Topic 7 - Bank Reconciliation

 

What are dishonoured cheques?

A dishonoured cheque is a cheque, which when presented, is refused payment by the bank because of insufficient funds or because it is not in order.


What are the reasons for dishonoured cheques?

  • Cheques may contain errors (e.g. signature missing, amounts differ, etc)

  • The drawer’s account may be closed.

  • The drawer may not have sufficient funds in his account

What is a bank overdraft?

Bank overdraft refers to money owing to the bank when the business has overdrawn on the money it has with the bank. It is shown in the Balance Sheet as a Current Liability.

What is a Bank Loan?

Bank Loans are money owing to the bank and is to be repaid over several years. It is shown in the Balance Sheet as a Long-Term Liability.


What are some frauds involving cheques?

  • Altering the number of the dollar amount printed on cheques payable to a person.

  • Putting the fraudster’s name as the payee on cheques intended for other parties.

 

What is a bank reconciliation statement?

A bank reconciliation statement is prepared to account for the difference between the balance in the Cash Book and the balance in the Bank Statement.


Why is there a difference between the Cash Book balance and the Bank Statement balance?

A difference in the timing of recording certain transactions can cause discrepancies between the Cash Book and the Bank Statement.

What are unpresented cheques?

Unpresented cheques are cheques issued by the business to make payments but which are not yet recorded in the Bank Statement.

What are uncredited cheques?

Uncredited cheques are cheques received by the business that are recorded in the Cash Book but are not recorded in the Bank Statement.
 

What are Credit Transfers?

Credit transfers are proceeds received by the bank on behalf of its account holder.

 

What are Standing Orders?

Standing Orders are instructions to the bank to make regular payments of fixed amounts by a given date.

 

What are Direct Debits?

Direct debits are payments made directly by the bank on behalf of the account holder. The amounts are not fixed. E.g. are GIRO payments such as electricity and water bills. 

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