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Dubai

Bank Reconciliation Statement

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Published in: Accounting | Business Strategy
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The presentation consists of what a bank reconciliation statement is and how it is created.

Dhanya K / Dubai

4 years of teaching experience

Qualification: Masters in Commerce

Teaches: Finance, Accounting, Business, Marketing, Accounts, Business Studies, Management, Business Finance, Accountancy

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  1. Bank Reconciliation Statement
  2. Meaning • Bank reconciliation statements ensure payments have been processed and cash collections have been deposited into the bank. The reconciliation statement helps identify differences between the bank balance and book balance, in order to process necessary adjustments or corrections.
  3. Purpose • Bank reconciliation statements confirm that payments have been processed and cash collections have been deposited into a bank account. • All fees charged on an account by a bank must be accounted for on a reconciliation statement. • After all adjustments, the balance on a bank reconciliation statement should equal the ending balance of the bank account.
  4. Causes of Difference (A) Transactions recorded in Cash Book but not in Pass Book. (B) Transactions recorded in Pass Book but not in Cash Book. (C) Other transaction errors.
  5. Causes of Difference • (A) Transactions recorded in Cash Book but not in Pass Book • (i) Cheques issued but not presented for payment in the bank. • (ii) Cheques deposited or paid into the bank for collection but not yet credited by bank. • (iii) Cheques deposited but dishonored. • (iv) Working Debit or credit entered • (B) Transactions recorded in Pass Book but not in Cash Book • (i) Interest allowed by the Bank • (ii) Interest on overdraft, bank charges and commission etc. charges by Bank. • (iii) Direct deposit by the customers into Bank. • (iv) Interest, dividend etc. collected by the Bank.
  6. (C) Other transactions :- (i) Error in totalling or balancing of Cash Book. (ii) Transactions recorded twice in Cash Book. (iii) Transactions recorded twice in Pass Book. (iv) Error of recording by wrong amount. (v) Error of recording in wrong side like Debit instead of credit and vice-versa
  7. Procedure of preparing Bank Reconciliation Statement A Bank Reconciliation Statement is prepared when we get the duly completed Pass Book from the Bank. 1. First of all tally the Debit side entries of the cash book with the Credit side entries of the Pass Book and vice versa. 2. Tick the items appearing in both the books. 3. Unticked items will be the points of differences. 4. A BRS is then prepared by taking either the balance as per Cash Book or Pass Book as a starting point.
  8. Important points 1. If the Starting point is Cash Book Balance then the ending point will be Pass Book Balance. 2. If the starting point is Pass Book Balance then the ending point will be the Balance as per Cash Book. 3. Debit Balance as per Cash Book or Credit Balance as per Pass Book, means that the firm has that much amount of deposit at the bank - >also called favorable balance -> write the amount under + items. 4. Credit Balance as per Cash Book or Debit Balance as per Pass Book, means that this much amount has seen withdrawn in excess of deposit -> also called overdraft or unfavorable balance -> write the amount under items.
  9. Method of preparing BRS as per Pass Book PARTICULARS Balance as per Cash Book Add Items Credit in Pass Book but not recorded in Cash Book. Add : — Items debit in Cash Book but not recorded in Pass Book. Less Item debit in Pass Book but not recorded in Cash Book. Less Items credit in Cash Book but not recorded in Pass Book. Total Balance as per Pass Book (P + I TEVI - ITEM
  10. Problem 1: From the following particulars prepare a Bank Reconciliation Statement to find out the causes of difference in two balances as on August 31st, 2016 for Four Star (Pvt.) Ltd. (i) Bank Overdraft as per Bank Statement „ — 17,000 (ii) Check issued but not encashed during the August 2,200 (iii) Dividends on shares collected by banker 2,300 (iv) Interest charged by the bank recorded twice in the Cash Book • 500 (v) Check deposited as per Bank Statement not entered in Cash Book — . 3,400 (vi) Credit side of the Bank column in Cash Book cast short 1,000 (vii) Clubs dues paid by bank as per standing instruction not recorded in Cash Book 1,200 (viii) Uncredited check due to outstation 3,900
  11. Ready Reference • Items which increase the pass Book Balance or decreases the Cash Book Balance) 1. Cheques issued but not yet presented. 2. Credits made by the bank for Interest. 3. Amount directly deposited by the customers in our bank A/c. 4. Interest and dividend collected by the bank. 5. Cheques paid into the bank but omitted to be recorded in the Cash — Book. • Items which, decreases the pass Book Balance or increase the Cash Book Balance) 1. Cheques sent to the bank for collection but not yet credited by the bank. 2. Cheques paid into the bank but dishonoured. 3. Direct payments made by the bank. 4. Bank charges, commission etc. debited by the bank. 5. Cheques issued but omitted to be recorded in the Cash Book.

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