received from a debtor Rs. 6 000
(Cheque No. 95)
Issued Cheques
12.07.20xx To pay the creditors Rs 16 000 (Cheque No. 33)
22.07.20xx To pay the salary Rs. 15 000 (Cheque No. 34)
25.07.20xx For purchases Rs. 25 000 (Cheque No. 35)

Dr. Bank account Cr.

Date Description L/F Value Rs. Date Description L/F Value Rs.

01.07.20xx Balance b/f 12 000 12.07.20xx Creditors (35) 16 000

05.07 Cash 8 000 22.07 Salary (34) 15 000
08.07 Cash (20) 9 000 25.07 Purchases (35) 25 000
15.07 Cash (114) 7 000
20.07 Cash (95) 6 000
31.07 balance c/d 14 000
56 000 56 000
01.08 balance b/f 14 000

120
For free distribution
As shown in the above example, the total of the credit side of the bank account is
Rs. 56 000 and the total of the debit side is Rs. 42 000. There is a deficit of Rs. 14 000 in
the debit side than the credit side. As a result, a credit balance of Rs. 14 000 appears
in the bank account. This is the bank overdraft. This is a liability as the business has
to pay it back to the bank.

Activity 02

Viran carries out a business of sales of textiles. He can obtain a bank overdraft of
Rs. 100 000 as he maintains his current account in an orderly manner for a long
period.

He had a bank balance of Rs. 45 000 in his bank account as at 01.05.20xx. Following
transactions were carried out through his current account during the months of May.

Deposits
02.05.20xx Cash Rs. 14 000
11.05 Cheque deposited Rs. 15 000
21.05 Cheque deposited Rs. 16 000

Cheques Issued

05.05.20xx To Mr. Fernando a creditor for Rs. 12 000

13.05 To pay salary of Rs. 20 000
18.05 To pay rent of Rs. 10 000
22.05 To purchase goods of Rs. 34 000

All the deposited cheques were added and all cheques issued were deducted from
the current account of the bank.

Required,
01. Enter the transactions given above in the bank account and balance it off.
02. Indicate the bank overdraft, if he had issued a cheque on 25.05.20xx for
Rs. 45 000 for the purchase of equipment.

121
For free distribution
9.2 Bank reconciliation statement
You have already studied how the transactions are recorded in the bank account
wich are carried out through the current account of a business. The favorable balance
of the bank account of a business is an asset to the business. Transactions should
be recorded in the bank account according to the double entry principle for assets.
The transactions which increase the balance in the bank account are debited and the
transactions which decrease the bank balance should be credited to the bank account.
Now let us study how transactions are recorded in the books of a commercial bank
which maintains a current account on behalf of a business. The bank also records in
its own books the transactions of the business operated through the current account
by a business. The account that is maintained by the bank of the business is treated
as a liability account of the bank. Therefore, the bank records the transactions of
the business according to the double entry principle for liabilities. Accordingly, the
transactions that increase the bank balance should be credited and the transactions
that decrease the bank balance should be debited.
Accordingly, let us study how a bank has recorded few bank transactions of a
business in its books. See the statement below.
Current Account
Date Description Dr. Cr. Balance
Opening balance (Cr.) favorable xxx
Cash deposit xxx xxx
Cheque deposit xxx
Cheque payment xxx
Direct deposit xxx
Bank charges xxx xxx
Charges for cheque book xxx xx
xxx
xxx

The values which are debited in the bank account that is maintained by the business
are credited by the bank in the account maintained by the bank. The values which
are credited by the business in the bank account are debited by the bank in the
account. Finally, if there is a debit balance in the bank account maintained by the
business, there will be a credit balance in the bank account maintained by the bank
for the business.

122
For free distribution
Bank Statement
Usually, banks send a statement called a bank statement to their current account
holders once a month. The bank statement shows the opening balance, items which
are debited and credited by the bank during the month and the closing balance.

At present, banks send a computer printout to the business that holds a current
account. The statement that is sent by the bank is known as the bank statement or
the statement of accounts.
Examine the following bank statement carefully.

Figure 9.4 - A copy of a bank statement

123
For free distribution
The bank account of the business shows the cash at the bank when balancing off
its bank account. The bank statement sent by the bank shows the money at bank
of the business according to the books of the bank. If both parties had recorded all
transactions related to the current account, these two balances should be similar.
However, in practice, the bank account balance of the business and the balance in the
bank statement may differ. The reason for this difference is that certain transactions
which have been recorded in the bank account are not recorded in the bank statement
and certain other transactions recorded in the bank statement are not recorded in the
bank account of the business.
The reasons for the difference between the final balance of the bank
account and the final balance of the bank statement
01. The cheques issued but not presented to the bank for payment
When a business issues cheques, they are credited to the bank account. Then, the
balance of the bank account maintained by business decreases. There are instances
where some of these cheques issued by the business may have not been presented
to the bank for encashment even at the end of the period. These are known as the
cheques issued but not presented or as unpresented cheques. Since the bank has not
paid for these cheques, they are not recorded as payments in the bank statement.

