BANK RECONCILIATION STATEMENT.

1
Business enterprises record transactions with the bank in the bank column of the three column cash book. To recapitulate transactions which increase bank balance are recorded on debit side of cashbook in bank column and transactions which decrease bank balance are recorded on credit side of cashbook in bank column. The balance of bank column is called bank balance as per cashbook. Debit balance shown by bank column of cashbook indicates the balance of deposit at the bank. Similarly, credit balance shown by bank column of cashbook indicates the excess of withdrawls over deposits and is called 'Bank Overdraft'. Bank also maintains accounts of customers in its ledger book known as Passbook. It records transactions resulting in increase in customer's balance on credit side and transactions decreasing customer's balance on debit side. Balance of customer's account in ledger book of the bank as shown by passbook is called bank balance as per passbook. Debit balance as per passbook indicates the amount of bank overdraft and credit balance as per passbook shows the amount of deposit at a particular point of time. Thus now its clear that deposits are recorded on debit side in cashbook and on credit side in passbook. Similarly withdrawls are recorded on credit side in cashbook and on debit side in passbook. Therefore, entries recorded on the debit side of cashbook must always tally with credit side of pass book and vice versa.

Causes of difference in Bank Balance as per Cashbook and Passbook. 1

1. Cheques issued but not presented to bank. 2. Cheques deposited but not cleared. 3. Dishonoured cheques. 4. Direct payment by bank. 5. Direct deposits in bank. 6. Bank charges levied by bank. 7. Undercasting or Overcasting of dr/cr side of cashbook.

Importance of Bank Reconciliation statement.1

1. Detection of Errors 2. Delays in collection revealed. 3. Completion of cashbook. 4. Reduced chances of embezzlements.