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    Bank Reconciliation Statement Class 11 Notes

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    Ashna varghese
    A bank reconciliation statement reconciles the differences between a company's bank statement and cash book balances. It is an important accounting tool that helps ensure accuracy and identify errors or discrepancies. While not legally mandatory, preparing regular bank reconciliation statements provides several key benefits, such as ensuring accurate books of accounts, checking for incorrect or missing entries, identifying delays, and preventing employee fraud.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Bank Reconciliation Statement Class 11 Notes

    Uploaded by

    Ashna varghese
    958 views10 pages
    A bank reconciliation statement reconciles the differences between a company's bank statement and cash book balances. It is an important accounting tool that helps ensure accuracy and identify errors or discrepancies. While not legally mandatory, preparing regular bank reconciliation statements provides several key benefits, such as ensuring accurate books of accounts, checking for incorrect or missing entries, identifying delays, and preventing employee fraud.

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    A bank reconciliation statement reconciles the differences between a company's bank statement and cash book balances. It is an important accounting tool that helps ensure accuracy and identify errors or discrepancies. While not legally mandatory, preparing regular bank reconciliation statements provides several key benefits, such as ensuring accurate books of accounts, checking for incorrect or missing entries, identifying delays, and preventing employee fraud.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    958 views10 pages

    Bank Reconciliation Statement Class 11 Notes

    Uploaded by

    Ashna varghese
    A bank reconciliation statement reconciles the differences between a company's bank statement and cash book balances. It is an important accounting tool that helps ensure accuracy and identify errors or discrepancies. While not legally mandatory, preparing regular bank reconciliation statements provides several key benefits, such as ensuring accurate books of accounts, checking for incorrect or missing entries, identifying delays, and preventing employee fraud.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 10

    Preparation of Bank Reconciliation

    Statement

    Have you ever noticed a situation where the balances appearing in the
    passbook and cash book of a ​company​ or a firm, do not match? If so,
    you would have encountered a classic example of a condition which
    indicates the necessity for preparing a Bank Reconciliation Statement.

    A BRS helps in devising target reasons and amounts with which a


    passbook and cash book might not tally. A firm or a company which
    has the habit of preparing regular Bank Reconciliation Statement finds
    itself in a better financial position. Let us see what a ​bank
    reconciliation​ is and understand its preparation.

    The Meaning of a Bank Reconciliation Statement


    (BRS)
    Every entity has to prepare a bank reconciliation statement. This
    statement indicates the differences between the passbook and ​the cash
    book​ of the entity. By reconciling the differences that exist between
    the two, a Bank Reconciliation Statement helps in arriving at the exact
    value of the amount of bank balance held on a particular date.

    It is quite important to prepare such a statement for reconciliation for


    any reason that might lead to a difference in the value of passbook and
    cash book balance.

    Browse more Topics under Bank Reconciliation Statement


    ● Need for Reconciliation

    Preparation of a Bank Reconciliation Statement

    Preparing a Bank Reconciliation Statement is quite simple. At first, it


    can appear quite cumbersome and tedious to prepare the statement but
    in reality, all it needs is a little time and patience. Before preparing the
    Bank Reconciliation Statement, an accountant should have access to
    all the relevant values related to the cash book and pass book.
    Thus, an ​accountant​ can start reconciling the differences in the cash
    book and passbook by taking the balance available in either. After
    this, the ​accountant’s​ job is to find out all the entries or transactions
    that are giving rise to a difference in the balance of passbook and cash
    book. By giving effect to the nature of such entries, the accountant
    would have to add or subtract the amount of such entry from the initial
    balance of the passbook or cash book.

    By doing so, he will be able to arrive at the value of balance in the


    other book. This balance is imperative to arrive at, for the purpose of
    preparing the ​accounts​.

    Reasons for Differences in Balances of Cashbook and Passbook

    The passbook and ​cash book​ of an entity may not show the exact
    balance of the bank on a given date. This difference mainly arises due
    to a few reasons. The correction of these reasons helps us arrive at the
    proper bank balance. One of the main reasons for the difference in the
    two balances is the time lag between the recording of a transaction in
    the bank passbook and the cash book.

    Consider a situation where a cheque goes to the bank for deposit. It


    would get recorded in the cash book right away as an entry for deposit
    of a cheque but when it comes to the passbook, there may be a delay
    in the date on which the cheque is actually deposited in the bank.
    Also, the time that it takes to clear the cheque may give rise to a
    condition when the amount ​deposited​ may reflect at a later date than
    the date on which entry in the cash book comes.

    Hence, on the preparation of a Bank Reconciliation Statement in the


    interim, there will be a difference in the amounts of ​bank​ balances
    between the two books. Similarly, where you deposit or withdraw a
    certain amount from the bank, the same entry gets recorded promptly
    in the cash book but take time to reflect in the passbook. Hence, it
    becomes another reason why the cash book and passbook may not
    tally.

    Is it Mandatory to Maintain a BRS?

