What is Bank Reconciliation Statement?
Bank Reconciliation Statement is a statement prepared to reconcile and explain the causes of disagreement between the bank balance as per cash book and the same as per pass book or bank statement as on a particular date.
It is not a part of accounts or double entry system.
The entries in the cash book must be checked against those appearing in the pass book or bank statement and ticked on agreement. The unticked items in both books will account for the difference in the balance shown by each.
i. It is a statement and not an account.
ii. It is prepared on a particular date and not for a period.
iii. Prepared at periodical intervals, usually at the end of every month.
iv. It is prepared by the account holder and not by the bank.
- Explains the causes of disagreement between the bank balance as per the cash book and bank balance as per the pass book/bank statement as on a particular date.
- Helps in detection of errors in the cash book and pass book. However it does not correct such errors.
Watch the videos for more detailed discussion
Common causes of disagreement between the balances of Cash Book and Pass Book:
- Cheques deposited into bank but not credited by the bank.
- Cheques issued but not yet presented for payment.
- Cheques received and entered in the bank column of the cash book but omitted to be deposited into the bank.
- Interest credited by the bank but not entered in the cash book.
- Bank charges or interest on overdraft debited by the bank but not entered in the cash book.
- Amounts directly paid into bank account by debtors but not yet entered into the cash book.
- Payments and remittances by bank under standing order, debited in the bank account but not yet entered in the cash book.
- Income collected and credited by the bank under standing order but not yet recorded in the cash book, e.g., insurance claim, dividend, rent, interest on securities.
- Mistakes made either by the bank or the firm in recording the transactions.
On 31st August, 2016, the Pass Book of Mr Sharma showed a bank balance of Rs. 1575/-. A comparison of the entries with the Cash Book showed:
- He had deposited cheques of Rs 580/- which had not yet been cleared.
- He had issued cheques for Rs. 960/- on 18th August, out of which those of Rs. 640/- were presented on 3rd September.
- The pass book showed a credit of Rs 25/- on account of interest allowed by bank.
Mr Sharma’s bank balance as per Cash Book on the same date was Rs. 1490/-
Prepare a statement reconciling the bank balance as per Cash Book with that as per Pass Book.
For discussion on the common causes of disagreement and solution of above problem watch the video below:
Prepare a Bank Reconciliation Statement from the following particulars as on 31st December 2016:
- Balance as per Pass Book is Rs. 8620.
- Cheques for Rs 4860 were deposited into the bank but credited only Rs 3260 upto 31st December 2016.
- A customer directly deposited into bank Rs 470.
- Interest credited by bank Rs 230.
- Bank charges Rs 30.
- Balance as per cash book Rs 9550.
The Solution of the above problem is in this video:
Reconciliation when overdrawn balances are given:
Prepare a Bank Reconciliation Statement of M/s Fakir Chand as on 31.03.2017 from the following information:
- Overdraft as per Cash Book – Rs. 5270
- Overdraft as per Bank Statement – Rs. 5960
- Cheques issued but not presented for payment – Rs. 1150
- Interest on overdraft charged by the bank but not entered in the Cash Book – Rs. 120.
- Dividend received by the bank but not recorded in the cash book – Rs. 450
- Cheques deposited into bank but not credited – Rs. 2170.
The solution of the above problem is in this video:
Reconciliation from Cash Book of one period and Pass Book of the following period
From the following entries in the bank column of the Cash Book of Mr. Wasim and the corresponding Bank Pass Book, prepare a reconciliation statement as on 31.03.2017:
Cash Book (bank column only)
To Dheer & Sons
To S Kunti
By Jalan & Co.
To Kejriwal & Bros
By Latif Bros.
To Neera & Co.
By Paul & Co.
To Salim & Co.
By Mahesh Enterprise
By Satish Lamba
Bank Pass Book (of Mr Wasim’s Account in Central Bank)
To balance (Overdraft)
To Paul & Co.
By Neera & Co
To Mahesh Enterprise
By Salim & Co.
To Arvind (Cheque Dishonoured)
For solution of Problem 4 watch the video below:
That is all for Bank Reconciliation Statement. E Mail me if you have any questions relating to the topic. See you in my next blog soon. 🙂