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Pretty Bhalla, Lovely Professional University Unit 11: Bank Reconciliation Statement

Unit 11: Bank Reconciliation Statement Notes

CONTENTS
Objectives
Introduction
11.1 Purpose of Bank Reconciliation Statement

11.2 Causes of Difference
11.3 Summary
11.4 Keywords
11.5 Review Questions
11.6 Further Readings

Objectives

After studying this unit, you will be able to:
 Describe the purpose of bank reconciliation statement

 Identify the causes of difference in cash book and pass book
 Realise rectification of errors

Introduction

Business organisations record all the cash and bank transactions in cash book of the company.
The Bank also maintains an account for each customer in its book. A copy of this account is
regularly sent to the customer by the bank which is called ‘Pass Book’ or ’Bank statement’. It is
usually to tally the firm’s bank transactions as recorded by the bank with the cash book but
sometimes the bank balances as shown by the cash book and that shown by the bank statement
do not match. If the balance shown by the pass book is different from the balance shown by bank
column of cash book, the business firm will identify the causes for such difference. It becomes
necessary to reconcile them. To reconcile the balances of Cash Book and Pass Book a statement
is prepared. This statement is called the ‘Bank Reconciliation Statement’.

11.1 Purpose of Bank Reconciliation Statement

The reconciliation statement is the most common tool used by organizations for reconciling the
balance as per books of company with the bank statement and is made at the end of every
month. The main objective of reconciliation is to ascertain if the discrepancy is due to error
rather than 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.

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