Bank Reconciliation Statement

Introduction

Business uses cash book that records cash as well as bank transactions. A cash book is one of the type of subsidiary book (Day Book) that records original entry of all cash receipts and payments including bank deposits and withdrawals. Cash book has both debit and credit column representing cash and bank column hence it acts as a ledger account.

Bank also records the transactions of customers. They keep all the deposits transaction in credit side and withdraws transactions in debit side of bank book.  

Sometime bank as per cash book and cash as per bank book does not match. Hence it is necessary to reconcile it to fix the error of accounting.

A bank reconciliation statement is a summary of banking and business activity that reconciles an entity's bank account with its financial records.

Bank Reconciliation

Importance of Bank Reconciliation Statement

Although, it is not necessary to prepare it and not fixed date to prepare it. It is only prepared due to the following reasons:

  • To match records cash book's bank column

  • To ensure that cash book and bank book are equal

  • To know the specific amount are equal in a specific period of time 

Steps to do Bank Reconciliation

  1. Collecting the Bank Statement for a particular period of time

  2. Gather necessary deposit or withdrawals slips 

  3. Compare the balances with your cash book

  4. Adjust the balances

Components of Bank Reconciliation Statement

The following are the major components of Bank Reconciliation Statement described as below:

  1. Cash Book: It is one of subsidiary book prepared by the company to maintain cash and bank related transactions. The following errors could be occurred from company like:

    • Deposit in transit (-)
    • Unpresented cheque (-)
    • Dishonered cheque (-)
    • Bank fees & charges (-)
    • Interest received (+)

  2. Pass Book: It is also known as Bank Book. It is a physical book issued by Bank to its customer to maintain deposit and withdraws transactions including interest received and fine & fees charges. The following errors could be occurred from bank like:

    • Overcast error by Bank (-)
    • Under cast error by Bank (+)
    • Undeposited cheque (+)
    • Wrong account deposit (-)
    • Uncleared cheque (+)

Format of Bank Reconciliation Statement 

Conditions Explanations:

  • Cheque issued but not presented for payment: It means that the cheque amount is not deduct from the Bank Account due to the various banking terms & conditions but it is deducted in the Cash Book. That's why it should be added in the Cash Book

  • Cheque issued but not recorded in the cash book: It means that the cheque amount is deducted from the Bank Account by matching all terms & Condition of the bank but it is not deducted in the Cash Book. That's why it should be deducted in the Cash Book.

Conclusion

A bank reconciliation statement is a summary of banking and business activity that reconciles an entity's bank account with its financial records. Cash book has both debit and credit column representing cash and bank column hence it acts as a ledger account. Bank also records the transactions of customers. They keep all the deposits transaction in credit side and withdraws transactions in debit side of bank book. 

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