Bank Reconciliation Statement

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Chapter 7

Bank Reconciliation Statement

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Bank Reconciliation Statement

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CHPTER AT A GLANCE (Chapter 7)7.01 Meaning of a Bank Reconciliation Statement7.02 Need and Importance of a Bank Reconciliation Statement7.03 Causes of Difference between Cash Book and Pass Book Balances7.04 Methods of Preparing a Bank Reconciliation Statement7.05 Preparation of a Bank Reconciliation Statement7.06 Preparation of a Bank Reconciliation Statement given as an extract of the Cash Book as well as the Pass Book relating to the same month7.07 Preparation of Bank Reconciliation Statement with Adjusted (corrected) Cash Book Balance

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Bank Reconciliation Statement

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7.01 MEANING OF A BANK RECONCILIATION STATEMENTA statement showing the reasons or causes of differences between cash book and pass book in a particular date is known as a Bank Reconciliation Statement.

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Bank Reconciliation Statement

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7.01 MEANING OF A BANK RECONCILIATION STATEMENT Amount deposited into Bank is recorded in the debit

side of Bank Column of a Cash Book while withdrawals are recorded on the credit side.

The bank also maintains an account of the customer in its books of accounts. Deposits made by the customer are recorded on the credit side of the Customer’s

Account and withdrawals on the debit side.

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Bank Reconciliation Statement

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7.01 MEANING OF A BANK RECONCILIATION STATEMENT Debit entries in the Cash Book are reflected on the credit side of the Bank Statement or Bank pass

Book while credit entries in the Cast Book are reflected in the debit side of the Bank Statement or Bank Pass Book. Sometime the two balance may differ due to transactions relating to deposits, withdrawals, charges, interest etc., during the period. If the two balances differ, it becomes necessary to determine the reasons for the difference.

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Bank Reconciliation Statement

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7.02 NEED AND IMPORTANCE OF A BANK ECONCILIATION STATEMENT brings out errors that might have been committed

either in the Cash Book or in the Pass Book. Any undue delay in the clearance of cheques is highlighted by the reconciliation. Regular reconciliation discourages frauds. Reconciliation helps the management check the accuracy of entries recorded in the Cash Book It keep track of cheques, etc., which may have been

sent to the bank for collection. It reflects the actual bank balance position.

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Bank Reconciliation Statement

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7.03 CAUSES OF DIFFERENCE BETWEEN CASH BOOK AND PASS BOOK BALANCE

1. Difference Due to Timing2. Transactions Recorded by Bank3. Errors

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Bank Reconciliation Statement

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7.04 METHODS OF PREPARING A BANK RECONCILIATION STATEMENT

Bank Reconciliation

Start With Cash Book

Start With Pass Book

Favorable or Debit Balance

Unfavorable or Credit Balance

Favorable or Credit Balance

Unfavorable or Debit Balance

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Bank Reconciliation Statement

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7.05 PREPARATION OF A BANK RECONCILIATION STATEMENTFavourable (Debit) Balance as per Cash BookAdded to Cash Book Balance Cheques issued but not presented for payment Cheque deposited by a debtor directly into the bank Interest allowed by the bank Dividend collected Bills of exchange realised Or Cash directly deposited into the bank but not recorded in the Cash Book. Wrong credit granted by the bank Cheque deposited but not recorded

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Bank Reconciliation Statement

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7.05 PREPARATION OF A BANK RECONCILIATION STATEMENTFavourable (Debit) Balance as per Cash BookDeducted from Cash Book Balance Cheque deposited but not collected(Credited) by bank Cheque or Bill of Exchange dishonoured(Credited) by bank Bank charges charged Interest charged Direct payment by the bank as per standing order, e.g., life

insurance premium paid Wrong debit by the bank Cheques recorded but not deposited

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Bank Reconciliation Statement

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7.05 PREPARATION OF A BANK RECONCILIATION STATEMENTFavourable (Credit) Balance as per Bank StatementAdded to Pass Book Balance Cheques deposited but not collected (credited) bythe bank Deposited cheque or Bill Receivable dishonoured Bank charges not yet recorded in the Cash Book Interest charged Direct payment by bank as per standing instructions, say for insurance premium Bills Payable paid as per the standing instructions not yet recorded in the Cash Book Wrong debit by bank Cheque recorded in Cash Book but not deposited

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Bank Reconciliation Statement

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7.05 PREPARATION OF A BANK RECONCILIATION STATEMENTFavourable (Credit) Balance as per Bank StatementDeducted from the Pass Book Balance Cheques issued but not presented for payment Cheques deposited directly into bank by a debtor Interest allowed (credited) by bank but not entered in the Cash Book Dividend collected Bill of exchange realised Wrong credit granted by bank Wrong credit granted by bank recorded in Cash Book

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Bank Reconciliation Statement

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7.05 PREPARATION OF A BANK RECONCILIATION STATEMENTOverdraft (Unfavourable) Balance as per Cash BookAdded to Cash Book Balance Cheques deposited but not cleared Cheques recorded in Cash Book but not sent to bank Bank charges not yet recorded in the Cash Book Interest charged Direct payment by bank as per standing instruction,

say payment of insurance premium Wrong debit by bank Cheques issued but not recorded in Cash Book

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Bank Reconciliation Statement

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7.05 PREPARATION OF A BANK RECONCILIATION STATEMENTOverdraft (Unfavourable) Balance as per Cash BookDeducted from the Cash Book Balance Cheques issued but not presented for payment Cheques deposited directly into the bank by a debtor Interest allowed Dividend collected Wrong credit granted by bank Cheques deposited but not recorded

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Bank Reconciliation Statement

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7.05 PREPARATION OF A BANK RECONCILIATION STATEMENTOverdraft (Debit) Balance as per Bank StatementAdded to Pass Book Balance Cheques issued but not presented for payment Cheques deposited directly in the bank by a debtor Interest allowed Dividend collected Bill of exchange realised Wrong credit granted by the bank Cheques paid into bank but not recorded in Cash Book

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Bank Reconciliation Statement

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7.05 PREPARATION OF A BANK RECONCILIATION STATEMENTOverdraft (Debit) Balance as per Bank StatementDeducted from the Pass Book Balance Cheques deposited but not collected Cheque recorded in Cash Book but not sent for collection Cheque or Bill of Exchange dishonoured Bank charges charged Interest charged Direct payment by bank as per standing instruction, e.g., insurance premium paid Wrong debit by bank

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Bank Reconciliation Statement

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