BANK RECONCILIATION STATEMENT IN SIMPLE MANNER

We have studied the cash book which has two coulmns i.e. cash and bank. The majority if transactions get settled through cash or bank. For the cash received or paid the effect in cash books is instant. The transactions settled through medium of bank take longer time. If customer pays by cheque , it is deposited in the bank and the same will be sent for clearance and then only it will be credited by the bank into our account. This may take about two to three days. Similarly when a cheque is issued to supplier(creditor) , he will deposit in his bank which in turn will clear it. Because of time lag, there would be difference in the records.

The records here would mean cash book in books of entity and pass book maintained by bank. The contents of bank pass book are exactly the same as that of cash book with a mirror image effect.

Eg:-

When cheque is received the entry in our book and pass book will be as follows

date	cash Book	Amount	Pass book	Amount
01.01.15	Bank A/c  To Customer A/c	10000         10000	Clearing A/c      To entity A/c	10000        10000

Here we need to know some basics before we proceed further , the bank account in our books will show Debit balance means it is asset to us(You can check the same in trial balance) but the same is liability to bank that it is why the balance in the pass book will shown in Credit Balance. The same may be vice versa (i.e. Entity bought loan from bank the balance in our book will be show Credit balance as it is Liability to business and the same will be asset to bank and it will show Debit balance in the pass book)

Thus all debits in bank column of the cash books will correspond to the entries in the bank passbook and all credits in bank column of the cash book will correspond to the debit entries in the bank passbook. Due to time difference, the entries may not exactly match at a given period. This necessitates that the two statements are reconciled regularly:

• To identify the difference
• To know reasons for differences
• To ensure that required entries are made in the books of accounts
• To ensure that entries are made by the bank in time.

A statement which is prepared to reconcile the causes for the difference between bank balance as per cash book and  bank balance as per pass book/ bank statement is known as Bank Reconciliation statement.

Reasons for the difference between cash book and pass book

Items appear in cash book but not appearing in pass book and

Items appear in pass book but not appearing in the cash books

Items appear in cash book but not appearing in pass book

Cheques issued by the business entity not debited by bank

Cheques deposited but not credited by the bnk

Errors:- The bank may by mistake miss out entering debit or credit which results in difference.

Items appear in pass book but not appearing in the cash books

Bank interest, bank charges

Direct deposits in bank accounts by outsiders

Errors:-The records may missed out by the accountant of the entity

Need of bank reconciliation statement

It helps to understand the actual bank balance

It helps to identify the mistakes in the cash book and the pass book

Methods of preparation of bank reconciliation statement

Rules of addition and subtraction

Debit and credit method

Steps in preparing bank reconciliation statement

One has to have a systematic approach towards preparation of the reconciliation. To avoid a lengthy reconciliation, one must ensure that the entries in the cash book are completed. One also must obtain bank statements at regular intervals.

Bank reconciliation could be done by following steps:

• Identify the balances and the character thereof. Remember a debit balance in cash book means asset and credit means a bank overdraft. In bank passbook it is reverse.
• Based on the above, start with the balance as per one book and arrive at the balance as per the other book. The items of differences will be added to or deducted from the balance with which reconciliation is started.
• One has to make sure all differences from cash book as well as bank book are taken into account in the reconciliation statement.
• Whether the items of differences should be added or deducted will depend on the sequence you follow.

When reconciliation is started with----------à	Bal as per CB	OD as per CB	Bal as per PB	OD as per PB
Cheques deposited in bank,but not cleared	Less	Add	Add	Less
Cheques issued, but not presented in bank	Add	Less	Less	Add
Bank charges debited in PB only	Less	Add	Add	Less
Interest debited in PB only	Less	Add	Add	Less
Payments by bank debited in PB only	Less	Add	Add	Less
Direct payment by customer in PB only	Add	Less	Less	Add
Bills Discounted & dishonoured in PB only	Less	Add	Add	Less
Cheques deposited, dishonoured in PB only	Less	Add	Add	Less
Interest, dividend, commission collected by bank not recorded in the bank	Add	Less	Less	Add
Overcasting of payment side in cash book or under-casting of receipt side of cash book	Add	Less	Less	Add
Overcasting of receipt side in cash book or under-casting of payment side of cash book	Less	Add	Add	Less
Deposits recorded twice in the cash book or excess amount recorded in the cash book	Less	Add	Add	Less
Undercasting of credit side of the passbook or overcasting of the debit side of passbook	Less	Add	Add	Less
Cheques deposited into bank and credited without recording in the cash book	Add	Less	Less	Add
Wrong debit in the passbook for issue of cheque, interest etc.	Less	Add	Add	Less
Wrong credit in the passbook for issue of cheque, interest etc.	Add	Less	Less	Add
Cheques drawn but not actually issued to creditors	Add	Less	Less	Add
Bank charges recorded twice in the cash book	Add	Less	Less	Add
Amount withdrawn from bank not recorded in the cash book	Less	Add	Add	Less

 Please Note The Abbreviations CB-Cash Book, PB-Pass book, OD-Overdraft(Short term loan)

Format for bank reconciliation statement

Particular	Amount	Amount
Bank balance as per cash book(dr)		xxxx
Add:- Less:- Bank balance as per bank book(cr)	xxxx (xxxx)	xxxx

Let us make this concept to understand with ease by simple illustration

On 31.12.2015 roy bank balance as shown by the cash book was Rs.75000/- on the receipt of bank statement it was found that:-

1. Three cheques of Rs.3000/-, Rs.4000/-, Rs.1500/- drawn in the favour of creditor respectively on 30^th dec 2015 had been debited in the bank statement on 2^nd jan 2016
2. The bank had credited Rs.8000/- on 30^th dec 2015 in respect of direct deposit by the customer , the same was not recorded in cash book.
3. Two cheques of Rs.5000/- and Rs.6000/- were deposited into bank on 30^th December had been credited in bank statement on 4^th jan 2016
4. The bank debited Rs.30/- as incidental charges on 30^th dec 2015 but not entered in cash book.

Show reconciliation statement of the bank balance as per cash book

Bank reconciliation statement of Mr.Roy as on 31^st December 2015

Particular	Amount	Amount
Bank balance as per cash book(dr)		75000
Add:- Cheques issued but not presented for payment (3000+4000+1500) Collection by bank from a customer not recoreded in cash book Less:- Cheques deposited but not credited in passbook as on 30.12.2015 (5000+6000) Bank charges not recorded inn the cash book Bank balance as per bank book(cr)	8500 8000 (11000) (30)	80470

Here it is just like a puzzle as you are required to match/re arrange a set of things which are reflected in the images, let us understand the above effects inn a easy way

• Cheques issued but not presented for payment by creditor, here we are preparing BRS by taking bank balance from cash book to arrive the bank balance as per passbook. So the cheques issued will decrease the balance in our books but in pass book it is not reflected so to match it with it we are reversing the cheque issued by adding to the balance.
• Collection by bank directly from customer for which we don’t have any information but it was reflected in bnk but not in our books. So, there is increase in bank balance in pass book but not in our book to match with bank we have to increase the balance to that extent and the same was added to the balance .
• Cheques deposited but not credited in December, due to this there is increase in our book balance but not in passbook. So, the cheques deposited balance will be reversed by deducting it from the balance to match with pass book balance.
• Bank Charges not recorded in cash books shows that there is decrease in passbook but not in the cash book. So, to match it with passbook balance the sam