How to prepare Bank Reconciliation Statement * New with Question

INTRODUCTION

Usually, all the firms open a current account with a bank and in order to record the transactions entered into with the bank, maintain a bank column in the cash book. Bank also opens a separate account for each firm in its ledger and enters all the transactions in it. Periodically, bank supplies a copy of the firms account in its ledger to the firm for information. This copy of the firm’s account supplied by the bank is called bank pass book or bank statement.

A Bank accepts from people, in general, deposits in various forms, and lends funds to those who need; it also invests some funds in profitable investments. Thus money which would have been otherwise idle is put to use and is made available to those who need it. Apart from receiving deposits from and handling cash transactions on behalf of its customers, the bank also renders some other useful services as indicated below :

                  I.            The bank discounts promissory notes or hundies, i.e. it enables a customer to receive the cash before the due date in consideration of small charge called discount.

                II.            The bank also allow overdraft to its good customers so that they can make payments even when they do not have sufficient balance at bank. Of course the overdraft must be cleared later.

              III.            The bank gives loans for a year or so, to its customers so that they can continue their operations. Such financial assistance is of great help for business.

              IV.            The bank on behalf of the customer collects the amount of dividend warrants or interest on securities etc.

                V.            On instruction of the customer, the bank makes payments of insurance premium, rent etc. on the due dates.

              VI.            The bank sell and purchase shares, debentures or govt. securities on behalf of its customers.

            VII.            Money can be remitted to another place or persons through the bank at a low cost.

          VIII.            The bank in return, for a consideration, furnishes security or guarantee for its customers whose credit is good.

              IX.            The bank also issues letter of credit or travellers cheque to facilitate commerce or travel.

BANK RECONCILIATION STATEMENT

Strictly speaking, there should be no difference between the balance shown by the pass-book and the cash book. This is so, if all the entries are recorded in both. However, on a particular date it is possible that balances on both the books do not tally i.e., some entries may have been recorded in the cash-book but not in the pass book and vice versa. After finding the reasons for no-agreement of the bank balances of pass-book and cash-book, efforts are made for their reconciliation. This reconciliation is prepared and presented in the form of a statement commonly known as Bank Reconciliation Statement.

Definition :- “ Bank Reconciliation statement is a statement prepared mainly to reconcile the difference between the Bank Balance shown by the Cash Book and Bank Pass Book.”

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