Bank Reconciliation Statement

Bank Reconciliation
Statement
Bank Reconciliation statement is
a statement prepared by
organizations to reconcile the
balance of cash at bank in
company’s own records with the
bank statement on a particular
date.
BANK PASS BOOK
A Bank pass book or Bank
statement is a copy of
customer’s account in bank’s
ledger.
 It shows the balance standing to
the debit (credit) of the customer
at the end of the month.
 Thebalance of Bank account or
Bank column of cash book should
be equal to the balance shown by
Pass book or Bank statement.
Attimes, these balances
do not agree.
Reasons for the difference
between two balances
 Cheques issued but not presented for
payment:
When cheques are issued, the entry
in the cash book is made
immediately. In the books of the
bank, the entry is made only when
the cheque is presented for payment.
This causes a disagreement between
the two balances.
Reasons for the difference
between two balances
 Cheques paid into the bank but not
yet cleared:
As and when the cheques are
deposited into bank, the entry is
passed on the debit side of the bank
column of the cash book. The
customer account is credited by the
bank only when the cheques are
cleared.
 Interestallowed by the Bank:
Bank might have credited the
account of the customer with
interest and may have made the
entry in the Pass book. The
customer might not have made
entry for the same in the bank
column of the cash book.
 Interest& Bank charges debited
by the bank:
The bank debits the accounts of
the customer by way of interest
on overdraft or certain collection
charges. But no entry for that
made in the cash book.
 Interest, dividend etc. collected by
the bank:
Sometimes, bank collects interest on
government securities and dividend
on shares and give a credit to the
account of the customer for the
same.
Direct payment by the Bank:
Sometimes under standing
instructions from the client, certain
payments like insurance premium,
club fees etc. are made by the bank.
The entry in the bank column of the
cash book is made only when the
necessary intimation is received by
the client.
 Direct payment into the bank by a
customer:
Sometimes our customers deposit
money direct into the account in the
bank, the corresponding entry for
which may not appear in the cash
book.
Dishonour of the bill discounted with
the bank:
Sometimes customers get their bills
disocunted with the bank. If the bank
is unable to get payment of these bills
on the due date it will debit the
customer’s account with the amount
of the bill and noting charges.
Any error committed by the bank:
If any error is committed either
by the bank or by the customer
himself, it will cause
disagreement between the two
balances.
Bank Reconciliation
Statement
Bank Reconciliation statement is
a statement prepared by
organizations to reconcile the
balance of cash at bank in
company’s own records with the
bank statement on a particular
date.
Advantages of Bank
Reconciliation statement
 The
errors committed in the Cash
book or Pass book are revealed.
 Thechances of embezzlement
can be reduced.
Procedure of preparing the
Bank Reconciliation statement
1. Compare the items appearing on the
debit side of cash book with those
appearing on the credit side of the
Pass book (deposit column) and
place a tick mark against items
appearing in both the books and note
down the entries which are causes of
differences.
2. Compare the items appearing on the
credit side of the cash book with
those appearing on the debit side of
the pass book (Withdrawal column)
and place a tick mark against items
appearing in both the books.
3. Take the balance as per cash book as the
starting point and add items which are
having the effect of higher balance in the
Pass book and deduct those which are
having the effect of lower balance in the
Pass book.
or
Take the balance as per Pass book as the
starting point and add items which are
having the effect of higher balance in cash
book and deduct those which are having
the effect of lower balance in the Cash
book.
IMPORTANT POINTS
 An Overdraft appears as “Minus
Item’.
 In case the total “Plus Items” column
exceeds the total of “Minus Items”,
the difference is called as “Balance”.
 In case the total of “Minus Items”
column exceeds the total of “Plus
Items” , the difference is called as an
overdraft.
The Cash Book of Mr. B shows Rs.
8,464 as Bank balance on 31st of
December, 1986. But you find that
this does not agree with the balance
as shown by Pass Book. On scrutiny,
you find the following discrepancies:
 On 15th Dec, 1986 the payment side
of cash book was undercast by Rs.
