1. Need for reconciliation

CHAPTER -5

Bank Reconciliation Statement

Need and importance

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. “A bank reconciliation is the process of matching the balances in an entity’s accounting records for a cash account to the corresponding information on a bank statement. The goal of this process is to ascertain the differences between the two, and to book changes to the accounting records as appropriate”.

Causes of Differences in Cash Book and pass Book

• Transactions recorded in Cash Book but not in Pass Book.
• Transactions recorded in Pass Book but not in Cash Book.
• Others transaction errors.

Transactions recorded in Cash Book but not in Pass Book

Cheques issued but not presented for payment in the bank.

• Cheques deposited or paid into the bank for collection but not yet credited by bank.
• Cheques deposited but dishonoured.
• Working Debit or credit entered.

Transactions recorded in Pass Book but not in Cash Book :-

• Interest allowed by the Bank
• Interest on overdraft, bank charges and commission etc. charges by Bank.
• Direct deposit by the customers into Bank.
• Interest, dividend etc. collected by the Bank.
• Direct payment made by the Bank on behalf of customer as per standing instruction.

Other transactions :-

• Error in totalling or balancing of Cash Book.
• Transactions recorded twice in Cash Book.
• Transactions recorded twice in Pass Book.
• Error of recording by wrong amount.
• Error of recording in wrong side like Debit instead of credit and vice-versa.
• 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.