Introduction
Bank Reconciliation statement is prepared by the accountant when the cash book bank statement doesn’t match with the Pass Book. This is done with the intention of knowing the cause of the difference. Usually all firms open current Bank Account as there are so many transaction to record in the bank column of the cash book. Bank also maintain separate ledger accounts of each firm customer and supplier a copy of the account to the firm for information. Now considering that all the transactions with the bank are entered in both the Cash Book and Pass Book, the balances of the two books must therefore tally with each other. Unfortunately, the two balances hardly tally. In the light of this therefore, a Bank Reconciliation Statement is prepared to reconcile the difference between the Bank Balance shown by the Cash Book and Bank Pass Book.
How to prepare Bank Reconciliation when there is an Overdraft
One important question however is the question of how to prepare a bank reconciliation when there is a bank overdraft. Recall that a bank overdraft is a situation when there is an extension of credit from a lending institution such that an account reaches zero. In other words, a bank overdraft has to do with a situation whereby a bank allows customers to borrow a set amount of money. In this kind of situation therefore, how will the bank reconcile the account?
To above the above question, let us use the following example-
- Mr. Ajayi’s overdraft according to his Pass Book is N16500
- On 30th December, cheques were issued for N8750
- Cheques deposited with the bank but not yet collected= N10500
- Interest on overdraft =N100
- Cheque Deposited directly by customer into bank= N000.
- Cheque paid into bank but not cleared before December= N4000.
Working Solutions…
Read more below-
SS1 Financial Accounting Third Term: Preparation of Bank Reconciliation when there is Bank Overdraft
