Usually all the firms open a current account with the bank as there are so many transactions and record these transactions in the Bank column of the Cash Book. Bank also maintains a separate ledger account of each firm (customer) and periodically supplies a copy of the account to the firm for information. This copy of the firm’s Account supplied by the bank is known as Bank Statement or Bank Pass Book.
Since all the transactions with the bank are entered in both the books Cash Book and Pass Book, the balances of the two books should tally with each other. But usually the two balances don’t tally.
Bank Reconciliation Statement is prepared to reconcile the difference between the Bank Balance shown by the Cash Book and Bank Pass Book.
DEFINITION :
A schedule showing the items of difference between the bank statement and the bank column of Cash Book is known as Bank Reconciliation Statement.
Causes of Differences in Cash Book and Pass Book :
The differences may be caused by either – (A) Time gap in recording transactions or (B) Errors Committed in recording transactions.
(A) Differences Caused by the time gap :
Reasons for the time gap in recording the transactions in the two books (Cash Book and Pass Book) are as given below –
Cheques issued but not yet presented for payment in the bank.
Cheques deposited or paid into the bank for collection but not yet credited by the bank.
Cheques deposited but dishonoured by the bank.
Interest allowed by the bank.
Interest on overdraft, bank charges, commission etc. charged by the bank.
Direct Deposit by the customers into the bank.
Interest, Dividend etc. collected by the bank.
Direct payments made by the bank on behalf of customer as per standing instruction.
(B) Differences caused by Errors Committed :
Such errors may be of two types
Errors committed by the firm
Cheques issued to some creditors but omitted to be recorded in the Cash Book or recorded twice.
Cheques deposited into the bank omitted to be entered in the Cash Book or recorded twice.
Error in totalling or balancing the bank column of the Cash Book.
Errors committed by the bank
Something bank records a wrong entry in the customer’s account which causes a difference in the two balances.
Need and Importance :
It helps in locating and rectifying the errors or omissions committed either by the firm or by the bank.
Customer becomes sure of the correctness of the bank balance shown by the cash book.
Facilitates the preparation of amended or revised Cash Book.
Reduces the chances of fraud by the staff of the firm or bank.
Helps in keeping a track of the cheques deposited for collection.
Procedure of Preparing Bank Reconciliation Statement
A Bank Reconciliation Statement is prepared when we get the duly completed
Pass Book from the Bank. On receiving the Cash Book
First of all tally the Debit side entries of the cash book with the Credit side entries of the Pass Book and vice versa.
Tick the items appearing in both the book.
Unticked items will be the points of differences.
A BRS is then prepared by taking either the balance as per Cash Book or Pass Book as a starting point.
Important Points :
If the Starting point is Cash Book Balance then the ending point will be Pass Book Balance.
If the starting point is Pass Book Balance then the ending point will be the Balance as per Cash Book.
Debit Balance as per Cash Book or Credit Balance as per Pass Book, means that the firm has that much amount of deposited at the bank
also called favourable balance write the amount under + item.
Credit Balance as per Cash Book or Debit Balance as per Pass Book, means that this much amount has been withdrawn in excess of deposit
also called overdraft or unfavourable balance
write the amount under - item.
CBSE Accountancy Class XI ( By Mr. Kailash Gururani )
Email Id : [email protected]
