Bank Reconciliation Statement

Bank Reconciliation Statement

Definition:

“A schedule explaining any differences between the balance shown in the bank statement and the balance shown in the depositors accounting records is called as bank reconciliation statement”

Purpose:

Purpose of Bank Reconciliation Statement is to reconcile the balance of bank statement and the balance of depositors accounting records.

Causes of Difference in Bank Balance

Bank balance may differ from depositors accounting records due to following reasons

Deposit in Transit:

It means depositor has send cheques or cash etc for deposit but these cheques or cash etc is not added by bank yet due to any reason.

Example:

Cash hand over to bank security van after 5pm.

Outstanding Cheques:

Outstanding cheques are those cheques which are issued by depositor for payment. Sometimes the persons to whom these cheques are issued present these cheques for payment after a delay therefore this cause a difference between the balance of Bank Statement and the balance of Depositors Records.

Example:

Depositor Mr. “A” issued 2 cheques to his creditor Mr. “D” on December 30, 2010 but Mr. “D” presents these cheques in the bank on January 03, 2011.

Bank Errors and Omissions:

Any type of error or omission made by bank

Example:

Bank collect for depositor a dividend of Rs. 100000 but wrongly recorded as Rs. 10000.

Causes of Difference in Depositors Balance

Depositors balance may differ from bank statement due to following reasons

Direct Deposits:

Direct deposits are those deposits which are directly deposited by customers without informing the business.

Example:

a very common example of direct deposits is fee of university students which is directly deposited without informing university.

Service charges:

Any charges deducted by bank for providing any type of service. Sometimes bank deduct these charges on standing orders and depositor is informed after deducting these charges.

Example:

Bank collect dividend for depositor as according to standing orders and informed depositor after collecting these charges.

Dishonors Cheques:

Those cheques whose payment is not made by bank because the formalities are not completed.

Main Reason for Dishonoring of Cheques:

The main reason for dishonoring of cheques is insufficient funds

Book Errors or Omissions:

Any error or omission made by depositor in recording

Example:

Depositor issues a cheque for Rs. 100000 but recorded as Rs. 10000