A cash book and a bank statement may show different balances even when neither contains an error. They are prepared by different parties and may record the same transaction at different times. The business records a cheque when it is issued, but the bank may not process it until later. A deposit recorded by the business may also appear on the bank statement after the reporting date.
Bank reconciliation identifies and explains these differences. First update the cash book for relevant bank-statement items not yet recorded, such as bank charges, interest, direct debits or a customer's dishonoured cheque. Correct any known cash-book errors. Timing differences are then reconciled between the adjusted cash-book balance and the bank-statement balance. Do not enter an outstanding cheque into the cash book a second time merely because it has not yet cleared.
For a favourable bank-statement balance, add deposits recorded in the cash book but not yet credited by the bank, then subtract issued cheques not yet presented. This brings the statement balance toward the adjusted cash-book balance in the usual simple reconciliation. Overdrafts and bank errors require careful attention to signs and facts. Explain each item rather than memorising a rule without knowing which balance is the starting point.
is the systematic allocation of a depreciable asset's depreciable amount over its useful life. Depreciable amount is cost less estimated residual value. Straight-line allocates an equal amount each full period if the estimates are unchanged. A machine costing ₦100,000 with a residual value of ₦10,000 and a five-year useful life has annual straight-line of ₦18,000.
expense reduces , and accumulated reduces the asset's carrying amount. The entry does not itself create a cash fund to replace the asset. Carrying amount is cost less accumulated and any relevant impairment; it is not automatically the asset's market value. When solving a question, check the purchase date, useful life, residual value and stated policy. A full year's charge should not be assumed if the question specifies a part-year policy. Keep calculations separate from bank reconciliation even when both appear among year-end adjustments.
Why the bank and cash book differ
The bank column of a business's cash book is the business's own record. A bank statement is the bank's record of the account. They can differ because an item has reached one record but not the other, because the bank has processed charges or credits not yet entered by the business, or because an error exists. A bank statement's terminology reflects the bank's perspective. A customer's positive bank balance is a liability of the bank, so the debit and credit labels need careful interpretation.
Start reconciliation by comparing entries and identifying their nature. Bank charges, direct debits, standing orders, interest credited and direct receipts may require updates to the cash book if missing there. A cheque already recorded by the business but not yet presented is a timing item for the reconciliation, rather than a fresh expense. A deposit recorded by the business but not yet credited by the bank is also a timing item. Entering such items again into the cash book would duplicate a transaction.
Prepare an adjusted balance before reconciling
Suppose the cash book shows a positive bank balance of ₦80,000. Charges of ₦2,000 and a direct customer receipt of ₦10,000 appear only on the statement. The adjusted cash-book balance is ₦88,000. If a deposit of ₦15,000 has not yet been credited and cheques of ₦9,000 have not yet been presented, the expected statement balance is ₦82,000: 88,000 − 15,000 + 9,000. Starting from the statement, add the uncredited deposit and deduct unpresented cheques to return to ₦88,000.
The signs follow the direction of the missing item, not a slogan that deposits are always added or cheques always subtracted. If starting from the adjusted cash book to reach the bank statement, the directions reverse compared with starting from the statement to reach the cash book. Overdrafts require the same logic but with negative balances or clearly labelled overdraft presentation. Choose a consistent sign convention and check the result by reversing the calculation. An unexplained list of plus and minus signs is difficult to verify.
Errors and internal control
An error made in the cash book must be corrected there. A bank error is reported and appears as a reconciling item until the bank corrects it. For example, if the business entered a payment of ₦4,600 as ₦6,400, cash was understated by ₦1,800 and should be increased by that amount. Do not correct the whole payment a second time. Frequent reconciliation can reveal unrecorded items, duplicated payments and possible irregularities, but a difference is not automatically evidence of fraud. Investigate the evidence before assigning a cause.
Separation of duties improves control. The person authorising a payment should not have unchecked control over preparing it, recording it and independently reconciling it. Small businesses may lack enough staff for perfect separation, but owner review and supporting documents can provide compensating checks. Bank reconciliation is a control procedure, not a replacement for proper payment approval or secure access to banking systems. A balanced reconciliation can still be based on incomplete or manipulated evidence.
methods and their meaning
Straight-line commonly allocates cost less estimated residual value evenly over useful life. If equipment costs ₦120,000, residual value is ₦20,000 and useful life is five years, the annual charge is ₦20,000. Carrying amount after two full years is ₦80,000. State whether a question requires a full-year charge or time apportionment. Buying an asset halfway through the year does not justify assuming either treatment without reading the policy supplied.
Reducing-balance applies a fixed percentage to the opening carrying amount for each period. At 20%, an asset initially carrying ₦100,000 incurs ₦20,000 in year one and ₦16,000 in year two, leaving ₦64,000 after two years. The second year's charge is not another ₦20,000 because the base has changed. Accumulated records the total charges to date; the expense account records the charge for the period. Keep these balances distinct when preparing statements or disposal calculations.
Disposals, mistakes and self-check
For a simple asset disposal, compare proceeds with the carrying amount at disposal after any required . A machine with cost ₦90,000 and accumulated ₦54,000 has carrying amount ₦36,000. Selling it for ₦40,000 gives a gain of ₦4,000; selling for ₦30,000 gives a loss of ₦6,000. The difference is not calculated against original cost alone. Remove both the asset cost and its related accumulated from the records under the disposal procedure.
Self-check: why is not a bank payment? The charge allocates the cost of an existing asset; it does not itself transfer cash. Self-check: why does an unpresented cheque not need to be entered again? It is already in the business record, while the bank has not yet processed it. In an examination, keep the reconciliation and sections separate even if presented in one broad revision unit. Each solves a different problem and needs its own heading, dates, workings and explanation.