CONCEPT OF BANK RECONCILIATION STATEMENT
A modern business performs its transactions through the bank. It generally receives cash through bank deposits and makes cash payments by issuing cheques. In order to keep records of its transactions, it maintains a cash book with bank columns. It is in fact the bank account in the books of the business. On the other hand, the bank also maintains the customer’s account in its books Whenever the business opens an account in the bank by depositing some amount, the bank provides it with a checkbook to facilitate the withdrawal or payment of cash, and a passbook which shows the detailed statement of the customer’s account in the bank.
Any transaction that takes place through a bank is supposed to be simultaneously recorded in the two books. For example, if cash is deposited in the customer’s account, it is debited in the bank column of the cashbook, while it is credited in the passbook. Similarly, if cash is withdrawn from the bank or payment is made through a bank, the bank column of the cashbook is credited, whereas it is debited in the passbook. As a result, it is supposed that the cash balance at the bank shown by both cashbook and passbook is always the same. However, the balance is shown by the passbook hardly equals the balance shown by the bank column of the cashbook.
The disagreement between the balance shown by the passbook and the cash book occurs due to some transactions or errors that appear only in the cash book but not in the passbook, or only in the passbook but not in the cash book. However, it is essential to reconcile the difference in the balances shown by the passbook and the cashbook for ensuring their accuracy. In order to reconcile the balances shown by them, a statement is prepared which is called a bank reconciliation statement.
MEANING AND DEFINITIONS OF BANK RECONCILIATION STATEMENT
A bank reconciliation statement is a statement that is prepared to reconcile the balances shown by the cashbook and the passbook by finding the causes of difference between the two balances The following definitions clearly provide the meaning of the bank reconciliation statement.
J. R. Batliboi: “Bank reconciliation statement is prepared at periodical intervals with a view to indicating the items which cause disagreement between the balance as per the bank columns of the cash book and the bank passbook on the given date.”
U. P. Haldar: “A statement which is drawn up to show the cause for disagreement between the bank balances as shown by the cash book and the balances shown by the passbook on a particular date is called bank reconciliation statement.”
It is clear from the above definitions that the bank reconciliation statement is a statement prepared mainly to reconcile the difference between the bank balances shown by the cash book and bank passbook by identifying the causes of the difference between the two balances.
THINGS TO REMEMBER (TTR)
A bank reconciliation statement is a statement that is prepared to reconcile the balances shown by the cashbook and the passbook by finding the causes of the difference between the two balances.
NEED AND IMPORTANCE BANK RECONCILIATION STATEMENT
A bank reconciliation statement is an important technique by which the accuracy of the bank balance shown by the passbook and cashbook is ensured. need and importance of reconciliation statement can be summarized in the following points:
- It ensures the accuracy of the balances shown by the passbook and the cashbook.
- It provides a check on the accuracy of entries made in both books.
- It helps to detect and rectify any error committed in both the books
- It helps to update the cashbook by discovering some entries not yet recorded.
- It indicates any undue delay in the collection and clearance of some cheques.