ZIMSEC O Level · Principles of Accounts · Form 4
The cash book bank balance and the bank statement balance often differ. A bank reconciliation explains the difference.
Causes of differences
- Unpresented cheques: cheques written but not yet paid by the bank.
- Uncredited deposits (lodgements): money paid in but not yet on the statement.
- Items on the statement not yet in the cash book: bank charges, standing orders, direct debits, credit transfers, dishonoured cheques, interest.
Steps
- Update the cash book with items found only on the bank statement.
- Prepare the reconciliation, starting with the updated cash book balance.
Worked example: Updated cash book balance US$1 200 (debit). Unpresented cheques US$300. Uncredited deposit US$500. Find the bank statement balance.
Balance as per cash book 1 200
Add unpresented cheques 300 → 1 500
Less uncredited deposit 500 → balance as per bank statement 1 000
Exam tip: A debit balance in the cash book is a credit balance on the bank statement – they are mirror images.
Check yourself
- Give two items that appear on a bank statement but not in the cash book.
- Why are unpresented cheques added to the cash book balance in the reconciliation?
- Give one reason for preparing a bank reconciliation.
Show answers
- Any two: bank charges, standing orders, direct debits, credit transfers, dishonoured cheques, interest.
- The bank has not yet paid them, so its balance is higher than the cash book's.
- To find errors or fraud and to update the cash book.
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