## **Learning Outcomes**

After studying this article, you will be able to identify and explain the causes of discrepancies between the cash at bank general ledger account and the bank statement balance. You will accurately define and handle unpresented cheques and outstanding lodgements, describe how these timing differences arise, and prepare a correct bank reconciliation statement in line with ACCA requirements.

## **ACCA Maintaining Financial Records (FA2) Syllabus**

For ACCA Maintaining Financial Records (FA2), you are required to understand why differences can appear between the entity's cash at bank ledger account and the bank statement. This article addresses:

- The purpose and technique of bank reconciliation
- How to identify and treat unpresented cheques and outstanding lodgements
- Recognising timing differences and accounting for them in the reconciliation process
- Updating the general ledger to reflect bank statement items
- Reporting the reconciled bank balance in financial statements

## **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. Which of the following best represents an unpresented cheque?
   a) A cheque received from a customer not yet deposited by your entity  
   b) A cheque issued to a supplier but not yet recorded in your accounting system  
   c) A cheque issued to a supplier that has not yet cleared through the banking system  
   d) A cheque received and cleared by your bank

2. An outstanding lodgement is:
   a) A supplier invoice not yet paid  
   b) A deposit made by the entity not yet appearing on the bank statement  
   c) Interest charged by the bank  
   d) A cheque returned unpaid

3. True or false? Timing differences such as unpresented cheques do not require correcting entries in the general ledger.

4. Briefly explain how unpresented cheques affect the bank reconciliation statement.

## **Introduction**

A bank reconciliation statement is a key control that explains any differences between the cash at bank balance in the general ledger and the balance reported by the bank statement at a particular date. Timing differences, especially unpresented cheques and outstanding lodgements, are the most frequent causes of such discrepancies and are a common feature of ACCA exam questions.

Understanding and properly accounting for these timing differences ensures that the final bank balance reported in the financial statements is accurate and reliable.

> **Key Term: bank reconciliation**
> A process of matching the cash at bank general ledger account balance to the bank statement balance, identifying any timing or recording differences.

## **Why Differences Arise: Timing Differences**

It is normal for the cash at bank balance in the general ledger to differ from the bank statement balance due to the timing of when transactions are recorded and processed. Two common types of timing differences are:

- Unpresented cheques
- Outstanding lodgements

### Unpresented Cheques

When a business issues a cheque to a supplier, the payment is recorded immediately in the cash at bank ledger account as a reduction (credit entry). However, the cheque may take several days to be presented to the bank and processed. Until the cheque clears, the bank will not show a matching debit.

> **Key Term: unpresented cheque**
> A cheque written by the entity, entered in the accounting records, but not yet processed or debited by the bank.

### Outstanding Lodgements

A lodgement (deposit) that has been paid into the bank and recorded as an increase (debit) in the cash at bank ledger account may not yet appear on the bank statement. This typically happens when the deposit is made near the end of a statement period, and the funds have not yet been processed by the bank.

> **Key Term: outstanding lodgement**
> A receipt or deposit recorded in the accounting records but not yet credited (cleared) by the bank.

## **The Bank Reconciliation Statement**

The aim of the bank reconciliation statement is to adjust the closing balance per bank statement for outstanding items, bringing it in line with the balance shown in the general ledger.

**Key steps in preparing a bank reconciliation:**

1. Update the cash at bank ledger account for any transactions shown on the bank statement but not yet recorded (e.g., bank charges, direct debits).
2. Recalculate the cash at bank balance after updating.
3. Identify unpresented cheques (payments deducted in the ledger but not yet cleared by the bank).
4. Identify outstanding lodgements (deposits added in the ledger but not yet shown by the bank).
5. Prepare the bank reconciliation statement starting with the bank statement balance and adjust for these timing differences.

### **Worked Example 1.1**

An entity's bank statement at 30 April shows a balance of \$1,075. The cash at bank general ledger account shows a balance of \$1,455. On investigation, the following are found:

- Cheques totalling \$390 issued have not yet appeared on the bank statement.
- A cheque for \$170 was paid into the bank on 29 April but is not yet shown on the bank statement.

Prepare a bank reconciliation statement as at 30 April.

> **Answer:**  
> Start with the bank statement balance:
>
> Bank statement balance: \$1,075  
> Add: Outstanding lodgement: \$170  
> \$1,245  
> Less: Unpresented cheques: \$390  
> \$1,245 – \$390 = \$855  
> The adjusted balance is \$855. If the general ledger balance is \$1,455, additional reconciling items (such as unrecorded bank charges or errors) may need identifying. If the only differences are the above, the correct general ledger balance after adjustments should be \$855.

## **Effects on the Statement of Financial Position**

When reconciling, the balance to be reported in the statement of financial position is the one taken from the adjusted cash at bank general ledger account, not the figure shown on the bank statement.

> **Key Term: timing difference**
> The delay between the recording of a transaction in the entity’s accounting records and its appearance on the bank statement, typically resulting in temporary reconciliation differences.

## **Accounting Treatment: Corrections vs. Timing Differences**

Not all differences require accounting entries:

- **Bank charges, direct debits, and interest** (recorded by the bank before the entity):  
  These require prompt adjustment in the cash at bank ledger account.
- **Unpresented cheques and outstanding lodgements** (timing differences):  
  These do **not** require ledger entries since they are recorded; they are only listed on the reconciliation statement.

### **Worked Example 1.2**

A bank statement shows a balance of \$2,300. The cash at bank ledger account shows \$1,820. On review, a cheque of \$830 issued on 28 June has not yet cleared, and a deposit of \$350 made on 30 June is not yet on the bank statement. There are no other unreconciled items.

Prepare and explain the reconciliation.

> **Answer:**  
> Bank statement balance: \$2,300  
> Add: Outstanding lodgement: \$350 → \$2,650  
> Less: Unpresented cheque: \$830 → \$2,650 – \$830 = \$1,820  
> The revised bank statement balance matches the ledger balance after adjusting for these timing differences.

### **Exam Warning**

In exam questions, be certain to distinguish between errors (requiring a ledger correction) and timing differences (listed only on the reconciliation). Only update the ledger for errors and unrecorded items—not for mere delays in banking.

### **Revision Tip**

When preparing a bank reconciliation, always tick off items that appear in both the cash book and the bank statement. Unticked items are your timing differences.

## **Summary**

Unpresented cheques and outstanding lodgements are common timing differences causing the cash at bank ledger account and bank statement to display different balances. Correct identification and treatment of these are essential for accurate bank reconciliations and ensuring that reported cash balances are correct in the financial statements. Only actual errors or omissions require adjusting entries; timing differences are noted in the reconciliation but not in the accounts.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Define bank reconciliation and its purpose
- Explain unpresented cheques and outstanding lodgements
- Identify timing differences and their effect on bank reconciliations
- Distinguish correcting entries from timing adjustments
- Report the correct bank balance in the statement of financial position

## **Key Terms and Concepts**

- bank reconciliation
- unpresented cheque
- outstanding lodgement
- timing difference

Bank reconciliation - Unpresented cheques and outstanding lodgements