Bank Reconsiliation StatementThe bank pass book
indicates the amount paid into the bank and the amount withdrawn there from. The
pass book balance on any given date must be the same as the balance shown by the
bank column of the cash book on the same date. But in actual practice the bank
pass book balance seldom agrees with the balance shown by the bank column of the
cash book. This happens when some of the transactions appear in the cash book
but not in the pass book or in the pass book but not in the cashbook. The
difference between the two balances are due to the following reasons.
1. Cheques issued but not presented
for payment. When cheques are issued, the entry in the cash book is made
immediately. In the books of the bank, the entry is made only when the cheque is
presented for payment. It is possible that at the time when the balance of the
two books are being compared, some of the cheques might have been issued but
might not have been presented for payment thus causing a disagreement between
the two balances.
2. Cheques paid into the bank but
not yet cleared. As soon as the cheques arc deposited into the bank, the entry
is passed on the debit side of the bank column in the cash book. The customer's
account is credited by the bank only when the cheques are cleared. It is
possible that when the cashbook is compared with pass book some of the cheques
deposited by the concern may remain uncollected.
3. Interest allowed by the bank.
Bank might have credited the account of the customer with the interest and may
have made the entry in the pass book. It is possible that the entry 10 respect
of such interest may not have been made by the customer in the bank column of
the cash book thus causing a disagreement between the two balances.
4. Interest and bank charges
debited by bank. The bank debits the account of the customer by way of
interest on overdraft. It also debits the account of the customers by way
of incidental charges and collection charges. As soon as these charges are made
the bank debits the customer's account. But the entries in the cash book are
made by the customer .only when he receives the bank statement or the pass book.
5. Interest, dividend etc.
collected by the bank. Sometimes interest on government securities or dividend
on shares is collected by the bank and is credited to customer's account. If the
entry for these do not appear in the cash book, the balance will differ.
6. Direct payment by the bank
Sometimes under standing instructions from the client, certain payments like
insurance premium, club fees etc. are made by the bank. The entry in the bank
column of the cash book is only made when the necessary intimation to that
effect is received from the bank by the client. The entries in the cash book and
pass book may be on different dates.
7. Direct payment into the bank by
a customer. Sometimes our customers deposit money direct into the account in the
bank, the corresponding entry for which may not appear in the cash book, due to
delay in necessary instructions by the customers.
8. Dishonor of bill discounted with
the bank. Sometimes customers get their bills discounted with the bank. If the
bank is not able to get payment of these bills on the due date, it will debit
the customers accounts with the amount of the bills together with the noting
charges, if any. The customer will pass the entry in his books on receipt of the
information from the bank.
9. Any error committed by the bank
Besides the above reasons if any error is committed either by the bank or by the
customer himself while recording the transactions in their respective books it
will cause disagreement between the two balances.
A reconciliation statement is,
therefore, prepared at periodical intervals with a view to indicate the items
which cause such disagreement between the balance as shown by the bank column of
the cash book and the bank pass book on any given date. Other advantages of
preparing a reconciliation statement are :
(i) The errors that might have been
committed either in the cash book or pass book are revealed.
(ii) The reconciliation statement
will also indicate any undue delay in the clearance of outstation cheques.
(iii) A reconciliation statement
prepared at regular intervals will discourage the staff of either or the bank
from committing the acts of embezzlement. It is possible that the cashier might
have made the entry in the cash book but might not have deposited the amount in
the bank.
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