BANK RECONCILIATION STATEMENT By Shashwat Betala

CONTENT The purpose of a bank reconciliation statement. The definition of a bank reconciliation statement. Reasons for difference between the cash book and bank reconciliation statements. Nature of the cash book and the bank statement Preparation of bank reconciliation statement Exercise

THE PURPOSE OF THE BANK RECONCILIATION STATEMENT WHY IS IT PREPARED? Due to the timing difference, omissions and errors made by the bank or the firm itself , the balances of the bank statement and the bank account in the cash book rarely agree. WHAT IS IT USED FOR? Bank reconciliation statements can be used to explain the reasons for the differences and to identify errors and omissions in both cash book and bank statement, so that corrections can be made as soon as possible.

The definition of a bank reconciliation statement. DEFINITION of 'Bank Reconciliation Statement‘:A form that allows individuals to compare their personal bank account records to the bank's records of the individual's account balance in order to uncover any possible discrepancies. (NOTE AS PER INVESTOPEDIA)

REASONS FOR DIFFERENCES BETWEEN THE CASH BOOK AND THE BANK STATEMENT Uncredited items They are deposits paid into the bank but occurred too close to the cut-off date of the bank statement and so do not appear on the current statement but appear on the next statement. Unpresented cheques They are cheques issued by the firm that have not yet been presented by recipient to the bank for payment. Standing orders They are standing instructions from the firm to the bank to make regular payments

MORE REASONS Direct debits They are payments made directly through the bank. Bank charges They are charges made by the bank to the company for banking services used. Dishonored cheques They are cheques deposited but subsequently returned by the bank due to the failure of the drawer to pay. Credit transfers They are collections from customers directly through the bank. Interest allowed by the bank They are interest received for deposits or fixed deposits.

NATURE OF THE CASH BOOK AND THE BANK STATEMENT. NATURE OF CASH BOOK Nature of Bank Statement The balance in the cash book is an asset to the company , therefore: The balance as per the bank statement is a liability to the bank , therefore: Bank Statement Cash book Debit represents decrease Credit represents increase Debit represents increase Credit represents decrease

STEPS NOTE ENTRIES NOT RECORDED IN CASH BOOK BUT IN BANK STATEMENT WITH THESE ENTRIES UPDATE CASH BOOK WITH THIS UDATED BALANCE MATCH ENRIES NOT RECORDED IN BANK STATEMENT, IN RECONCILIATON STATEMENT AND VERIFY FINAL AMOUNT WITH BALANCE ON BANK STATEMENT.

EXERCISE A company’s cash book and bank reconciliation statement for 2015 appear as follows: (prepare bank statement) Cash Book(bank column) 2015 1 Balance b/d 2800 3 Gala Stores 1000 10 Shyam supercomuters 2000 30 Rishi enterprises 1400 7200 2015 Dec 8 Puneeta ltd 1600 20 Uma ltd 700 29 Didu ltd 100 31 Balance c/d 4800 7200

EXERCISE (CONT) Bank Reconciliation Statement as at 31 December 2015 balance as per cash book 4800 Add Unpresented cheque (RK Advertising) 100 4900 Less Bank deposit not yet entered on bank statement (1400) Balance in hand as per Bank Statement 3500

THE END! THANK YOU