Bank Reconciliation Statement
Bank Reconciliation Statement
Bank Reconciliation Statement
Statement
Bank Reconciliation
statement is a statement
prepared by organizations to
reconcile the balance of cash
at bank in company’s own
records with the bank
statement on a particular
date.
BANK PASS BOOK
A Bank pass book or Bank
statement is a copy of
customer’s account in bank’s
ledger.
It shows the balance standing
to the debit (credit) of the
customer at the end of the
month.
Thebalance of Bank account
or Bank column of cash book
should be equal to the
balance shown by Pass book
or Bank statement.
Attimes, these
balances do not agree.
Reasons for the difference
between two balances
Cheques issued but not
presented for payment:
When cheques are issued, the
entry in the cash book is made
immediately. In the books of the
bank, the entry is made only
when the cheque is presented
for payment. This causes a
disagreement between the two
balances.
Reasons for the difference
between two balances
Cheques paid into the bank but
not yet cleared:
As and when the cheques are
deposited into bank, the entry is
passed on the debit side of the
bank column of the cash book.
The customer account is credited
by the bank only when the
cheques are cleared.
Interestallowed by the Bank:
Bank might have credited the
account of the customer with
interest and may have made
the entry in the Pass book.
The customer might not have
made entry for the same in
the bank column of the cash
book.
Interest & Bank charges
debited by the bank:
The bank debits the accounts
of the customer by way of
interest on overdraft or
certain collection charges.
But no entry for that made in
the cash book.
Interest,
dividend etc. collected
by the bank:
Sometimes, bank collects interest
on government securities and
dividend on shares and give a
credit to the account of the
customer for the same.
Direct payment by the Bank:
Sometimes under standing
instructions from the client,
certain payments like insurance
premium, club fees etc. are made
by the bank. The entry in the bank
column of the cash book is made
only when the necessary
intimation is received by the
client.
Directpayment into the bank by
a customer:
Sometimes our customers
deposit money direct into the
account in the bank, the
corresponding entry for which
may not appear in the cash book.
Dishonour of the bill discounted with
the bank:
Sometimes customers get their bills
disocunted with the bank. If the bank
is unable to get payment of these bills
on the due date it will debit the
customer’s account with the amount of
the bill and noting charges.
Any error committed by the
bank:
If any error is committed
either by the bank or by the
customer himself, it will
cause disagreement between
the two balances.
Reconciliation
Statement
Bank Reconciliation
statement is a statement
prepared by organizations to
reconcile the balance of cash
at bank in company’s own
records with the bank
statement on a particular
date.
Advantages of Bank
Reconciliation statement
Theerrors committed in the
Cash book or Pass book are
revealed.
Thechances of
embezzlement can be
reduced.
Procedure of preparing the
Bank Reconciliation
statement
1. Compare the items appearing
on the debit side of cash book
with those appearing on the
credit side of the Pass book
(deposit column) and place a tick
mark against items appearing in
both the books and note down
the entries which are causes of
differences.
2. Compare the items appearing
on the credit side of the cash
book with those appearing on
the debit side of the pass book
(Withdrawal column) and place a
tick mark against items
appearing in both the books.
3. Take the balance as per cash book as
the starting point and add items which
are having the effect of higher balance in
the Pass book and deduct those which
are having the effect of lower balance in
the Pass book.
or
Take the balance as per Pass book as the
starting point and add items which are
having the effect of higher balance in
cash book and deduct those which are
having the effect of lower balance in the
Cash book.
IMPORTANT POINTS
An Overdraft appears as “Minus
Item’.
In case the total “Plus Items”
column exceeds the total of
“Minus Items”, the difference is
called as “Balance”.
In case the total of “Minus
Items” column exceeds the total
of “Plus Items” , the difference
is called as an overdraft.
The Cash Book of Mr. B shows Rs.
8,464 as Bank balance on 31st of
December, 1986. But you find that
this does not agree with the
balance as shown by Pass Book.
On scrutiny, you find the following
discrepancies:
On 15th Dec, 1986 the payment
side of cash book was undercast
by Rs. 200.
A cheque of Rs. 231 issued on 25th
of December, 1986 was taken in
cash column.
One deposit of Rs. 250 was
recorded in cash book as if there
is no bank column therein.
On 18th of Dec. 1986 the debit
balance of Rs. 1,576 as on the
previous day was brought
forward as credit balance.
Of the total cheques amounting
to Rs. 11,614 drawn in last week
of December, 1986, cheques
aggregating Rs. 7,815 encashed
in december.
Dividends of Rs. 350
collected by Bank and
subscription of Rs. 200
paid by it were not
recorded in the cash book.