4.1 Bank reconciliation

• Reconciliation helps uncover errors made by the company or the bank
• Match the document with its purpose:

  Company's Cash Account Ledger ↔️ Tracks cash inflows and outflows

  Bank Statement ↔️ Provides external validation of cash account ledger

  Bank Reconciliation Statement ↔️ Identifies and explains discrepancies
• The company's cash account ledger tracks all cash receipts and payments
• Steps to prepare a bank reconciliation statement:

  1️⃣ Compare the cash account ledger and bank statement

  2️⃣ Identify reconciling items

  3️⃣ Adjust the balances

  4️⃣ Prepare the bank reconciliation statement
• What is bank reconciliation?

  Matching accounting records with bank statement
• Bank reconciliation ensures accurate cash balances for effective cash flow management.

  True
• A bank statement includes outstanding checks and deposits.

  True
• What are reconciling items in bank reconciliation?

  Transactions in one record but not the other
• Bank reconciliation helps identify errors, control cash flow, and prevent fraud
• Match the document with its role in bank reconciliation:

  Cash Account Ledger ↔️ Tracks internal cash transactions

  Bank Statement ↔️ Provides external transaction summary

  Bank Reconciliation Statement ↔️ Reconciles discrepancies between records
• A bank statement validates the company's cash account ledger
• What is the first step in preparing a bank reconciliation statement?

  Compare the ledger and statement
• What is the final document prepared in the bank reconciliation process?

  Bank reconciliation statement
• The cash book is used in the bank reconciliation process.


  True
• What is the purpose of comparing the cash book with the bank statement?

  Identify reconciling items
• Reconciling items must be identified to prepare an accurate bank reconciliation statement.


  True
• A company's cash account ledger tracks all cash receipts and payments
• Steps to prepare a bank reconciliation statement:

  1️⃣ Compare the cash account ledger and bank statement

  2️⃣ Identify reconciling items

  3️⃣ Adjust the balances

  4️⃣ Prepare the bank reconciliation statement
• Preparing a bank reconciliation statement helps prevent fraud.


  True
• To prepare the bank reconciliation statement, you must adjust the cash account ledger balance to match the bank statement balance
• Steps to prepare the bank reconciliation statement

  1️⃣ Compare the cash account ledger and bank statement

  2️⃣ Identify reconciling items

  3️⃣ Adjust the balances

  4️⃣ Prepare the bank reconciliation statement
• The cash book is a crucial document used in the bank reconciliation process because it allows comparison with the bank statement
• Match the reconciling item with its description:

  Outstanding checks ↔️ Checks issued but not cleared

  Deposits in transit ↔️ Deposits not yet recorded

  Bank charges ↔️ Fees charged by the bank

  Interest earned ↔️ Interest credited by the bank
• To investigate the causes of discrepancies, you should review transaction dates, amounts, and descriptions
• Steps to identify differences between the bank statement and cash book

  1️⃣ Compare balances

  2️⃣ Highlight reconciling items

  3️⃣ Investigate causes
• Interest earned on the company's account should be added to the cash book balance
• Steps to prepare the final bank reconciliation statement

  1️⃣ Start with bank statement balance

  2️⃣ Add deposits in transit

  3️⃣ Subtract outstanding checks

  4️⃣ Calculate reconciled bank balance

  5️⃣ Start with adjusted cash book balance

  6️⃣ Compare bank and cash balances
• The final step in preparing the bank reconciliation statement is to ensure the reconciled bank balance matches the adjusted cash book balance
• Adjusting the cash account ledger balance involves adding or subtracting reconciling items.


  True
• Reasons why bank reconciliation is necessary:

  1️⃣ Identify errors

  2️⃣ Control cash flow

  3️⃣ Prevent fraud
• The company's cash account ledger includes the current cash balance.


  True
• Outstanding checks are reconciling items because they appear in the bank statement but not the cash account ledger.

  False
• To prepare a bank reconciliation statement, you must adjust the company's cash account ledger balance using reconciling items
• The cash book is a record of all cash receipts and payments
• Match the cash book content with its purpose:

  Date ↔️ Records when the transaction occurred

  Receipts ↔️ Tracks cash inflows

  Payments ↔️ Tracks cash outflows

  Balance ↔️ Shows current cash position
• Outstanding checks are checks issued by the company but not yet cleared by the bank
• What are the key documents used in bank reconciliation?

  Cash account ledger, bank statement, bank reconciliation statement
• Match the document with its purpose:

  Cash Account Ledger ↔️ Tracks cash inflows and outflows

  Bank Statement ↔️ Validates cash transactions

  Bank Reconciliation Statement ↔️ Identifies discrepancies
• Outstanding checks, deposits in transit, and bank charges are examples of reconciling
• What are reconciling items in a bank reconciliation process?

  Transactions in one record only