LSBF ACCA F3: Introduction to Bank Reconciliations



the a paper f3 Financial Accounting has got several parts to the syllabus lots of units as they say unit II is preparing a trial balance so we go back to the syllabus or you can visualize that I showed you a few little while ago preparing trial balances unit II within that there are lots of sections 1 2 3 4 5 etc section 4 is what's known as bank reconciliations in other words the business let's say you are running your business you have what soon as a cash book you see but because you put the money for safekeeping into the bank whichever Bank it might be that Bank if you put money into the bank they owe you that money you see so what you've got to do is because the accounts are cut off every year let's say every 31st of December at that date there will be a few loose ends you might have put money into the bank but the bank hasn't quite credited it you see but alternatively someone might have paid money to the bank directly and you may not be aware of it another thing might happen another situation may be where you've said to the bank every year I want you to pay the ACCA subscription whatever it might be and the bank does it will soon as a direct debit sometimes called a standing order and you may be you may have forgotten about it so we look at your bank statement you realize there are some differences between the bank statement and what you've done in your cash book so you maintain the cash book over there you have the bank statement and then as the accountant as the ACCA part qualified accountant you have to reconcile make them tiya the bank's version of thing and the businesses version of things and that process is called a bank reconciliation statement very very easy indeed now the nature of balances so as usual I'll say units unit II bank reconciliation apron section for D the concept the nature balances are the debits or credits now this is extremely important at F 3 F 7 P to the three papers that cover financial accounting in the ACCA qualification let's start with our level F 3 now if me you let's say that the person who owns a business puts $10,000 into the bank literally you give it to the bank for safekeeping degree you have got an asset in the sense that you have money in the bank so in your books it'll show up as an asset a debit but if I stand the other way and pretend I'm the bank for a second the bank actually owes you that money so the bank has a liability so the banks records it'll show up as a credit because credits are liabilities but that same item in your books shows up as a debit because it's an asset so security important when you're doing bank reconciliation statements that you realize that the perspective is important by doing things from the company's point of view that's the business's point of view or from the come from the bank's point of view that is crucial of course you'll get much more familiar with something as advanced as this after you've heard the first eight or ten hours of videos that's when we come across bank reconciliation statements quite far down the line well the most useful skills you you can have when you start practicing as accountant I know when I started practicing while doing my exams to get practical experience the one of the first tasks I was given was in fact the preparation of bank reconciliation statements the cash book maintained by the business has got this amount allegedly in the bank and the bank statement says no the figure is different so how to step in using what little skills I had at that time and try to reconcile was an error well this was there an omission and that lovely little statement that you produce is called a bank reconciliation statement I'm just about to show you one of those one of the most useful practical skills that you actually get paid for in practice very very practical skill that an ACC but qualified student can have so in summary what can I say unity BRS bank reconciliation statements section 4 D it's usually a computational exam quest exam topic a typical mark allocation is two marks now when you first look at that you might be you feel quite daunted and you say how can I even read that within the two marks worth of time never mind solve it but that's how well that's what you've got to do keep your nerve because certain things will take you longer now that that's two marks if you take one point three three marks boom Oh minutes per mark two marks makes it to point six seven let's say two point seven minutes but this might take you four minutes to do but never worry because the next question might take you ten seconds as I explained earlier so keep your nerve the clock's ticking the wonderful thing about the computer-based exams is that you'll see a clock running down in terms of time left so you can work out exactly where you stand and you can keep an eye on how you're using your time but more about that later how you practice for the exam I'll explain to you on the video so here we have here we have it the following bank reconciliation statement this is actually the bank reconciliation atman has been prepared by a trainee accountant now would you agree training accountant is giving you a broad hint that there may be a problem with this again a hint from the examiner a clue that maybe the person who's prepared this isn't completely qualified yet hasn't finished all the exams so the very word trainee implies there may be some mistake if you are a training I apologize for saying that but that's what the examiner imagines right overdraft per bank statement is 386 so less outstanding checks so it comes to 5 300 ad deposits credited after that day cash at Bank has calculated above is twenty one thousand nine ninety what should be the correct balance for the cash book says the question now it's a trainee who's been preparing these accounts this bank reconciliation statement so you're little bit suspicious you see maybe there's a mistake or two there so you could have pick up little clues and hints now because the overdraft is a negative figure a negative figure I'm going to put that in brackets and because the outstanding checks once they go through would make it even worse this should strictly speaking be an ad so if you have an overdraft in other words you've taken too much out of the bank let's say you've put in ten thousand dollars into the bank but you've taken out thirteen thousand eight sixty would you agree your balance as per the bank will be an overdraft we all experience overdrafts from time to time so now I do the you don't realize that you put in you've taken out more than you've put in but the bank usually allows you a little bit of time to pay it back so here with the business's point from the business's point of view the overdraft for the bank statement is three 6oh but because it's an overdraft I must put it in brackets you'll add outstanding checks so actually that figure of five 300 is wrong it should be more like 13,000 Oh 20 so that's wrong the three thousand eight sixty plus nine one six zero is thirteen thousand Oh twenty see them the trainee has made three mistakes already and deposits credited after that date which agree it's overdrawn seriously overdrawn at this point and if you have put in money into the bank but the bank has it hasn't quite credited it to the bank statement until after the the date where the overdraft balance was struck I suppose that word ad should be more like a less you see and so that sixteen thousand six ninety being without brackets and the thirteen thousand Oh twenty being in brackets the balance therefore comes to something like three six seven zero that's wrong the twenty one thousand it should be three six seven zero but without brackets in other words even though you were thirteen thousand overdrawn by putting sixteen thousand and you have about 3,000 left good dollars in the bank so what should the correct balance for the cash book be obviously a is definitely wrong very often they'll give you a ridiculous answer member it's a trainee account and there's bound to be mistakes in there so by taking twenty one thousand ninety which is the original figure that's definitely wrong so out of the four very often the examiner will put in one that's utterly ridiculous and any intelligent student can see that that's wrong you now got only three left to choose from now the eleven thousand three ninety looks wrong but the two three six seven zeros look correct but which one is it because it's balanced a bank good balance of bank I'm going to go for B indeed that is the sir so what you do in your computer-based exam is you see this on the screen you've got a piece of paper your own calculator and pen and so on you do a few calculations quickly speed is of the essence and you just click be on the computer with your mouse and they'll accept it whatever you've decided and then you click to move on to the next exercise it's very very simple so that's a typical to mark question it took longer than two point six seven minutes of course but never worry about that it'll even now to become smooth in the end time wise it'll be fair you

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