200.
 A cheque of Rs. 231 issued on 25 th of
December, 1986 was taken in cash
column.
 One deposit of Rs. 250 was recorded
in cash book as if there is no bank
column therein.
 On 18th of Dec. 1986 the debit
balance of Rs. 1,576 as on the
previous day was brought forward as
credit balance.
 Of the total cheques amounting to
Rs. 11,614 drawn in last week of
December, 1986, cheques
aggregating Rs. 7,815 encashed in
december.
 Dividendsof Rs. 350 collected
by Bank and subscription of
Rs. 200 paid by it were not
recorded in the cash book.
 One outgoing cheque of Rs.

450 was recorded twice in the
cash book.
On 1st of January, 2001 Ajay’s Cash book
showed a bank overdraft of Rs. 98,700.
On comparison, we find the following:
1. Of the total cheques of Rs. 8,900 issued
on 27th of January, one cheque of Rs.
7,400 was presented for payment on 4th
Feb. and the other cheques of Rs. 1,500
handed over to customers, were returned
by them and in lieu of those new cheques
of the same amount were issued to them
on 1st of Feb. No entry for the return was
made.
2.Out of the total cash and cheques of
Rs. 6,800 deposited in the bank on
24th of Jan, one cheque of Rs. 2,600
was cleared in 1st of Feb and the
other cheque of Rs. 500 was returned
dishonoured on 2nd of Feb.
3. Bank Charges Rs. 35 and interest Rs.
2,860 appearing in the Pass Book are
not yet recorded in the cash book.
4. Cheque deposited in his account no.
2 wrongly credited to this account
Rs. 1550.
5. A Cheque of Rs. 800 drawn on this
account was wrongly debited in
account no. 2.
6. A Cheque of Rs. 160 issued from this
account by mistake recorded in the
cash book in bank column for
account no. 2, was presented for
payment on 2nd of Feb.
PROBLEM 3
 On 31st of March, 1986 your Bank
Pass Book showed a balance of Rs.
6,000 to your credit.
 Before that date you had issued
cheques amounting to Rs. 1,500 of
which cheques worth Rs. 900 only
have been presented.
 You also deposited cheques worth
Rs. 2,000 of which cheque of Rs. 800
paid by you into bank on 29th March
is not yet credited in the Pass Book.
 You had also received a cheque for
Rs. 160 which although entered by
you in the bank column of cash book,
was omitted to be paid into the bank.
 On 31st of March, a cheque of Rs. 250
received by you was paid into the
bank but the same was omitted to be
entered in the cash book.
 There was a credit of Rs. 85 for
interest on current account and a
debit of Rs. 10 as Bank charges.
 Draw up a reconciliation statement.
NUMERICAL 1
Tulsian Ltd. Provides you the
following information as at 31st
March, 2001:
1) Cheques deposited but not yet
collected by bank Rs. 1,500.
2) Cheques issued but not yet
presented for payment Rs. 2,500.
3) Bank charges debited in Pass Book
only Rs. 200.
4) Interest allowed in Pass Book only
Rs. 100.
5) Insurance premium paid directly by
Bank under standing advice Rs. 500.
6) Bills receivable directly collected by
Bank Rs. 2,000.
7) A wrong debit given by Bank in Pass
Book Rs. 3,800.
8) A wrong credit given by Bank in
Pass Book Rs. 400.
9) Direct payment by a customer into
the bank but not recorded in cash
book Rs. 700.
Prepare a Bank Reconciliation
statement as at 31st of March, 2001
in each of the following alternative
cases:
Case 1: If the balance as per cash book
was Rs. 200.
Case 2: If the balance as per Pass Book
was Rs. 200.
Case 3: If an overdraft as per cash
book was Rs. 200.
Case 4: If an overdraft as per Pass
Book was Rs. 200.
