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Chapter 1: Bank Reconciliation statement
you have learnt that the business organisations keep a record of their cash and bank transactions in a cash book.
The cash book also serves the purpose of both the cash account and the bank account and shows the balance of both at the end of the period.
Once the cash book has been balanced, it is usual to check its details with the records of the firm’s bank transactions as recorded by the bank.
To enable this check, the cashier needs to ensure that the cash book is completely up to date and a recent bank statement (or a bank passbook) has been obtained from the bank.
A bank statement or a bank passbook is a copy of a bank account as shown by the bank records.
This enable the bank customers to check their funds in the bank regularly and update their own records of transactions that have occurred.
An illustrative bank passbook of a current account is shown in figure 5.1. The amount of balance shown in the passbook or the bank statement must tally with the balance as shown in the cash book. But in practice, these are usually found to be different.
Hence, we have to ascertain the causes for such differences. It will be observed that a bank statement/passbook shows all deposits in the credit column and withdrawals in the debit column.
Thus, if deposits exceed withdrawals it shows a credit balance and if withdrawals exceed deposits it will show a debit balance (overdraft).
5.1 Need for Reconciliation It is generally experienced that when a comparison is made between the bank balance as shown in the firm’s cash book, the two balances do not tally.
Hence, we have to first ascertain the causes of difference thereof and then reflect them in a statement called Bank Reconciliation Statement to reconcile (tally) the two balances.
In order to prepare a bank reconciliation statement, we need to have a bank balance as per the cash book and a bank statement as on a particular day along with details of both the books.
If the two balances differ, the entries in both the books are compared and the items on account of which the difference has arisen are ascertained with the respective amounts involved so that the bank reconciliation statement may be prepared.
Its format shown in figure 5.5 Timing Differences When a business compares the balance of its cash book with the balance shown by the bank passbook, there is often a difference, which is caused by the time gap in recording the transactions relating either to payments or receipts.
The factors affecting time gap includes Cheques issued by the bank but not yet presented for payment When cheques are issued by the firm to suppliers or creditors of the firm, these are immediately entered on the credit side of the cash book.
However, the receiving party may not present the cheque to the bank for payment immediately.
The bank will debit the firm’s account only when these cheques are actually paid by the bank.
Hence, there is a time lag between the issue of a cheque and its presentation to the bank which may cause the difference between the two balances Cheques paid into the bank but not yet collected When a firm receives cheques from its customers (debtors), they are immediately recorded in the debit side of the cash book.
This increases the bank balance as per the cash book. However, the bank credits the customer account only when the number of cheques is actually realized.
The clearing of cheques generally takes few days especially in case of outstation cheques or when the cheques are paid-in at a bank branch other than the one at which the account of the firm is maintained.
This leads to a cause of difference between the bank balance shown by the cash book and the balance shown by the bank passbook.
Direct debits made by the bank on behalf of the customer Sometimes, the bank deducts the amount for various services from the account without the firm’s knowledge.
The firm comes to know about it only when the bank statement arrives.
Examples of such deductions include: cheque collection charges, incidental charges, interest on overdraft, unpaid cheques deducted by the bank – i.e., stopped or bounced, etc. As a result, the balance as per passbook will be less than the balance as per cash book.
| Author | NCERT |
| Language | English |
| No. of Pages | 20 |
| PDF Size | 1.5 MB |
| Category | Accountancy |
| Source/Credits | ncert.nic.in |
NCERT Solutions Class 11 Accountancy Chapter 5 Bank Reconciliation statement
1. State the need for the preparation of a bank reconciliation statement?
Preparing a bank reconciliation statement is necessary for:
- Helps in identifying the difference between cash book and pass book.
- It helps in knowing the actual bank balance.
- Helps in the detection and prevention of frauds and errors in recording banking transactions
- It helps in knowing the actual bank balance.
- Helps in creating a revised Cash Book that reflects true bank balance.
- It helps in preventing embezzlement of money from the bank account.
2. What is a bank overdraft?
A bank overdraft is created when there is a withdrawal, which is over the bank balance available in account. It is an obligation to the account holder.
3. Briefly explain the statement ‘wrongly debited by the bank’ with the help of an example.
It means that the bank has debited the amount from the users account for some invalid reason. The following instance can help in understanding.
Rajesh’s account is charged overdraft of Rs.5000 even though his account has sufficient credit balance. It can happen when the cashier has done an incorrect entry in the account.
4. State the causes of difference occurred due to time lag.
The following are the causes of difference occurred due to time lag
- Cheque issued by the firm is not yet presented for payment.
- Cheque deposited into the bank but yet to be realized.
- Direct debits done by the bank on behalf of the customer.
- Amount deposited directly into the bank account.
- Interest and dividends that are not collected by the bank.
- Direct payments made by the bank on behalf of the customers
- Cheques that are deposited or bills discounted which is dishonoured
NCERT Class 11 Accountancy Textbook Chapter 5 Bank Reconciliation statement With Answer PDF Free Download