Page 175 - DCOM101_FINANCIAL_ACCOUNTING_I

Unit 13: Bank Reconciliation Statement

The main objective of reconciliation is to ascertain if the discrepancy is due to error rather than Notes
timing.
It is prepared from time to time to check that all transactions relating to the bank are properly
recorded by the businessman in the bank column of the cash book and by the bank in its ledger
account. Thus, it is prepared to reconcile the bank balances shown by the cash book and by
the bank statement. It helps in detecting, if there is any error in recording the transactions and
ascertaining the correct bank balance on a particular date.
The need and importance of the bank reconciliation statement may be given as follows:
1. The reconciliation process helps in bringing out the errors committed either in Cash Book
or Pass Book.
2. Bank reconciliation statement may also show any undue delay in the clearance of
cheques.
3. Sometimes the cashier may have the tendency of cheating, like he makes entries in the Cash
Book, but does not deposit the cash into bank. These types of frauds by the entrepreneur’s
staff or bank staff may be detected only through bank reconciliation statement. So this way
bank reconciliation statement acts as a control technique too.

13.2 Causes of Difference

A transaction relating to bank has to be recorded in both the books i.e. Cash Book and Pass Book
but sometimes it happens that a bank transaction is recorded only in one book and not recorded
simultaneously in other book this causes difference in the two balances. The causes for difference
may be illustrated in detail as follows:
1. Cheques issued by the firm but not yet presented for payment: When cheques are issued

by the firm, these are immediately entered on the credit side of the bank column of the

cash book. Sometimes, the receiving person may present these cheques to the bank for
payment on some later date. The bank will debit the firm’s account when these cheques

are presented for payment. There is a time period between the issue of cheque and being
presented in the bank for payment. This may cause difference to the balance of cash book
and pass book.
2. Cheques deposited into bank but not yet collected: When cheques are deposited into bank,

the firm immediately enters it on the debit side of the bank column of cash book. It increases

the bank balance as per the cash book. But, the bank credits the firm’s account after these
cheques are actually realised. A few days are taken in clearing of local cheques and in case
of outstation cheques few more days are taken. This may cause the difference between cash
book and pass book balance.
3. Amount directly deposited in the bank account: Sometimes, the debtors or the customers

deposit the money directly into firm’s bank account, but the firm gets the information only

when it receives the bank statement. In this case, the bank credits the firm’s account with
the amount received but the same amount is not recorded in the cash book. As a result the
balance in the cash book will be less than the balance shown in the Pass Book.
4. Bank charges: The bank charge in the form of fees or commission is charged from time to
time for various services provided from the customers’ account without the intimation to

the fi rm. The firm records these charges after receiving the bank intimation or statement.

Example: Interest on overdraft balance, credit cards’ fees, outstation cheques,
collection charges, etc.
As a result, the balance of the cash book will be more than the balance of the pass book.

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