ALL YOU NEED TO KNOW BANK RECONCILIATION STATEMENT

A bank reconciliation statement is a document that compares the cash balance on a company’s balance sheet to the corresponding amount on its bank statement. Reconciling the two accounts helps identify whether accounting changes are needed. Bank reconciliations are completed at regular intervals to ensure that the company’s cash records are correct. They also help detect fraud and any cash manipulations.

When the cash or cheque is deposited into the bank, the bank account is debited by the merchant in the cash book. The same amount is credited by the bank in merchant’s account in its ledger and in the pass book. Similarly, any cash withdrawn or cheque issued to third party is credited in the cash book and debited in the pass book. As a rule, the cash book and pass book should show the equal and opposite balances on a particular date but in actual practice it does not happen. Mostly the balances as per Cash Book and as per Pass Book are found different on a particular date.

Since the two balances are different, the merchant would definitely like to know the reasons responsible for the difference in these balances. The reasons responsible for the difference may be delay in intimation, time gap between recording of transactions, due to errors and omissions in cash book and pass book. Thus, a statement should be prepared periodically for the items causing such difference in bank balances. This is called Reconciliation Statement or Bank Reconciliation Statement.

 Therefore, the Bank Reconciliation Statement indicates the various items causing a difference between the bank balance as per Cash Book and the bank balance as per Pass Book on a particular date. The statement may be prepared weekly, monthly or quarterely depending upon the number of transactions and the size of the business enterprise.

Characteristics of Bank Reconciliation Statement

From the above definitions, the following characteristics of the bank reconciliation statement

1. It is merely a statement and not an account.
2. It does not form a part of the double entry system of book-keeping.
3. It is to be prepared whenever a Bank Statement (completed Pass Book) is received and the balance disclosed by it differs with the balance as per Cash Book.
4. It is prepared on a stated day.
5. The reasons for difference in balances are relevant to the date of preparing the bank reconciliation statement.
6. It is a periodical statement.
7. It is prepared to attest the accuracy and completeness of cash book records.
8. It is prepared to make sure that the bank statements agree with the business ledgers.
9. It gives the detail of the transactions, causing the difference in bank balances as per cash book and pass book.

Need and Objectives for Bank Reconciliation Statement

1. It is prepared in order to attest the accuracy and completeness of cash book records. 2. It helps in detecting errors and omissions in the cash book and pass book.
2. It prevents frauds in recording the banking transactions. The misappropriations or embezzlement of cash or cheques by the merchant’s staff or bank’s staff can be checked. It acts as a tool of internal control system on banking transactions.
3. The delay in the collection of cheques deposited and the payment of the cheques issued is stated in the bank reconciliation statement.
4. It contains the details of the causes responsible for difference in bank balances as per cash book and book.