Recording in Cash Book:
In businesses, the bank account is usually
kept in cash book - as a part of the three
column cash book, i.e. bank account in the
cash book means two bank columns on the both
sides of two column or three column cash
book. It is made up everyday, and we record
in it all checks received from our debtors
and all checks issued to our creditors or
suppliers. We shall also have several contra
entries every month, recording excess cash
paid in or cash drawn out when required for
use in business. At the end of the month,
the cash book (bank column) is balanced and
the result is a bank balance (as per cash
book). Thus the cash book (bank columns)
tells us, what is our balance with the bank
on a particular date.
Recoding in Pass Book:
The bank also keeps a record of our bank
account with the title "depositor's account"
and enters into our account everyday what is
paid in and what is drawn out. At the end of
any day, bank will gladly tell us our bank
balance (as per bank record). So two
reciprocal accounts are kept i.e., bank
account (bank column in the cash book) in
the books of depositor and depositor's
account in the books of the bank. The
balances shown by the two accounts (bank
account and depositor's account) should be
equal because when the bank account is
debited, the depositors account is credited
by the bank and vice versa. In other words,
for each transaction opposite entries are
made in two books. So if the bank column of
the cash book shows a credit balance the
depositor's account will show a debit
balance in the books of bank.
Usually a copy of depositor's account is
provided by the bank to the depositor, which
is called 'pass book'. This book is written
by the bank. After suitable intervals the
depositor submits the pass book to the bank
and the bank in turn returns it to the
depositor after recording the transactions
there in.
Bank Statement as An Alternative Source
to Pass Book:
Sometimes, instead of providing a pass
book to the depositor, at certain intervals,
usually monthly, the bank sends each
depositor a 'bank statement', which is a
record of the beginning balance, any
increase and decrease that have occurred
since the previous statement and the ending
balance of the depositor's account with the
bank. The pass book and bank statement serve
the same purpose to the depositor.
Rules for Preparing Bank Reconciliation
Statement:
The statement must be given a proper
heading. The statement is usually prepared
at the end of the month or year, so the
heading will be given in the following way:
Name of Business
Bank Reconciliation Statement
As on 31st Jan...........
Bank reconciliation statement may be
started with either cash book balance or
pass book balance. If it is started with
cash book balance, it will be finished with
pass book balance and if it is started with
pass book balance, it will be finished with
cash book balance.
After heading, the balance given to us
should be written in the following way:
Balance as per
cash book or pass book XXX |
The causes of disagreement are added with
or deducted from the starting balance to get
balance of the other book.
Usually the cash book shows a debit
balance (a favorable balance for depositor)
and the pass book shows a credit balance (a
favorable balance for depositor).
The bank reconciliation statement is a
statement showing
causes of disagreement between the cash book
balance and pass book balance on a
specific date, so while preparing it only
those items should be considered which cause
disagreement up to that specific date. For
example, a checks for $2,000 were sent to
bank for collection on 20th December, out of
these $1,100 were collected and credited by
the bank up to 31st December. The statement
was prepared on 31 December. The collected
checks were only $1,100 and un-collected
checks were $900 which caused disagreement
between two balances, so checks for $900
(being not collected) were considered only
while preparing the bank reconciliation
statement.
Example:
From the following particulars, prepare a
bank reconciliation statement of Mr. N as on
31st December 2005.
1. |
Balance as per cash book
(Dr.) |
$64,000 |
2. |
Checks deposited but not yet
collect |
$40,400 |
3. |
Checks issued but not yet
paid by bank |
$26,000 |
4. |
Interest credited by bank
but not recorded in cash book. |
$500 |
5. |
Bank charges debited by bank
but not entered in cash book |
$100 |
Solution:
Mr. N
Bank Reconciliation Statement
As on 31st Jan...........
|
$ |
$ |
Bank
balance as per cash
book
Dr. |
|
64,000 |
Less:
|
|
|
Checks deposited but
not yet collected by
the bank |
40,400 |
|
Bank charges debited
in pass book |
100 |
40,500 |
|
|
|
|
|
23,500 |
|
|
|
Add: |
|
|
Checks issued but
not yet paid by the
bank |
26,000 |
|
Interest credited by
the bank in pass
book |
500 |
26,500 |
|
|
|
Ans: The balance
as per pass book
Cr. |
|
50,000 |
|
|
|
|
If the statement is
started with pass book balance:
Mr. N
Bank Reconciliation Statement
As on 31st Jan...........
|
$ |
$ |
The
balance as per pass
book
Cr. |
|
50,000 |
Less:
|
|
|
Checks issued but
not yet paid by the
bank |
26,000 |
|
Interest credited by
the bank but not
entered in the pass
book |
500 |
26,500 |
|
|
|
|
|
23,500 |
|
|
|
Add: |
|
|
Checks deposited but
not yet collected by
the bank |
40,400 |
|
Bank charges debited
but not entered in
the cash book |
100 |
40,500 |
|
|
|
Ans: Bank
balance as per cash
book
Dr. |
|
64,000 |
|
|
|
|
It may be noted from the
above two statements that the causes of
disagreement which are added in the
first method are deducted in the second
method.
|