Every Businessman who opens at current account in the Bank is usually given Pass-Book (Bank Statement), which records the business transactions with the Bank. This Pass-Book is to be prepared by Bank while the businessman records his business transactions with the Bank in the Cash-Book with Bank Column. A Bank Pass-Book is a copy of a customer's account in the Bank's ledger. Form the entries in the Pass-Book a customer can have knowledge of the transactions recorded by the Bank in his Account.
Meaning of Bank Reconciliation Statement -
The Pass-Book and Cash-Book must show the similar bank balance on particular date. But in a actual practice it is not so, because some of the entries might not have been recorded or wrongly recorded in any of the two books. Therefore, it is desirable for the businessman to check periodically the entries in the Pass-Book with entries in the Bank column of the Cash-Book. The Statement, which is prepared periodically with a view to reconcile the two balances on a particular date is called " Bank reconciliation statement. "
Definition - Bank Reconciliation Statement :
"A statement which is prepared to reconcile the difference between the balance shown by bank column of Cash-Book and balance shown by Bank Pass-Book and also showing cause of disagreement of these two balance is called as " Bank Reconciliation Statement".
Need and Importance of a Bank Reconciliation Statement -
A Bank Reconciliation Statement is required and important because of the following reasons -
A) It detects the mistakes / errors and omissions made either in the Pass-Book or in the Cash-Book.
B) It highlights the causes of difference between the Bank balance as per Cash-Book and the Bank balance as per Pass-Book.
C) It explains any delay in the collection of Cheques.
D) It reduces the chances of various fraud by the staff handling cash.
E) There is moral check on the staff of the organization to keep the Cash records always up to date.
The reasons of Difference between Cash-Book and Pass-Book Balance.
Here are some reasons due to differences may arise...
1) Difference due to timings :
There may be gap of time between recording of transactions in the Books of accounts by the businessman and it being recorded by the Bank. for example, when a cheque is issued to a party, it is recorded immediately in the Cash Book but the bank will record it only when it makes the payment against that cheque. Similarly when a cheque is deposited, it is recorded in the Cash-Book immediately, but Bank will record it only when it collects money in respect of that cheque.
2) Transactions recorded by Bank :
Sometimes transactions are recorded by the Bank which are not known to the Businessman (Account Holder) for example., Interest charged or credited by Bank. The Account Holder comes to know about it after receiving the Bank Pass-Book (Bank Statement).
3) Errors :
Some differences in balance maybe arise due to error committed by the Bank or by the person responsible for preparing the Cash-Book, for example., Carry forward of wrong balance either in Cash Book or Pass-Book.
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See Also -- Types/ Classification of Accounts
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