Home/bank reconciliation

AccountingCapital Latest Questions

Emin Radwan
In:
bank reconciliation
  1. Dheeraj
    This answer was edited.

    Objectives of Bank Reconciliation Statement- Bank Reconciliation statement refers to the statement that reconciles the difference between the balances as per the bank column of cash-book and pass-book.  The following are the objectives of the bank reconciliation statement. BRS Stands for Bank ReconcRead more

    Objectives of Bank Reconciliation Statement-

    Bank Reconciliation statement refers to the statement that reconciles the difference between the balances as per the bank column of cash-book and pass-book.  The following are the objectives of the bank reconciliation statement. BRS Stands for Bank Reconciliation Statement.

    1. The primary objective for preparing BRS is to check the accuracy in the bank column of both cash book and passbook. Accountants generally prepare BRS based on transactions recorded in the cash book and bank book (passbook) on a particular time.

    2. BRS is prepared to check the cash inflows and outflows in the business and they must tally with the bank statements (or) passbook. This helps the users to easily detect the non-uniformity in cash book balance and passbook balance.

    3. BRS provides us information on the various aspects of banking transactions such as it gives information on the position of cheques, payment made by the bank on standing instructions, direct payment by debtors, bank charges, bank interest, dividends received etc.,

    4. BRS helps the accountant to keep a track on the funds available in the bank account. Hence it becomes comfortable for the company to issue a cheque for making payments to its various creditors in some future agreed date.

    5. Another main objective of preparing BRS is to control the internal management of the organization on cash inflow and outflow. BRS acts as a mechanism to keep a track on cash embezzlement, bank drafts and misuse of company’s funds by dishonest employees.

    Impact of Bank Reconciliation Statements-

    The following impact may occur if companies do not prepare bank reconciliation statements.

    1. If the bank reconciliation statements are not prepared by the companies then there will be a difference in the bank column of cashbook and passbook. Hence, there will not be any accuracy in amounts of cashbook and passbook.

    2. If the bank reconciliation statement is not prepared then the company will not have adequate information relating to the various banking transactions such as payment made to various creditors, bank interest, bank charges, dividends received etc.,

    3. If the bank reconciliation statement is not prepared then it will be very difficult for an accountant to keep a track on available funds in the bank account as per passbook. This may result in the delay of future payment to suppliers, creditors and other agents.

    4. If the bank reconciliation statement is not prepared by the companies then cash embezzlement, fraudulent transactions, misuse of company funds by the dishonest employees will increase and it cannot be easily traced by the company.

    I would like to add an example for a clear understanding of the above explanation

    Example for Bank Reconciliation Statement- 

    ABC Ltd furnishes you the following information prepare a Bank Reconciliation Statement to find out Debit Balance of Pass Book.

    Sno Particulars Amount
    I Debit Balance as per Cash Book 15,000
    1. Cheques issued but not presented 2,000
    2. Cheques deposited but not collected 4,000
    3. Payment made by the bank as per standing instructions 4,000
    4. Direct deposit by customers in the bank 3,000

    Bank Reconciliation Statement of ABC Ltd.

    Bank Reconciliation Statement

    Impact of Transaction if bank reconciliation statement not prepared

    If the cheque is deposited but not collected-

    CashBook– The accountant will record the transaction and it will show an increase in the bank balance of cashbook (15,000+4,000 = 19,000).

    PassBook– If the same is not recorded by the bank at the same time. Then the bank passbook will show the same balance (say- no increase and no decrease).

    See less
    • 0
Emin Radwan
In:
bank reconciliationcash bookexamples
  1. Aastha
    This answer was edited.

    Examples of Bank Reconciliation Statement Illustration 1, From the following particulars prepare a Bank Reconciliation Statement on 31st January XXXX Debit Balance as per Cash Book 48,000. Cheque of 37,000 was deposited and collected by the bank but not recorded in Cash Book. Purchased Furniture andRead more

    Examples of Bank Reconciliation Statement

    Illustration 1,

    From the following particulars prepare a Bank Reconciliation Statement on 31st January XXXX

    1. Debit Balance as per Cash Book 48,000.
    2. Cheque of 37,000 was deposited and collected by the bank but not recorded in Cash Book.
    3. Purchased Furniture and payment by the debit card 25,000, was not recorded in Cash Book.
    4. A cash deposit of 26,000 was recorded in the cash column of Cash Book.

     

    Solution:

    Bank Reconciliation from cash book to pass book

    Illustration 2,

    From the following particulars prepare a Bank Reconciliation Statement on 31st October XXXX

    1. Pass Book of Ms Jane shows an overdraft of 50,000.
    2. Cheques issued but not presented for payment to bank 40,000.
    3. Payment side, bank column of Cash Book was undercast by 500.
    4. Interest on overdraft charged by the bank was 1,500.

     

    Solution:

    Bank Reconciliation Statement

    Examples of Cash Book

    Illustration 1,

    Date Particulars Amount
    1st March XXXX Cash in Hand 2,500
    5th  March XXXX Cash paid to Mr Allen 1,000
    16th  March XXXX Cash Sales 1,500
    25th  March XXXX Paid Salary 500

     

    Solution:

    Adjustments in the cash book

    Illustration 2,

    Prepare a 2 column cash book

    Date Particulars Amount
    1st Oct XXXX Bank Balance 52,000
    1st Oct XXXX Cash Balance 15,000
    4th  Oct XXXX Purchased goods and payment made by cheque 15,000
    16th  Oct XXXX Sold goods for cash 8,000
    25th  Oct XXXX Paid rent by cheque 500
    26th  Oct XXXX Purchased goods for cash 10,000

     

    Solution:

    Cash Book with both cash and bank columns

     

    Aastha Mehta.

    See less
    • 0
NK Designer
In:
bank reconciliation
  1. Palaktripathi
    This answer was edited.

    The bank reconciliation statement (BRS) is prepared by the accountant of the business. It is prepared periodically to match all the bank transactions in the cashbook with the bank statement and ensure the accuracy of the same. The questions of who, why, and when usually go hand in hand, therefore, IRead more

    The bank reconciliation statement (BRS) is prepared by the accountant of the business. It is prepared periodically to match all the bank transactions in the cashbook with the bank statement and ensure the accuracy of the same. The questions of who, why, and when usually go hand in hand, therefore, I would like to familiarize you with all the three, in brief, to make the concept simpler.

    Why and when is a bank reconciliation statement prepared?

    After a brief introduction, you might be wondering why and when is a bank reconciliation statement prepared by the accountant. As the closing balance of the cash book and that of the bank statement do not match in the books of accounts the accountants maintain a bank reconciliation statement. There are plenty of reasons why the balances do not match and some of them are as follows:

    • The rate of interest or charges was not known at the time of recording transactions therefore no account is found.
    • Cheques were issued by the company but not cleared by the bank.
    • There is a mismatch in the date of entry and date of credit.

    Due to some of the reasons as mentioned above, the closing balance in the books of accounts of the organization and that of the bank will not match, therefore, the accountants maintain a bank reconciliation statement depending on the value of the transactions. In case the value of the transactions is high, the statement is reconciled on a daily or weekly basis whereas in case of small transactions it is usually done monthly or as per the will of the organization.

    Steps in preparation of a bank reconciliation statement

    The following steps are usually followed by the accountants to prepare a BRS:

    BRS STEPS

    Hope this helps.

    See less
    • 0