Cambrige Notes: Principles of Accounting: Bank reconciliation statement and bank overdraft

• Preparing a bank reconciliation statement is easy
• In the last example we assumed that the business had a positive balance shown by a a debit bank balance in the bank column of the cash book and a credit balance on the bank statement
• In reality this is not always the case
• It is qui
• In order to improve its cash flow the business may negotiate with the bank for an overdraft facility
• This is a form of short term borrowing that would allow the business to overdraw its account
• In such instances it would mean that:
• The bank balance would be shown as a credit balance in the cash book
• From the bank’s perspective this would be a debit balance
• This is usually denoted by a negative balance on the bank statement in modern days
• In other instances an overdraft is shown by the acronym O/D besides the bank balance figure on the bank statement
• Currently at the time of writing this it is possible in Zimbabwe it is possible to “overdraw” your
• Banks do not offer interest on current and savings accounts which means one’s account can have a negative balance due to service charges if no deposits are made

Bank reconciliation statement

• The procedure to prepare a bank statement is not very different from the one where the business has a positive bank balance

• Apart from the credit balance this looks like the normal updated cash book
• The presentation and format of the bank reconciliation statement is rather different arithmetically speaking

• When dealing with overdrafts be mindful of the negative and positive amounts and handle them apropriatly
• It is very possible for a balance to transition from either an overdraft to a positive balance and vice versa
• There are alternative formats of presenting the bank reconciliation statement but we will assume you will use this
• An example of a bank reconciliation statement with a bank overdraft can be found here

To access more topics go to the Principles of Accounting Notes.