Bank Reconciliation Statement for Commerce

This Powerpoint is related to Bank Reconciliation Statement.

1. BANK RECONCILIATION STATEMENT A bank reconciliation statement is a statement prepared to reconcile the bank balances as per cash book and pass book. This statement explains the reasons for the disagreement of balances between these two books, on any given date. Causes for differences The bank balance as per cash book may differ from the bank balance as per bank statement as on a particular date due to a variety of reasons as under :

2. Transactions entered in pass book but not in cash book as on the date of bank reconciliation statement: Cash or cheque is directly deposited in bank by debtors or others and credited by bank but the depositor has no intimation of the same. Bank has credited the pass book for interest on investment, for dividends on shares etc. collected by it but the depositor has no intimation of the same. Bank has debited the pass book for direct payments on insurance premiums, interest on loans from others electricity bills etc., but the depositor has no intimation of the same .

3. iv. Bank debits the pass book for interest on overdraft or bank loan, for bank charges, commission, service charges, collection charges etc. Similarly, bank credits pass book for interest on bank balance on fixed deposits etc . v.Cheque or bills discounted previously are dishonored and or debited in pass book. vi. Bank has credited pass book for cheques deposited and collected; and pass book has debits for payment of cheques issued; but both have remained unrecorded in cash book. vii. There may be erroneous debits in pass book for bank charges, interest and for cheques drawn by others. Similarly, there may be erroneous credits in pass book for interest on deposits etc. and for cheques etc., deposited by others .

4. I. Transactions entered in cash book but not in pass book as on the date of bank reconciliation statement: Cheque are issued but are not presented to bank for payment. Cheques and bills are deposited in bank but not collected and credited in pass book. Cheques or cash are debited in cash book but actually not sent to bank. Cheque are deposited but returned dishonoured by bank but they are not adjusted in cash book yet. Similarly, cheque are issued but the bank returns them dishonoured . Cash book is credited for issue of cheques but they are actually not issued or money not drawn. Dividend, interest, deposits etc. debited in cash book more than once in error. Similarly, bank charges or withdrawals etc. are credited in cash book more than once, in error.

5. Preparation of bank reconciliation statement Balances shown by the cash book and the pass book on a specified date are to be noted. Debit balance in the cash book and credit balance in the pass book indicate that the business has favourable balance in the bank. Similarly, credit balance in the cash book and debit balance in the pass book indicate that the business has infavourable balance in the bank. It means bank has given ‘overdraft’ to the business. All the debits and credits shown in the cash book must be compared with the entries in the pass book to identify any items omitted. Similarly, all the debits and credits in the pass book should be compared with the entries in the cash book to ascertain the items which were not recorded.

6. Needs for Bank Reconciliation Statement Accuracy The accuracy of both pass book and cash book can be maintained through the preparation of bank reconciliation statement. 2.Correctness This statement ensures that the transactions are correct in both the books. 3.Detection of Errors The cheques that are not presented or cheques dishonoured will be detected through this statement. 4.Rectification of Errors The identification and rectification of errors in cash book and pass book is possible. 5.Prevention of Fraudulent Transactions The intentional errors i.e., frauds are prevented by preparing bank reconciliation statement.

7. Any items recorded in both the books but the amounts being different should be carefully noted to adjust the difference in the amounts. It is preferable to make a list of all the differences . 3.The balance shown by the cash book or pass book can be taken as the ‘Starting balance’ each difference should be either added to or subtracted from the starting balance depending on the nature of the difference. 4.When all the differences are adjusted, the balance must be the balance as per the other book. If cash book balance was the starting balance, the final balance must be the balance as per the pass book and vice versa.

8. Preparation of a bank reconciliation statement If we take cash book balance or overdraft as per pass book as the starting point: Bank Reconciliation Statement as on ….

9. II. If we take pass book balance or overdraft as per cash books as starting point: Bank Reconciliation Statement as on ……