    As per the ​laws​, preparation of a Bank Reconciliation Statement is not


    mandatory. Hence, whether to maintain it or not, is a decision of the
    accounting​ department of the entity.

    Solved Question for You


    Question: Give an example of various reasons which will cast a
    difference in the bank balance in cash book and passbook.

    Answer: One example is Entries relating to interest earned and bank


    charges. Transactions get immediately recorded in the passbook of the
    bank in such cases. However, the same gets recorded in the cash book
    of the entity only when the bank ​statement​ comes to the accounting
    personnel of the entity. Here, the balance isn’t equal in the cash book
    and passbook.

    This happens because of the difference that was seen in the bank
    balance. As a result, a difference comes in the balances of cash book
    and passbook. For elimination of balance, a BRS comes in handy.

    Need for Reconciliation

    Maintaining the ​accounts​ of any firm is a tedious job that requires the
    supervision of a trained and experienced accountant. When preparing
    the accounts of any individual or firm, one of the essential steps
    undertaken in the preparation of a bank reconciliation statement.
    While many contemplate the need for reconciliation, understand that
    its preparation is imperative, so as to arrive at the correct bank
    balances in the books of the firm and the bank itself. This is why,
    while preparing the accounts of any firm or an individual, an
    accountant will make sure that he prepares a bank reconciliation
    statement​.

    What is a Bank Reconciliation Statement?

    Vital to the preparation of the accounts of any individual or firm, a


    bank reconciliation​ is a preliminary and definitive step towards
    determining the accuracy of bank balance, stated in the pass book and
    cash book. When an accountant prepares a bank reconciliation
    statement, it helps in ensuring no discrepancy remains with respect to
    the bank balances appearing in the books of the individual and firm.

    Browse more Topics under Bank Reconciliation Statement


    ● Preparation of Bank Reconciliation Statement

    Need for Preparing a Bank Reconciliation


    Statement

    Among other reasons, enlisted below are some of the most important
    reasons why it is important to prepare a bank reconciliation statement:

    Accuracy

    Each month, the passbook of the ​bank​ and the cash book of a firm,
    display a particular amount, which is the balance in the bank as on that
    date. However, due to delay in the recording time and period of the
    same in the respective books, there is a high possibility that on the day
    of comparison the balances in the two books, would not match.

    Hence, having prepared a bank reconciliation statement, one can


    determine the reasons and amounts by which the two balances differ.
    This analysis would further help the ​accountant​ in recording the
    missing amounts in each book. Hence, after the preparation of a bank
    reconciliation statement, the books of accounts would actually display
    a true and fair position of the firm.

    Check on the Entries

    In the process of preparing a bank reconciliation statement, an


    accountant will be able to point out all entries or amounts, recorded
    incorrectly in either of the books. Thus, it is quite useful to prepare a
    bank reconciliation statement, which would help in eliminating any
    entries recorded erroneously.

    Rectifying Incorrect Entries

    In case an amount or entry has been recorded incorrectly in both, the


    passbook and the cash book, the accountant will be able to rectify
    those entries, so as to arrive at the amount of correct bank balance in
    the passbook and the ​cash book​.

    Updated Cash Book

    Again, due to the irregularity in posting amount of entries in the cash


    book and due to the delays in the recording of such amounts, it is quite
    possible that the cash book would fail to show the updated balance of
    bank as on a particular date. When compared with the passbook, an
    accountant would be able to identify such entries and record them in
    the cash book instantly. This would help in reconciling the balances of
    both the cash book and the bank book instantly.

    Detection of Delays

    Due to the preparation of bank reconciliation statement, it is possible


    to discover any amount of cheques that gets ​deposited​ in the bank but
    have aren’t credited. This difference would be evident because the
    amount of such deposit would appear in the cash book but not in the
    bank book, hence giving rise to a difference in the bank balance of
    both. Thus, cheques deposited but not yet collected can come to notice
    quickly.

    Check on the Dishonest Behavior of Employees

    Preparation of regular bank reconciliation statement has several


    benefits. It would act as a moral check on employees so that they do
    not indulge in the embezzlement of bank ​cheques​, which would
    ultimately cause ​loss​ to the firm. This is so because even a low-value
    cheque can come in detection if it has been accepted but not deposited.
    In this way, a bank reconciliation statement serves a large purpose for
    a firm’s accounting cycle and people.
    Solved Question for You

    Question: Is it mandatory for a firm or an individual to prepare a bank


    reconciliation statement?

    Answer: Although bank reconciliation statement serves a very


    important purpose in a firm, it is not mandatory to prepare as it has not
    been directed so by any act or legislation, in relation to companies or
    firms. Preparing and maintaining a bank reconciliation statement is
    completely voluntary and highly appreciated, owing to the benefits
    that accrue to the firm in the short and long run. Therefore, in case a
    firm finds that it is difficult for them to employ the ​accounting
    personnel to make such statement, it can avoid doing so.

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