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Bank Reconciliation Statement:

Learning Objectives:

After studying this topic you should be able to:
  Define and explain bank reconciliation statement (BRS)?
  Explain the difference between cash book and pass book?
  Explain the causes of disagreement between cash book and pass book?
  Describe the methods to prepare a reconciliation statement?


If there is a dispute between two friends, or they fail to agree about some matter, the disagreement may temporarily end the friendship between them. When they become friends again we say they have 'reconciled' with one another. Reconciliation is, therefore, resuming of friendly relations as a result of reasonable explanations between them.

In business, we often have sets of figures (balances of cash book and pass book) which apparently disagree with one another, but reasonable explanations for the disagreement will reconcile the two sets of figures and show that, in fact both are right.

There are three reasons why the balances of cash book and pass book do not agree. These are given below:

  1. One party may lack the knowledge of the transactions recorded by the other.
  2.  There is always an unavoidable delay between one party doing something and the other party knowing about it.
  3. Errors and mistakes often occur.

Any discrepancy between the balance of cash book and that of pass book, the depositor prepares a statement to explain the causes of discrepancies and to reconcile the two balances. This statement of explanation is called bank reconciliation statement.

The purpose of this statement is to discover the various things the bank has done in the pass book which the cashier was not aware of, put right any thing that is wrong and draw up a logical explanation of the remaining differences, which are not wrong, but are delayed from being right by the time lag.

Bank reconciliation statement is generally prepared at the end of the month or the year and it is not necessary when there is no disagreement between the pass book balance and the cash book balance. One copy of this statement is also sent to the bank if the bank has made some errors or mistakes in the pass book.

The great advantage of preparing this statement is, if by mistake the pass book balance is shown less, the bank may wrongly dishonor our checks for insufficiency of funds. As a result, the goodwill of the business will be suffered and our creditors will refuse to accept our checks in future. By preparing this statement true bank balance can be ascertained.

Read our high quality articles about "bank reconciliation statement" topic:

  Preparing a bank reconciliation statement
  Difference between cash book and pass book
  Causes of disagreement between cash book and pass book




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