9706 · 1.4.3
Bank reconciliation statements flashcards
Revision flashcards for Cambridge 9706 Bank reconciliation statements (syllabus 1.4.3). Flip, recall, then mark a real past-paper question.
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Unpresented cheque?
A cheque issued by the business and recorded as a payment in its cash book, but which has not yet been presented to the bank by the payee and therefore has not been deducted from the bank account.
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Uncredited deposit (or outstanding lodgement)?
Cash or cheques paid into the bank by the business and recorded as a receipt in its cash book, but which have not yet been processed by the bank and added to the bank account balance.
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What is the first step in the bank reconciliation process?
To update the cash book by recording all items that appear on the bank statement but have not yet been entered in the business's cash book (e.g., bank charges, direct debits, standing orders).
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Which cash balance is reported in the Statement of Financial Position?
The balance as per the updated cash book. This figure represents the true cash position of the business at the end of the accounting period.
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How is a dishonoured cheque treated when updating the cash book?
It is entered on the credit side of the cash book. This entry reverses the original deposit and correctly reduces the business's cash balance, as the funds were not successfully collected.
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Who prepares the bank reconciliation statement?
The business's accountant or bookkeeper. It is an internal control document, not prepared by the bank.
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What is the double-entry to record a direct debit for an electricity bill found on the bank statement?
Debit Electricity Expense account, Credit Bank account.
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How is a bank error (e.g., an incorrect debit) treated?
It is NOT recorded in the cash book. It is shown as an adjustment on the bank reconciliation statement to reconcile to the correct cash book balance. The bank must be notified to correct the error.
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What are the two common starting points for a bank reconciliation statement?
1. Start with the balance as per the updated cash book. 2. Start with the balance as per the bank statement.
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A business has a bank overdraft. Is this a debit or credit balance in its own cash book?
A credit balance. The bank account is an asset, which normally has a debit balance. An overdraft means the business owes the bank, creating a liability, hence a credit balance.
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What is a standing order?
An instruction from the business to its bank to make regular, fixed payments to a third party. It is recorded on the bank statement and must be entered into the cash book during the update process.
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Why are unpresented cheques added back when reconciling from the cash book balance to the bank statement balance?
Because the cash book balance has already been reduced by the payment, but the bank statement balance has not. To get from the lower cash book balance to the higher bank statement balance, the amount must be added back.