Therefore, the balance of the bank account of the business should be less
than the balance in the bank statement.

02. The cheques deposited but not realised

When received cheques are deposited in the bank, the bank account of the business
should be debited. Then, the balance in the bank account increases. Some of these
cheques that were deposited may have not been realised by the end of the time period.
Realisation of cheques refers to the process that the amount mentioned in the cheque
has been collected and added to the current account in the bank. It would take few
days for the amount of the cheque to be collected and added to the balance in the
bank current account. Therefore, it is possible that the bank has not recorded the value
of the cheques deposited in the books of the bank even at the end of the relevant
time period. These cheques are identified as the cheques deposited but not realised.
Therefore, cheques deposited but not yet realized are not recorded as deposits in the
bank statement.

Therefore, the balance of the bank account of the business should be higher
than the balance in the bank statement.

124
For free distribution
03. Direct remittances
There are occasions when some customers deposit their dues directly to the current
account at the bank. Similarly receivables such as rent, interest and dividends, etc.,
are sometimes directly remitted to the current account. These are known as direct
remittances. A business realizes such direct remittances after the receipt of the bank
statement. Although, such direct deposits have been recorded as reciepts in the
bank statement they have not been recorded in the bank account of the business.
Therefore, the bank account balance of the business is less than the balance
in the bank statement.
04. Payments on standing orders
Standing orders refers to an order made to the bank in writing by the business to
pay certain regular amounts such as repayment of instalments of bank loans, leasing
instalments, insurance premiums and other similar payments from the cash in the
current account. The business gets to know of these payments, after recieving the
bank statement. The bank deducts (debits) the value from the current account after
payment of such standing orders. Although the payments on standing orders have
been deducted (debited) in the bank statement, these have not been added (credited)
in the bank account yet.
Therefore, the balance in the bank account of the business is higher than the
balance in the bank statement.
05. Bank charges and the charges on cheque book
The charges that a bank deducts from the current account for the services rendered
by the bank to the current account holder is known as bank charges. The amount
charged for the cheque books issued by a bank to the business is called charges
for cheque books. The business realizes know these charges after the receipt of
the bank statement. These charges have been debited in the bank statement as
payments. They have not been recorded in the bank account of the business by the
end of the time period.
Therefore, the balance of the bank account of the business should be higher
than the balance in the bank statement.
The final balance of the bank account of the business and the final balance in the
bank statement may differ due to the above stated reasons.
The reasons for the difference between these balances can be identified only after
the comparison of the bank account of the business and the bank statement sent by
the bank. Accordingly, the reasons for the difference should be identified first by
comparing the bank account and the bank statement.
125
For free distribution
For that,
Debit column of the bank account should be compared with the credit column
of the bank statement
Credit column of the bank account should be compared with the debit
column of the bank statement.
Therefore, each value in the bank account should be checked to see whether those
values have been included in the bank statement. The items which have been
recorded in both should be marked. The items remaining unmarked in both the bank
account and the bank statement are the items which have been recorded only in one
of the books. Those unmarked items are the reasons for the difference between the
two final balances. An understanding of this can be obtained through the following
exercise.
Example :-
The bank account and the bank statement of Nadeeka's business for
the month of July 20xx are given below.
Dr. Bank Account Cr.
Date Description L/F Value Rs. Date Description L/F Value Rs.

01.07.20xx Balance b/f 15 000 06.07.20xx Creditor (112) 10 000

05.07 Cash deposit 8 000 18.07 Creditor (113) 4 000
12.07 Cheque deposit (65) 12 000 23.07 Creditor (114) 16 000
13.07 Cheque deposit (46) 5 000 31.07 Balance c/d 31 000
20.07 Cash deposit 7 000
28.07 Cheque deposit (58) 14 000
61 000 61 000
01.08 Balance b/f 31 000

Bank statement for the month of July 20xx

Date Description Dr. Cr. Balance
01.07.20xx Balance b/f 15 000
05.07 Cash 8 000 23 000
07.07 Cheque - 112 10 000 13 000
15.07 Cheque - 65 12 000 25 000
16.07 Cheque - 46 5 000 30 000
18.07 Direct remittance from a debtor 11 000 41 000
20.07 Cash deposit 7 000 48 000
22.07 Cheque - 113 4 000 44 000
25.07 Standing order (Bank loan instalment) 18 000 26 000
31.07 Bank Charges 3 000 23 000

126
For free distribution
According to the above example,
31.07.20xx A favourable balance of Rs. 31 000 exists based on the bank
account in the business.
31.07.20xx The balance based on the bank statement is Rs. 23 000

Reasons for the difference between the balances should be identified. That is done
as follows.

