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Bank Reconciliation Statement

Bank reconciliation statement is a statement prepared mainly to reconcile the difference between the ‘Bank Balance’ shown by the Cash book and Bank statement.

Usually, the trader maintains a Bank Column in the Cash book and does all the entries related with bank. At the end of the month, when he receives a Bank statement from the bank he might find some differences between bank balance shown by Bank Statement and his Cash book. These differences might arise due to many reasons. In order to reconcile and tally the differences he will prepare a Bank Reconciliation Statement.

Now the question arise,

What are the reasons for difference in Bank Statement and Cash Book?

These can be summarized as follows:

  • Cheque issued by the trader but the customer has not yet presented it to the bank for encashment.
  • This will show a less bank balance in the trader’s Cash book as he has already issued the cheque, but the bank will not reduce the amount till the cheque is presented to it.
  • Cheque received by the trader was deposited into the bank for collection but the bank did not realize the funds and did not credit the Trader’s account.
  • Trader deposited a cheque into bank but it was dishonored by the bank. The reason may be the customer does not have sufficient cash in his bank account.
  • Bank pays interest to the trader on his deposit but the trader will not come to know this till he receives the Bank statement and thus his cash book will show less balance as compared to bank statement.
  • Bank might receive direct payment of interest or dividends on behalf of the trader for any investments made by the trader. The trader will not come to know the details till he gets a bank statement and thus his Cash book will be understated.
  • Bank might charge transaction fees or Bank charges or interest on any overdraft which the trader will only know when he receives the bank statement.
  • A customer or debtor might directly pay into the trader’s bank account and the trader might not be aware of this.
  • A Bank may pay bills, insurance premiums or some payment based on the standing instruction of the trader. The details of these transactions will only be available to the trader once he receives the bank statement.

A bank reconciliation statement can be prepared by taking the balance either as per cash book or as per pass book as a starting point.

If the statement is started with the balance as per bank column of the cash book, the answer arrived at the end will be balance as per pass book.

Alternatively, if the statement is started with the balance as per pass book, the answer arrived at in the end will be the balance as per cash book.
A debit balance as per cash book shows the amount of the money in the bank, whereas, a credit balance means that the business has taken an overdraft. In the same way, a credit balance as per pass book shows a positive bank balance whereas debit balance as per pass book shows an Overdraft.

Method 1: Bank reconciliation statement by Debit balance of Bank Column of Cash Book.

debit_balance_as per cash book

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Method 2: Bank reconciliation statement by Credit balance as Cash Book (Overdraft).

credit balance as per cash book

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Method 3: Bank reconciliation statement by Credit balance as per Bank Statement .

credit balance as per bank statement

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Method 4: Bank reconciliation statement by Debit balance as per Bank Statement (Overdraft).

brs from debit balance as per bank statement-overdraft

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