IMPORTANT POINTS
 A credit balance as per Cash Book is
an OVERDRAFT.
NUMERICAL 2
On comparing the cash book of Ajay
Ltd with the Bank Pass Book, the
following discrepancies were noted:
a) Out of Rs. 20,500 paid in cash and
by cheques into the bank on 27th of
March, cheque amounting to Rs.
7,500 were collected on 7th of April.
b) Cheque and cash amounting to Rs.
4,800 were deposited in bank on
26th of March but credit was given
for Rs. 3,800 only.
C) Out of the cheques amounting to
Rs. 7,800 drawn on 26th of March a
cheque of Rs. 2,500 was encashed on
3rd April.
d) Cheques issued to creditor
amounting to Rs. 20,000 on 25th of
March of which cheques worth Rs.
3,000 were presented to bank upto
31st of March.
e) A Cheque for Rs. 1,000 entered in
cash book but omitted to be banked
on 31st of March.
f) A cheque for Rs. 600 deposited into
bank but omitted to be recorded in
cash book.
g) A bill receivable for Rs. 520
previously discounted (Discount Rs.
20) with the bank had been
dishonoured but advice was
received on 1st of April.
h) A bill for Rs. 10,000 was retired by
the bank under a rebate of Rs. 150
but the full amount of the bill was
credited in the bank column of the
cash book.
h) A Cheque of Rs. 1,080 credited in
the Pass Book on March 28 being
dishonoured is debited again in the
pass book on 1st of April. There was
no entry in the cash book about the
dishonour of the cheque until 15th of
April.
Prepare a Bank Reconciliation
statement as at 31st March, 2001 if
the balance as per cash book on 31st
March, 2001 was Rs. 39,770.
NUMERICAL 3
 On 30th June, 1994, the Pass Book of
Messrs Thin and short showed a balance of
Rs. 2,000 at the Bank. They had sent
cheques amounting to Rs. 10,000 to the
bank before 30th of June, but it appears
from the pass book that cheques worth Rs.
9,000 had been credited before date.
Similarly, out of cheques for Rs. 5,000
issued during the month of June, cheques
for Rs. 4,000 were presented and paid in
July. The Pass book also showed the
following payments:
a) Rs. 320 as premium according to
standing instructions, and
b) Rs. 2,000 against a promissory note as
per instructions. The pass book showed
that the bank had collected Rs. 1,800 as
interest on govt. securities. The bank had
charged as interest Rs. 50 and incidental
expenses Rs. 20. There was no entry in
the cash book for the payment of
interest, etc. A bill sent for collection was
returned dishonoured on 28th of june
amounting to Rs. 600.
Prepare a Bank Reconciliation statement
as on 30th of June, 1994.
NUMERICAL 4
On checking R’s cash book with the
bank statement of his account for
the month of March, 1995 you find
the following:
1) Cash book showed an overdraft of
Rs. 4,500
2) The payment side of the cash book
has been undercast by Rs. 150.
3) A Cheque for Rs. 750 drawn on his
saving deposits above has been
shown as drawn on current account.
4) Under instructions from R the bank
has transferred interest Rs. 900 from
his deposit account to his current
account on 3rd April, 1995. This
amount had, however, been taken in
the cash book before 31st March,
1995.
5)Cheques amounting to Rs. 7,500
drawn and entered in the cash book
has not been presented.
6) Cheques amounting to Rs. 6,000 sent to
the bank for collection, though entered in
cash book had not been entered by the
bank.
7) Bank charges of Rs. 75 as per Bank
statement of account had not been taken
in the cash book.
8) Dividends of the amount of Rs. 3,000had
been paid direct to the bank but not
entered in the cash book.
9) A Cheque issued to Arun for Rs. 200 was
replaced when out of date. But it was
entered in the cash book again, no other
entry having been recorded. Both cheques
issued but not presented as shown above.
You are required to arrive at the balance
as it would appear in the bank starement
as on 31st of March, 1995.

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Bank Reconciliation

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