## **Learning Outcomes**

After studying this article, you will be able to explain the purpose of bank reconciliation, identify and explain timing differences such as unpresented cheques and outstanding lodgements, and analyze how these differences cause discrepancies between the cash at bank general ledger account and the bank statement. You will apply this knowledge to ensure accurate financial records for ACCA FA1.

## **ACCA Recording Financial Transactions (FA1) Syllabus**

For ACCA Recording Financial Transactions (FA1), you are required to understand how and why the cash at bank general ledger account is reconciled to the bank statement. This topic is important for checking the accuracy of cash and bank transactions in accounts. The key syllabus points covered in this article are:

- The need for bank reconciliations as a control to identify and correct errors and omissions
- The main reasons for discrepancies between the cash at bank account and the bank statement
- The impact of timing differences, including unpresented cheques and outstanding lodgements
- How to prepare a bank reconciliation statement to reconcile opening and closing balances

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. If a payment by cheque has been recorded in the bank ledger but has not appeared on the bank statement, what type of timing difference is this?
2. What is an outstanding lodgement in the context of bank reconciliation?
3. True or false? Bank charges can cause a timing difference if not recorded promptly in the accounting records.
4. Briefly describe why the cash at bank ledger balance and the bank statement balance may differ at a specific date.

## **Introduction**

Every business needs to keep its cash and bank records accurate and up to date. However, the cash at bank balance in the general ledger will often not match the balance shown on the bank statement. Understanding and explaining these differences is essential for effective financial control and is tested in the ACCA FA1 syllabus. One of the most common reasons for these differences is timing – in particular, unpresented cheques and outstanding lodgements. Performing a bank reconciliation allows you to confirm that the records are complete, identify any mistakes, and provide confidence in the true cash position of the business.

> **Key Term: bank reconciliation statement**
> A document that explains and reconciles the difference between the cash at bank balance as shown in the business's accounting records and the balance shown on the bank statement from the bank.

## **Bank Reconciliation and Timing Differences**

Bank reconciliation is a control process where the cash at bank general ledger is compared to the latest bank statement. Any differences should be fully explained and, if necessary, corrected.

### Common Reasons for Differences

Several factors can cause the balances to disagree:

- Transactions recorded in the ledger but not yet processed by the bank (timing differences)
- Transactions processed by the bank but not yet recorded in the ledger (omissions)
- Errors in either the business’s records or the bank's recording

Two key timing differences to focus on are unpresented cheques (also called outstanding cheques) and outstanding lodgements.

### Unpresented Cheques

A cheque becomes unpresented when it has been written and recorded in the cash at bank ledger as a payment, but the recipient has not yet presented it to their own bank, so it has not yet been processed through the banking system.

> **Key Term: unpresented cheque**
> A cheque issued and recorded as a payment in the business's cash at bank account but not yet debited by the bank, so it does not appear on the current bank statement.

### Outstanding Lodgements

Outstanding lodgements are receipts (cash, cheques, or transfers) that have been paid into the business's bank account and recorded in the cash at bank account, but have not yet been credited in the bank statement—often due to delays in the bank clearing process.

> **Key Term: outstanding lodgement**
> A deposit that has been recorded in the business's cash at bank ledger as a receipt but has not yet been credited to the bank account by the bank and so is not shown on the bank statement.

### Why Timing Differences Occur

These timing differences are common in the day-to-day processing of payments and receipts, especially when using cheques or when bank clearing takes time. For example:

- Cheques can take several days to clear after being handed to a supplier.
- Receipts paid in late in the day may not be credited until the next working day.
- Bank holidays or weekends can also cause further delays.

### **Worked Example 1.1**

**A business's cash at bank ledger on 31 March shows a balance of \$5,000. A recent bank statement shows a balance of \$5,800. During March, cheques totaling \$1,200 have been issued but not yet appeared on the bank statement, and receipts of \$400 have been paid in but are not yet credited by the bank. Reconcile the two balances.**

> **Answer:**
>
> - Start with the balance as per the bank statement: \$5,800
> - Subtract outstanding lodgements: \$5,800 – \$400 = \$5,400
> - Add back unpresented cheques: \$5,400 + \$1,200 = \$6,600
> - Since the cash at bank ledger reports \$5,000, the business should investigate further for possible errors or additional timing differences. In this simplified example, if only these items cause differences, the adjusted ledger balance would match the reconciled statement.

### **Worked Example 1.2**

**On 30 June, Quickstore Ltd’s bank statement shows \$3,750. The cash at bank ledger shows \$3,130. Cheques worth \$870 are unpresented, and cash of \$250 is lodged but not yet credited. Write the bank reconciliation statement.**

> **Answer:**
>
> Start with the bank statement balance: \$3,750  
> Add: Outstanding lodgement: +\$250 → \$4,000  
> Less: Unpresented cheques: –\$870 → \$3,130  
> The adjusted balance equals the ledger balance.

### **Exam Warning**

> A common error is to add unpresented cheques or subtract outstanding lodgements when reconciling bank statements. Always subtract unpresented cheques and add outstanding lodgements when reconciling from the bank statement to the ledger balance.

## **Correcting Errors and Omissions**

The bank reconciliation process is also used to identify errors or unrecorded items:

- Sometimes a payment or receipt is on the bank statement but missing from the ledger (e.g. bank charges, direct debits). These must be promptly added to the accounts.
- Errors, such as double-counting or recording the wrong amount, are corrected during reconciliation.

## **Bank Reconciliation Statement Format**

A typical bank reconciliation statement sets out the closing balance per the bank statement, then lists and adjusts for unpresented cheques and outstanding lodgements, explaining the movement between the two balances.

**Bank Reconciliation Statement as at [date]:**  
Balance as per bank statement: $X$  
Add: Outstanding lodgements: $Y$  
Less: Unpresented cheques: $Z$  
Balance as per cash at bank ledger: $X + Y - Z$

### **Revision Tip**

> List out all cheques issued but not cleared and deposits not yet credited when preparing a reconciliation. Keep records up to date for easier reconciliation.

## **Summary**

Timing differences—mainly unpresented cheques and outstanding lodgements—are the most common reasons for differences between the cash at bank ledger and the bank statement. Regular bank reconciliation is essential to confirm the true cash position, identify errors, and maintain accurate records for exam success and future financial statement preparation.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Define the purpose of bank reconciliation
- Identify reasons for differences between the cash at bank ledger and bank statement
- Explain unpresented cheques and outstanding lodgements as timing differences
- Prepare a simple bank reconciliation statement adjusting for these items
- Recognize the importance of correcting errors and omissions during reconciliation

## **Key Terms and Concepts**

- bank reconciliation statement
- unpresented cheque
- outstanding lodgement


Bank reconciliation fundamentals - Timing differences and unpresented items