Bank Reconciliation Statement

Definition and Explanation:

From time to time the balance shown by the bank and cash column of the cash book required to be checked. The balance shown by the cash column of the cash book must agree with amount of cash in hand on that date. Thus reconciliation of the cash column is simple matter. If it does not agree it means that either some cash transactions have been omitted from the cash book or an amount of cash has been stolen or lost. The reason for the difference is ascertained and cash book can be corrected. So for as bank balance is concerned, its reconciliation is not so simple. The balance shown by the bank column of the cash book should always agree with the balance shown by the bank statement, because the bank statement is a copy of the customer's account in the banks ledger. But the bank balance as shown by the cash book and bank balance as shown by the bank statement seldom agree. Periodically, therefore, a statement is prepared called bank reconciliation statement to find out the reasons for disagreement between the bank statement balance and the cash book balance of the bank, and to test whether the apparently conflicting balance do really agree.


Causes of Disagreement Between Bank statement and Cash book:


Usually the reasons for the disagreement are:
1.
That the banker might have allowed interest which have not yet been entered in the cash book.
2.
That the banker might have debited the account for any such item as interest on overdraft, commission for collecting cheque, incidental charges etc., which we have not entered in the cash book.
3.
That some of the cheque which we drew and for which we credited to bank account prior to the date of closing, were not presented at the bank and therefore, not debited in the bank statement.
4.
That some cheques or drafts which the organisation have paid into bank for collection and for which debited the bank account, were not realised within the due date of closing and therefore, not credited by the bank.
5.
The banker might have credited the account with amount of a bill of exchange or any other direct payment into bank and the same may not have been entered in the cash book.
6.
That cheques dishonoured might have been debited inthe bank statement but have not been given effect to in to the books.