Information of Bank Reconciliation Statement
Bank Reconciliation Statement is a statement prepared by the account holder on a particular date to reconcile the bank balance as per Cash Book with the balance as per bank statement or Bank Pass Book showing entries because of which differences between the two balances exist.
Bank Statement or Bank Pass Book:-
Bank statement or Bank Pass Book is a copy of the account holder in the books of the bank. It is issued by the bank to the account holder and the account holder compares the entries in the Bank Statement or Bank Pass Book with the entries in the Cash Book and determines the entries because of which differences between the two balances exist.
Debit balance in the Bank Statement or Bank Pass Book means that much amount is payable by the account holder to the bank .Credit balance means that much amount is lying deposited in bank being receivable by the account holder.
Need and Importance of Bank Reconciliation Statement:-
Bank Reconciliation Statement is prepared because of the following reasons:
- It brings out the errors if any, committed either in the Cash Book or in the Bank Statement or Pass Book.
- Undue delay in the clearance of cheques deposited is known from the reconciliation.
- Regular reconciliation discourages embezzlements.
- Reconciliation helps in verifying the accuracy of entries recorded in the Cash Book.
- It shows actual bank balance.
Reasons of Difference between Balances as per Cash Book and Bank Statement or Bank Pass Book:-
- Difference Due to Timing in Recording Entries – There is always a time gap between recording a transaction in the books of account and it being recorded by the bank. For example,
- Cheques Issued but not yet Presented for Payment
- Cheques Deposited into the Bank but not yet cleared.
- Transactions Recorded by the Bank but not by the Account Holder – Sometimes transactions are recorded by the bank, which is known to the account holder on receiving the Bank Statement or Bank Pass Book. For examples,
- Interest Credited by the Bank but not recorded in Cash Book.
- Bank Charges, Interest Charged by Bank but not Recorded in Cash Book.
- Interest and Dividends Collected by the Bank but not Recorded in Cash Book.
- Direct Payments y the Bank not recorded in Cash Book.
- Direct Deposit into Bank by a Customer not recorded in Cash Book.
- Dishonour of a Bill Discounted with the Bank not recorded in Cash Book.
- Bills Collected by the Bank on behalf of the Customer.
- Errors – Errors may be committed by the bank or the account holder and these errors result in difference in the balances of Cash Book and Bank Statement or Pass Book. For example,
- Errors and Omissions
PRACTICAL PROBLEMS