Every business organization prepares its ledger accounts. They prepare Cash Account which gives the details of the transactions done in the business. Every bank transaction done is entered into the books in cash account. At the same time the banks also issue a passbook on which they put the transactions realized. Thus, at times the balance as per the pass book of the bank and as per the cash account in the books of the firm may not match. This originates the need of a statement which can find the differences between both of them.
In short, a Bank Reconciliation Statement means the statement that finds the differences between the balance as per cash account and the pass book and match them accordingly.
Any of the approaches could be followed to bring the balances all together at the same point. This helps in finding if there is any error in the recording of the transactions. The accounts are matched thoroughly and any discrepancies between the bank and organization are resolved.
The Statement can be prepared by two approaches:
- Taking Balance as per the Pass Book as a basis.
- Taking Balance as per the Cash Book as a basis.
Causes of difference between the balances of Cash Book and Pass Book:
- Cheques issued but not yet presented for payment: The organization might have issued cheque as a payment but the receiver did not present the cheque in bank. In such a case Pass Book will show a higher amount than the Pass Book.
- Cheques deposited but net yet collected: The organization might have sent the cheques to the bank for collection but they did not collect. In such a case the Cash Book will show a higher amount than the Pass Book.
- Bank charges debited by bank: The Bank deducts its charges directly from the accountholder’s account. In such a case the Cash Book will show a higher balance than the Pass Book.
- Bank interest credited by bank: The Bank interest is debited by the bank directly into the account. Thus Pass Book will show a higher balance than the Cash Book.
- Dishonor of cheques: The cheques might get bounced in case of unavailability of balance in the bank account. In such a case the Cash Account will have to reverse the entry.
- Payment by bank on standing instructions of the concern: Sometimes the bank is instructed to make a timely payment on behalf of the holder. The account holder may not keep a track of the payment and the difference arises.
- Amount received by the bank on standing instructions of the concern: The holder my instruct the bank to collect his income from different sources timely and the holder might fail to keep a record, in such a case the Pass Book will show a higher balance than the Cash Book.
Wish to know more about the preparation of Bank Reconciliation Statement? Visit assignmenthelp.net now.
Method to prepare Bank Reconciliation Statement using Balance as per Cash Book as basis:
Method to prepare Band Reconciliation Statement using Balance as per Pass Book:
Advantages of Bank Reconciliation Statement:
- Prevent Thefts: The Bank Reconciliation Statement helps in preventing theft. The Cash account and pass book must match at last. If it does not, it is quite evident that there has been some theft.
- Prevent Mistakes: The Bank Reconciliation Statement helps in the scrutiny of both pass book and cash book. It makes it easy to find the mistakes if any committed and thus it can be corrected.
- Account in good standing: As the cash book is matched with the pass book, it shows a real picture of the accounts of the firm. Thus it shows the authentic information.
Wish to study Bank Reconciliation Statement in deep? Visit assignmenthelp.net. You can have a look at some of our sample assignments too. You can get your assignments done online as well. All you need to do is to submit your assignment on the site or have an instant chat with our faculty and they will guide you. You can experience that best services that will help you score well because we know the importance of the marks to you. You can also take online coaching from the expert teacher’s panel we have. They are the best and experienced teachers in their field and you can also get your queries cleared from them. There are any service providers in the market but what makes us distinct is our good and dedicated work which we deliver before the deadline.
So what are you waiting for? Visit assignmenthelp.net and lessen your burden.