Page 258 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes 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.

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Caution Bank Reconciliation Statement is a statement prepared to reconcile the difference
between the balances as per the bank column of the cash book and pass book on any given
date.

Self Assessment

Fill in the blanks:
1. The main objective of reconciliation is to ascertain if the discrepancy is due to error rather
than …………………….
2. Direct payments made by banks will …………………… the balances in the pass book.
3. The bank reconciliation statement is prepared without making change in the
…………………… balance.
4. While reconciling the pass book through the check book the interest allowed by banks
will be …………………….

5. While reconciling the check book through pass book the interest and expenses will be
…………………… from the balance as per pass book.

11.2 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.

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