Bank reconciliation question

It is because the bank statement has debits and credits the other way round :-) If the bank statement has a credit balance it means that there is cash in the bank (and the cash account would show a debit balance). If the bank statement has a debit balance it means that there is an overdraft (and so the cash account would show a credit balance). There is a good reason that this happens - if you want the explanation the watch my lecture on bank reconciliations.

Sir...i watched ur lectures and they were great. but cd u tell me how to setup this equation? my understanding now is:corrected cash balance+unpresented checks-lodgements=corrected bank statement balance thus -500+6000-5000=-500 cd u add to my explaination?

Your equation is set up correct, but the answer to it is +500 (not -500) That means that the bank balance is positive which means it is a credit balance on the bank statement

now i am thoroughly confused.

You wrote - 500 + 6000 - 5000 , which is correct. However the total comes to + 500 (not - 500 as you wrote) So the balance on the bank statement is positive I.e. there is money in the bank per the bank statement. As I wrote before, a credit balance on the bank statement means that there is money in the bank, and a debit balance on the bank statement means that there is an overdraft. Since the bank statement shows there to be 500 in the bank, it means that the bank statement would be showing a credit balance of 500. (As I wrote earlier, the bank statement appears to show debits and credits the opposite way round to what we do in the cash account. If you are confused about why, then if you watch my lecture I explain the reason for it)

Hi Jo/s bank ledger account shows a balance of 190 credit. Her bank statement reports a balance of 250 credit. My question is Cash balance is 190 - it is clear that it's positive But why bank statement shows +250, although it is credit

there are 2 tests confusing me. in one test 1. balance per bank statement (overdraft) 38640 answer shows -38640 2. in another test why correct answer is like that "an overdraft is a debit balance in the bank statement"

Ledger account shows 190 Cr ... means its negative. bank ledger account is ur asset .... so positive means there is a debit balance and a cr means there is a negative balance. the bank statement shows a balance of 250 Cr, which means positive... u have this money in your bank.

Mansoor: thanks for answering, but this is Ask the Tutor (and I am the tutor :-) ). Please restrict yourself to the general F3 forum. Gabrielle: mansoor is correct. The problem is that the bank 'appears' to do things the opposite way round. A debit balance in the cash account is a credit balance on the bank statement. A credit balance in the cash account is a debit balance on the bank statement. (There is a good reason for this - if you want to understand why, watch my free lecture on bank reconciliations)

An overdraft is a negative balance, whether in bank ledger or bank statement. how is this negative balance translated in Dr/Cr? in the books of the business, if the bank ledger is +, then Dr. if -, then Cr in the books of the bank, if the amount is +, then Cr, if -, then Dr. ------------------------------------------------------------------ why is this the opposite of each other? because (bank's point of view): if u have money in the bank, then the bank owes u that money. that means, the bank is LIABLE to pay u this money, thus u r a sort of a supplier (of cash) to the bank. Thus, bank will show it as a LIABILITY, which means a Cr. on the other hand, if the balance in the bank is -, then YOU OWE MONEY TO THE BANK. Thus, it becomes a receivable for the bank. thus Dr.

sorry....i will be careful

No problem :-)

thanks Mansoor and Great Tutor. :) a lot thanks !!

You are welcome :-)

Dear John i had started to get a steady stream of questions from the fa/ma exams in fia. i was enjoying answering them..but for the past 2 months...they stopped. is it because of june exams?

I would guess so. It is always quieter between the exams and the results because fewer people are studying. I think you will find that the questions start coming again after the results are out next week :-)

ha ha...ok..looking forward to the flow to begin. i want some advice from u regarding teaching FIA in Azerbaijan. shd i ask here or shd i send u a message? I am from pakistan tho.

Best to send me a message :-)

that wd be @johnmoffat? because its not accepting it. i am @mansoor50

A bank error has resulted in a cheque for 97 being debited to dalla's account istead of Dynasty' s account. How will be correct it bank statement +194? Or +97

If the bank has debited the account, then they will have taken money out. So to correct the mistake we need to add 97 to the balance on the bank statement (but be careful - if the bank statement shows an overdraft, then obviously correcting the mistake will reduce the overdraft).

A cheque for 980 from customer paid in on 26 March was dishonoured after 31 March 2008 and Goerge decided that debt would have to be written off as the customer was now untraceble. For adjustment to cash book will we credit it or not? and how will it be in bank reconcilation add or less/ Thanks

A company is preparing its bank reconcilation at 31 december 2007. The following receipts and payments hae been entered the in the cash account. Date of cash book entry Data entered on bank statement receipts 31 december 2007 2 January 2008 17432 30 december 2007 31 december 2007 18243 Payments 28 december 2007 30 december 2007 10947 31 december 2007 2 January 2008 8976 1.What amount will appear on the bank reconcilation as uncleared deposits? 2/ what amount will appear on the bank reconcilation as unpresented cheques?

First question: In the cash account, when we find out that the cheque is dishonoured we will Cr cash (to remove it) and Dr Receivables (because they will owe us). (Then we will remove the receivable as an irrecoverable debt). It will not appear in the bank reconciliation because the money will never have appeared on the bank statement.

Second question: Uncleared deposits is where we have received money, entered them in the cash account, but they have not appeared yet in the bank statement. So at the 31 December there is only the first one. Unpresented cheques is where we have paid money, entered it in the cash account, but it has not yet appeared in the bank statement. So at 31 December there is only the second one.