Dr. Bank Account Cr.

Date Description L/F Value Rs. Date Description L/F Value Rs.

01.07.20xx Balance b/f 15 000  06.07.20xx Creditor (112) 10 000 

05.07 Cash deposit 8 000  18.07 Creditor (113) 4 000 
12.07 Cheque deposit (65) 12 000  23.07 Creditor (114) 16 000
13.07 Cheque deposit (46) 5 000  31.07 Balance c/d 31 000
20.07 Cash deposit 7 000 
28.07 Cheque deposit (58) 14 000
61 000 61 000
01.08 Balance b/f 31 000

Bank statement for the month of July 20xx

Date Description Dr. Cr. Balance
01.07.20xx Balance b/f 15 000 
05.07 Cash 8 000  23 000
07.07 Cheque - 112 10 000  13 000
15.07 Cheque - 65 12 000  25 000
16.07 Cheque - 46 5 000  30 000
18.07 Direct remittance from a debtor 11 000 41 000
20.07 Cash deposit 7 000  48 000
22.07 Cheque - 113 4 000  44 000
25.07 Standing order (Bank loan instalment) 18 000 26 000
31.07 Bank Charges 3 000 23 000

The Reasons for this difference are,

01. When the debit side of the bank account and the credit column
of the bank statement are compared,

Cheque deposited but not realised was (Cheque No. 58) Rs. 14 000.
A direct remittance to the current account in the bank by a debtor was
Rs. 11 000.

127
For free distribution
 02. When the credit side of the bank account and the debit side of
the bank statement are compared.
Unpresented cheque to the bank (Cheque No. 114) was Rs. 16 000.
The payment on standing order for bank loan instalment not
recorded in the bank account was Rs. 18 000.
Bank charges not recorded in the bank account was Rs. 3 000.

To adjust and compare these reasons, two steps have to be followed. They are,
01. Adjusting the bank account balance of the business.
02. Preparation of bank reconciliation statement based on the adjusted
bank balance obtained under Step 1 above.
Adjusting the bank account balance of the business

Among the reasons that have caused a difference between the bank account balance
and the current account balance, there may be some errors or omissions in the bank
account of the business.

Due to these errors or ommissions, the bank account balance becomes incorrect.
Therefore, the bank account balance should be adjusted. This is known as adjusting
of the balance of the bank account of the business.

According to the above example, values of the following causes should be adjusted
in the bank account of the business.
01. Direct remittances (Debtors' remittance)
02. Standing order (Bank loan instalment)
03. Bank charges
The bank account balance should increase by the
receipt of the direct remittance. Therefore, the direct
remittance should be debited to the bank account of
the business.
Payment on the standing order and charges made by
the bank should decrease the bank balance. Therefore,
the payment on the standing order and charges should
be credited to the bank account of the business. We get
the adjusted balance of the bank account after these
adjustments.

Based on this example, the bank account of the business is adjusted as follows.
128
For free distribution
 Dr. Bank account (Adjusted) Cr.
Date Description L/F Value Rs Date Description L/F Value Rs
01.08.20xx Balance b/f 31 000 25.07.20xx Bank loan 18 000
18.07 Debtor 11 000 31.07 Bank charges 3 000
01.08 Balance c/d 21 000
42 000 42 000
01.08 Balance b/f 21 000

Preparation of the bank reconciliation statement using the adjusted balance of

the bank account
After adjusting the bank account, if the adjusted balance of the bank account is not
similar to the balance of the bank statement, following will be the main reasons for
the difference.
Y The values of the cheques which have been deposited but not realised
Y The values of the cheques which have been issued but not presented to the bank
for payment
However, the above two reasons are not errors or omissions and therefore, the
bank account balance is not adjusted. Therefore, a statement should be prepared
including the above two reasons to reconcile between the balance of the adjusted
bank account and balance of the bank statement. This statement is identified as
the bank reconciliation statement. By the preparation of the bank reconciliation
statement, the accuracy of the balances can be ensured.
Accordingly,
The bank account balance is less than the balance of the bank
statement due to the cheques which have been issued
but not presented to the bank for payment. Therefore, the
cheques which have not been presented to the bank should
be shown as an addition to the adjusted bank balance in the
bank reconciliation statement.
The bank account balance is higher than the balance of
the bank statement due to the cheques which have been
deposited but have not been realised within that period.
Therefore, the cheques deposited but not realised should
be shown as a deduction from the adjusted bank balance in
the bank reconciliation statement.
The balance we get after preparing the bank reconciliation statement including the
above two reasons should be the balance mentioned in the bank statement.
Let us see how the bank reconciliation statement is prepared using the adjusted
bank account balance based on the example given earlier.
129
For free distribution
 Business of Nadeeka
Bank reconciliation statement for the month of July 20xx
Rs. Rs.
Adjusted bank balance 21 000
Add- cheque not presented to the bank (Cheque No.114) 16 000 16 000
37 000
Less - Unrealised cheque (Cheque No. 58) 14 000 14 000
Bank balance as per the bank statement as at 31.07.20xx 23 000

