Page 259 - DMGT104_FINANCIAL_ACCOUNTING

Unit 11: Bank Reconciliation Statement

4. Bank charges: The bank charge in the form of fees or commission is charged from time to Notes
time for various services provided from the customers’ account without the intimation to
the firm. 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.
5. Direct receipts by the bank: Sometimes, the interest on debentures or dividends on shares
held by the account holder is directly deposited by the company through Electronic Clearing
System (ECS). But the firm does not get the information till it receives the bank statement.
As a consequence, the firm enters it in its cash book on a date later than the date it is
recorded by the bank. As a result, the balance as per cash book and pass book will differ.
6. Direct payments made by the bank: Sometimes, bank makes certain payments on behalf of
the customer as per standing instructions. Telephone bills, rent, insurance premium, taxes,
etc., are some of the expenses. These expenses are directly paid by the bank and debited to
the firm’s account immediately after their payment but the firm will record the same on
receiving information from the bank in the form of Pass Book or bank statement. As a
result, the balance of the pass book is less than that of the balance shown in the bank
column of the cash book.
7. Dishonour of cheques/bill discounted: If a cheque deposited by the firm or bill receivable
discounted with the bank is dishonoured, the same is debited to firm’s account by the
bank. But the firm records the same when it receives the information from the bank. As a
result, the balance as per cash book and that of pass book will differ.
8. Errors committed in recording transactions by the firm: There may be certain errors from
the firm’s side, e.g., omission or wrong recording of transactions relating to cheques
deposited, cheques issued and wrong balancing etc. In this case, there would be a difference
between the balances as per Cash Book and as per Pass Book.
9. Errors committed in recording transactions by the Bank: Sometimes, bank may also commit
errors, e.g., omission or wrong recording of transactions relating to cheques deposited
etc. As a result, the balance of the bank pass book and cash book will not agree.

Notes
 The Bank Reconciliation Statement is prepared as on a particular date to reconcile
the balances as per the cash book and as per the bank statement by identifying the
causes of the difference and showing their impact.

 The Bank Reconciliation Statement is not a part of books of accounts.
 Causes of difference in the balances as per the cash book and the bank statement can
be many, like cheques issued but not presented for payment, cheques deposited but
not yet credited, etc.
Illustration 1: Both the balances as per the cash book and the bank statement are positive.

XYZ Ltd. maintains a current account with the State Bank of India. As on 31st March, 2004, the
bank column of its cash book showed a debit balance of 1,54,300. However, the bank statement
showed a different balance as on that date.

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