Uncredited cheques are the cheques that have been collected by the business and recorded as the receipt of cash in the business books. However, the business has not submitted the cheque to the bank. Hence, there is an implied difference between the bank statement and the cash ledger.
So, we can assume that the bank has credited the business account and adjusted the balance of the outstanding lodgment/uncredited cheque. This leads to the reconciliation of the bank statement.
The discussed process is used to reconcile the bank statement and cash ledger of the business. Opposite to the uncredited cheque is the unpresented cheque that has been written by the business and updated in the accounting system. However, it has not been submitted to the bank. So, it leads to a difference in the process of bank reconciliation.
Why is bank reconciliation performed?
The business receives a bank statement and compares the ending balance with the cash book/cash ledger. Often, the balances do not match with each other; that’s because the business needs to adjust some items that include the following,
- Represented cheques/outstanding lodgment
- Uncredited cheques
- Bank charges
- Interest received/paid
- Direct debits (Pre-agreed debits by the bank)
- Standing order
- Dishonored/bounced cheques
These items need to be debited and credited to reconcile the bank statement with the cash balance.
What’s the purpose of making a bank reconciliation statement?
The purposes of the bank reconciliation statement include the following,
- It helps to ensure that cash-related business activity and bank activity are on the same page.
- It helps to ensure that the business has sufficient controls on the cash and banking activities.
- It helps to ensure payments made via the bank have been appropriately accounted for in the business books and collections have been deposited in the bank.
- The fees charged by the bank have been accounted for in the business books.
- Appropriate adjustments have been made in the books, leading to the reconciliation of the cash and bank ledger with the bank statement.
What information is required for the preparation of bank reconciliation?
Input required to prepare the bank reconciliation statement varies from case to case. Some processes are complex and require multiple adjustments. On the other hand, some businesses require complex adjustments.
Here is a list of some main inputs required in the preparation of a bank reconciliation statement.
- Cash ledger of the business – to get the balance of the cash.
- Bank statement – to get the amount of the bank statement.
- Uncredited cheques – Business needs to submit the cheque in the bank.
- Unpresented cheques – to adjust the balance cheques that have been written but not presented in the bank.
- Details of fees charged by the bank – to ensure books are updated.
Uncredited cheques have been received by the business and recorded as a receipt in the cash ledger. However, these cheques have not been deposited in the bank on the date of the balance sheet.
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