Accordingly, if the bank balance of the business at the end of a certain time period
does not agree with the balance in the bank statement, following steps should be
followed to reconcile these balances.

Y See whether there is a difference between the balance of the bank account
and the balance of the bank statement.

Y Identify the reasons for the difference, comparing the bank account and
the bank statement.

Y Adjusting the final balance of the bank account.

Y Preparation of the bank reconciliation statement using the adjusted bank

account balance.

Activity 03

Sewwandi Perera's business has a favourable bank account balance of Rs. 45 000
at the end of the month of July 20xx. However, the bank statement has a different
balance. Following reasons are identified for this difference.
01. The following cheques have been deposited but have not been realised as at
31.07.20xx.
Cheque No. 48 - Rs. 7 500
Cheque No. 94 - Rs. 8 600

130
For free distribution
02. Following cheques have been issued during the month, but they have not been
presented to the bank for payment as of 31.07.20xx

Cheque No. 45 - Rs. 11 400

Cheque No. 49 - Rs. 8 600
03. The following items appeared in the bank statement have not been entered in the
bank account

Y The insurance premium paid by the bank on a standing order of Rs. 8 000.
Y The direct remittance of Rs. 8 000 to the bank as dividends of Rs. 4 200.
Y Bank charge deducted by the bank Rs. 2 500.

Required,
01. Adjust the bank account.
02. Prepare a bank reconciliation statement as at 31.07.20xx using the
adjusted bank account balance.

Activity 04

Following are extracted from the bank account of Jayarathna Silva's business and
the bank statement received from the bank as at 31.07.20xx.

Bank Account
Value value
Date Description L/F Date Description L/F
Rs. Rs.
01.05.20xx Balance b/f 16 000 04.05.20xx Salaries (501) 8 500
06.05 Cash 20 000 09.05 Creditor (502) 17 500
12.05 Cheq. deposited(142) 14 000 18.05 Rent (503) 9 000
24.05 Cheq. deposited (234) 15 000 26.05 Purchases (505) 12 000
29.05 Cheq. deposited (184) 18 000 27.05 Creditor (506) 17 000
31.05 Balance c/d 19 000
01.06 Balance b/f 83 000 83 000
19 000

131
For free distribution
 Bank Statement
Jayarathna Silva People's Bank
No. 45 Galle Branch
Galle.

Dr. Cr. Balanced

Date Description
Rs. Rs. Rs.
01.05.20xx Balance b/f 16 000
06.05.20xx Cash deposit 20 000 36 000
10.05.20xx Cheque Payment(501) 8 500 27 500
12.05.20xx Cheque Payment (502) 17 500 10 000
14.05.20xx Cheque deposit (142) 14 000 24 000
15.05.20xx Standing order (Bank loan) 19 000 5 000
26.05.20xx Cheque deposit (234) 15 000 20 000
27.05.20xx Direct remittance by a debtor 8 000 28 000
28.05.20xx Cheque deposit (505) 12 000 16 000
30.05.20xx Bank Charges 2 000 14 000

Required
01. State the reasons for the difference between the balances as at 31.05.20xx.
02. Adjust the bank account balance as at 31.05.20xx.
03. Prepare the bank reconciliation statement using the adjusted bank
balance.

Activity 05

Assume that the bank has sent a bank statement which includes the transactions
carried out through the bank current account in the month of March 20xx. Your
verification revealed that the bank account balance is different from the bank
statement balance.

01. State the possible reasons for the difference between the bank account
balance and the balance of the bank statement.

02. From the above identified reasons, select and list the reasons cause the
balance of bank statement exceeds the balance of the bank account.

132
For free distribution
10

The following facts are discussed in this chapter.

10.1 Purchases Journal

Source documents required to prepare the Purchases Journal
Posting the items in the Purchases Journal to the ledger accounts
10.2 Sales Journal
Source documents required to prepare the Sales Journal
Posting the items in the Sales Journal to the ledger accounts
10.3 General Journal
10.4 Instant cash transactions conducted via technological means

133
For free distribution