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UNIT -6

BANK RECONCILIATION STATEMENT : 1.1Meaning 1.2Reason why pass book and cash book do not balance
1.3

Practical Exercises

Meaning : The bank balance as per pass book can be expected to be equal to the bank balance as shown by the cash book. But sometimes these two balances generally differ. If they do not agree , it is necessary to reconcile them. For this purpose a statement is prepared which shows all the cause of differences. This statement is called bank reconciliation statement.

CAUSE OF DIFFERENCE: The followings are the reasons for the difference between these balance shown by the cash book and the pass book: Cheque issued but not presented for payment : When a cheque is issued by the business in the favors of third party, it is entered on the credit side of the cash book, but the bank will not debit clients account until cheque is actually presented for payments. It means that if cheque is not presented for payment till the date of the preparation of bank reconciliation statement the balance shown in the pass book will be more than the balance shown by the cash book.

Direct payment in the bank by customer: Sometimes customers directly deposit the amount
in the bank .If such a payment is received , the bank will record the entry in the pass book, But the accountholder may come to know regarding the amount, when he see the pass book.

Deposit for collection but not yet collected:

As soon as a cheque is received it is entered on

the debit side of the cash book and sent to the bank for collection. But the bank credit the clients account only when it has collect cash on the cheque so deposited. It results in bank balance as per cash book higher than the balance as per pass book.

Interest allowed by the bank :

When bank allow some interest to the customer, it will be

recorded In the customers account and later shown in pass book. But the customer is not making the entry in the cash book till he knows the fact. Accountholder will come to know the amount on some later date when he sees the pass book.

Direct payment by the bank :

Some times bank may be given instructions for few payments like

as : Insurance premium, etc. When bank makes such these type payments, it immediately record in bank passbook.

Example
Company A's bank statement dated Dec 31, 2011 shows a balance of $24,594.72. The company's cash records on the same date show a balance of $23,196.79. Following additional information is available: 1. Following checks issued by the company to its customers are still outstanding:

No. 846 issued on Nov 29 No. 875 issued on Dec 26 No. 878 issued on Dec 29 No. 881 issued on Dec 31
2. 3. 4. 5. 6. 7.

$320.00 49.21 275.00 186.50

A deposit of $400.00 made on Dec 31 does not appear on bank statement. An NSF check of $850 was returned by the bank with the bank statement. The bank charged $50 as service fee. Interest income earned on the company's average cash balance at bank was $1,250. The bank collected a note receivable on behalf of the company. Amount received by the bank on the note was $550. This includes $50 interest income. The bank charged a collection fee of $10. A deposit of $430 was incorrectly entered as $340 in the company's cash records.

Prepare a bank reconciliation statement using the above information. Solution: Company A Bank Reconciliation December 31, 2011 Balance as per Bank, Dec 31 Add: Deposit in Transit Less: Outstanding Checks: No. 846 issued on Nov 29 No. 875 issued on Dec 26 No. 878 issued on Dec 29 No. 881 issued on Dec 31 Adjusted Bank Balance Balance as per Books, Dec 31 Add: Interest Income from Bank Note Receivable Collected by Bank Interest Income from Note Receivable Deposit Understated $1,237.22 500.00 50.00 90.00 1,877.22 $320.00 49.21 275.00 186.50 830.71 $24,164.01 $23,196.79 $24,594.72 400.00 $24,994.72

$25,074.01 Less: NSF Check Bank Service Fee Bank Collection Fee Adjusted Book Balance 850.00 50.00 10.00 910.00 $24,164.01