Bank Reconciliation with Errors · Chapter 8

Key Concepts

Errors can occur in either the cash at bank account or the bank statement, but most commonly in the business's cash at bank account.

When an error in the cash at bank account is discovered during bank reconciliation, it must be corrected in the cash at bank account — the bank statement is not changed. If the bank statement contains an error, the business should notify the bank to have it corrected; in the meantime, it is included as a reconciling item in the bank reconciliation statement.

Types of errors:

Amount recorded incorrectly (too high or too low)
Transaction recorded on the wrong side

How to correct in the updated cash at bank account:

If the original entry was debited too much → credit the difference
If the original entry was credited too much → debit the difference
If the entry was recorded on the wrong side → correct it with double the amount: one part cancels the wrong side, the other records the correct side.

Note — wrong-side errors:
A wrong-side error needs double the amount because two things must happen at once — the wrong entry is cancelled, and the correct entry is recorded. For example, a $50 receipt that was wrongly credited to cash at bank is corrected by debiting cash at bank $100: $50 cancels the incorrect credit, and a further $50 records the receipt on the correct (debit) side.

How to Remember

Where is it found?	What to do
Missing from cash at bank account (in bank statement only)	Update cash at bank account
Missing from bank statement (in cash at bank account only)	Include in bank reconciliation statement as deposit in transit or cheque not yet presented
Error in cash at bank account	Correct in updated cash at bank account
Error in bank statement	Include as a reconciling item in the bank reconciliation statement (rare in exam)

Worked Example

Sundry & Co, owned by Siti, paid rent by cheque (cheque number 800124). Siti recorded the payment as $75 in the cash at bank account, but the bank statement shows the cheque actually cleared for $71 — she had recorded the wrong amount.

Correction: Siti credited Cash at bank $4 too much. Debit Cash at bank $4 (correction of error).

Cash at bank a/c

Date	Particulars	Dr ($)	Cr ($)	Balance ($)
…	Rent expense (correction of error)	4		…

Common Mistakes

Correcting an error in the wrong place. Business errors are corrected in the updated cash at bank account — not on the bank statement, and not in the bank reconciliation statement. Bank errors are different: the business cannot alter the bank statement, so a bank error appears in the bank reconciliation statement as a reconciling item until the bank corrects it.

Check Your Understanding

It was noted that the business recorded a cheque payment for $96, but the correct amount confirmed by the bank statement is $90. Which record should be corrected, and how?

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The cash at bank account — the question confirms the bank's figure is correct, so the business corrects its own record, not the bank statement. The payment was over-credited by $6 ($96 − $90), so the business debits the cash at bank account by $6 to bring it to $90.

The business recorded a cheque payment as $150, but the bank statement shows it cleared for $105. How should the cash at bank account be corrected?

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Debit Cash at bank $45 — the account was over-credited by $45 when the payment was recorded, so a debit of $45 corrects it.

Does a correction of error always appear in the cash at bank account and never in the bank reconciliation statement?

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It depends on who made the error. Errors made by the business are corrected in the cash at bank account and do not appear in the bank reconciliation statement. Errors made by the bank cannot be corrected by the business — they appear as reconciling items in the bank reconciliation statement until the bank corrects them.