Account 4 Marks Question

Following points should be kept in mind, while preparing Bank Reconciliation Statement:

1. Date: The date on which Bank Reconciliation Statement is prepared.
2. Balance: Which balance, i.e., that of Cash Book or of Bank Statement or Bank Pass Book, is the basis of bank reconciliation. In this regard it should also be kept in mind that:

1. Balance as per Cash Book means the balance as per bank column of Cash Book.
2. Debit balance or favourable balance in Cash Book means that the amount is lying deposited in the bank. It is an asset of the firm.
3. Credit balance in the Cash Book means overdraft balance, i.e., withdrawals are in excess of deposits. It is a liability of the firm.
4. Credit balance or favourable balance as per Bank Statement or Bank Pass Book means that the amount is lying deposited in the bank, it is an asset of the firm.
5. Debit balance as per Bank Statement or Bank Pass Book means overdraft balance, i.e., withdrawals are in excess of deposits. It is a liability of the firm.

Besides the above, following should also be kept in mind:

1. Debiting an item in the Cash Book increases Cash Book balance and crediting decreases it.
2. Debiting an item in the Bank Statement or Bank Pass Book decreases the Bank Statement or Bank Pass Book balance or increases the overdraft balance and crediting increases the balance or decreases the overdraft balance.

3. Preparing Bank Reconciliation Statement: After deciding which entries are to be added to the balance of the concerned book (i.e., the starting balance of Bank Reconciliation Statement) and which entries are to be subtracted, Bank Reconciliation Statement is prepared in a statement form.

Solution is as follows:

1. Difference Due to Timing:

There is always a time gap between recording a transaction in the books of account and it being recorded by the bank. For example, a cheque issued is recorded in the Cash Book immediately but the bank records it on being presented for payment which is on a later date. Similarly, a cheque deposited is recorded in the Cash Book immediately whereas the bank credits it on it being cleared, i.e., when bank has collected the amount. If Band: Reconciliation Statement is prepared in between the two dates, differences will exist.

2. Transactions Recorded by the Bank:

Sometimes transactions are recorded by the bank, which become known to the account holder on receiving the Bank Statement or Bank Pass Book. For example, interest charged or allowed, bank charges, etc., are known to the account holder after receivinę the Bank Statement or Bank Pass Book. Such transactions in the Bank Statement lead to a difference between the balance as per Cash Book and balance as per Bank Statement or Bank Pass Book.

1. Cheques issued but not yet presented for payment are added because the bank will show higher balance since the cheques have not been paid.
2. Cheques deposited but not credited are deducted because the bank will show lower balance as the cheques have not been realised by the bank.
3. Bank charges are deducted because the bank has already debited the account and thus, Cash Book shows higher balance.
4. Interest allowed is added because the bank has already credited the account and thus, Cash Book shows lower balance

Solution is as follow:

Bank Reconciliation Statement is a prepaed by the account holder on a particuar dare to reconcile the bank balance as per cash Book with the balance as per bank statenment or bank pass book showing entries because of which differnces between the two balance exist.Bank Reconciliation statement is prepared because of following reasons:

1. It brings out the errors if any, committed either in the cash book or in the bank statement or pass book.
2. Undue delay in the clerance of cheques deposited is know form the reconciliation.
3. Regular reconciliation discourages embezzlements.
4. Reconciliation helps in verifying the accuracy of entries recorded inthe cash book.
5. It shows actual bank blaance.