In chapter 4, you have learnt that
the business organisations keep a record of their
cash and bank transactions in a cash book. The
cash book also serves the purpose of both the cash
account and the bank account and shows the
balance of both at the end of the period.
Once the cash book has been balanced, it is
usual to check its details with the records of the
firm’s bank transactions as recorded by the bank.
To enable this check, the cashier needs to ensure
that the cash book is completely up to date and a
recent bank statement (or a bank passbook) has
been obtained from the bank. A bank statement
or a bank passbook is a copy of a bank account as
shown by the bank records. This enable the bank
customers to check their funds in the bank
regularly and update their own records of
transactions that have occurred. An illustrative
bank passbook of a current account is shown in
figure 5.1.
The amount of balance shown in the passbook
or the bank statement must tally with the balance
as shown in the cash book. But in practice, these
are usually found to be different. Hence, we have
to ascertain the causes for such difference. It will
be observed that a bank statement/passbook
shows all deposits in the credit column and
withdrawals in the debit column. Thus, if deposits
exceed withdrawals it shows a credit balance and
if withdrawals exceed deposits it will show a debit
balance (overdraft).
LEARNING OBJECTIVES
After
studying
this
chapter, you will be able
to :
• state the meaning and
need for the preparation
of bank reconciliation
statement;
•
identify causes of
difference between
bank balance as per
cash book and pass
book;
• prepare
the bank
reconciliation statement;
• ascertain the correct
bank balance as per
cash book;
Bank Reconciliation Statement
5
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Bank Reconciliation Statement
5.1 Need for Reconciliation
It is generally experienced that when a comparison is made between the bank
balance as shown in the firm’s cash book, the two balances do not tally.
Hence, we have to first ascertain the causes of difference