Bank Reconciliation Statement

Meaning and Concept of Bank Reconciliation Statement

A bank reconciliation statement is a statement prepared to show how the bank balance as per the cash book and the bank balance as per the pass book differ from each other.

According to U.P. Haldar (as stated in the source; author name unclear in OCR):

"A statement which is drawn up to show the cause for disagreement between the bank balance as shown by the cash book and the balance shown by the pass book on a particular date is called a bank reconciliation statement."

Need / Importance of Bank Reconciliation Statement

1. It ensures the accuracy of the bank balance as per the cash book and the pass book.
2. It helps to maintain a counter check of the entries made in both books.
3. It helps to detect and rectify errors committed in both books.
4. It helps to update both the cash book and the pass book by discovering entries not yet recorded.

Reasons / Causes for Disagreement between Cash Book and Pass Book Balance

1. Cheques issued but not presented for payment to the bank.
2. Cheques paid into the bank / sent for deposit but not yet collected (credited) by the bank.
3. Any amount directly deposited into the bank but not recorded in the cash book.
4. Any payment directly made by the bank but not recorded in the cash book.
5. Service charge charged by the bank but not recorded in the cash book.
6. Amount overcast or undercast in the cash book or the pass book.
7. Cheques received from customers and recorded on the debit side of the cash book but not yet sent to the bank for collection.

(One additional cause listed in the source is not legible.)

Practical Illustrations

The illustrations below are worked examples of the balance method of preparing a bank reconciliation statement (starting from one book's balance and adjusting it to arrive at the other book's balance), except the last one, which uses the adjusted balance method (both balances are separately adjusted to a common corrected balance). The source numbers these illustrations inconsistently; they are renumbered here in the order they appear.

Illustration 1

(The opening cash book balance is not legible in the source; the sub-total and final figures are reproduced exactly as printed, though they do not fully reconcile arithmetically from the visible figures. Flagged for review.)