bank reconciliation

Unpresented cheques are payments that have already been entered in the cash book, but have not yet appeared on the bank statement. So.......the bank statement will show a bigger balance than the cash account (or in this case a smaller overdraft). Uncleared deposits are receipts that have already been entered in the cash book, but have not yet appeared on the bank statement, so the bank statement will show a lower balance than the cash account (or in this case a larger overdraft). Bank charges have not been entered in the cash account, but have appeared on the bank statement. So the bank statement will show a lower balance than the cash account (or in this case a larger overdraft). So....the balance on the bank statement will be: -1240+450-140-75 = -1005

Hallo, It's very strange, because I know the rules by themselves, but I can't relate them to the calculation itself. Am I correct to think that this test question is not about reconciling the cash a/c and the bank statement but about finding what the bank statement is before reconciling, and maybe this is why all the actions are opposite to the above rules. As, otherwise if we were doing a reconciliation and we had a bank overdraft, which haven't been adjusted, to increase an overdraft in the bank we have to add the unpresented cheques, as well as subtract receipts from the bank balance (if it will be still an overdraft or not, will depend on the amount of the receipts, etc. ) and we will subtract the bank charges from the cash balance, all these being omissions. But this example is the other way round, going from the final reconciled figure 1240 (both for the cash a/c and bank balance in the bank) to the unreconciled figure, is this correct? Thank you!

Yes – that is correct. You are having to work backwards to find out what the balance on the actual bank statement is showing.

Hallo, I have one more example like this, which even though I know I have to work backwards, confuses me as much. There are two alternative solutions and I understand the 1st and the 2nd not. The questions to the 2nd are in the text of the 2nd alt. below: 1st alternative - clear We start with the bank balance finding the cash balance prior to correction, working backwards: Bank balance credit 13400 Add: Dishonored cheque 300 Add: Bank charges 50 Less: Unpresented cheques 2400 (less because these were not subtracted till now, so this is new transaction, which was not part of 13400, my understanding) Add: Amount paid in 1000 (added because also a new transaction, amount wasn’t calculated in the 13400, my understanding) = Cash balance prior to correction 12350 2nd alternative – not clear We start with the uncorrected cash balance 12350 (we have to reconcile to the bank statement) Cash balance uncorrected 12350 Less: Dishonored cheque 300 Less: Bank charges 50 Add: Unpresented cheques 2400 (Why???) – unpresented cheques are debits in the bank a/c to decrease the credit side, why is it added? Less: Amount paid in 1000 (Why???) - these go to the credit of the bank a/c to increase what we have in the bank, why is it subtracted? = Bank statement balance 13400 corrected Do you see any reason for the adding of unpresented cheques and subtracting the amount paid in? I thought these two alternatives are mirror images, but I doubt it now. Thank you!

Neither alternative is correct! To correct the cash account: The original balance is 12350, subtract the dishonoured cheque of 300 and subtract the bank charges of 50. So the correct cash balance is $12,300 The bank statement balance of $13,400 is correct. We are not trying to correct it - simply trying to explain the difference between it and the correct cash balance. We do not debit or credit the bank balance - we can explain (or reconcile) the difference because it is due to the unpresented cheques and the lodgement not yet credited. When the unpresented cheques appear, the bank balance will fall by 2400. When the lodgements appear, the bank balance will increase by 1000. It then agrees or reconciles with the cash account balance of 12,300.

I have also come across the very same question and I still don't understand why we have to add the 140 to the overdrawn balance ..it is confusing me

The receipt has not yet appeared on the bank statement. So the overdraft will be bigger until it does appear. (When it does appear it will then reduce the overdraft on the bank statement.)