Friday, January 16, 2009

Bank Reconciliation Statement

Cash Book is one of the special books, which business organization generally maintain. Along with the receipts and payments of cash, Cash Book also shows deposits, cheque payments and balance of cash at bank. As the business keeps its bank account by maintaining cash book, similarly bank keeps the record of its account holder through maintaining Pass Book. For instance, a cheque deposited into bank is shown in both the record of business (i.e. Cash Book) as well as in the record of the bank (i.e. Pass Book). Similarly, if cheques are issued to a supplier and presented in bank, it will be recorded in Cash Book and also in the Pass Book.

Bank issues a statement of bank account to the account holder. The Cashier can check whether the records shown in bank statement are tallying with the records in his Cash Book. As the case stated above if the deposits and withdrawal are found correct both in Cash Book and the Bank Statement then there should be no difference between the balances of Cash Book and the bank statement. Nevertheless, the balances shown in the Cash Book and the bank statement are sometimes different. Why this difference? For example, The Cash book shows balance of $20,000 on January 31, 2007. A cheque for $10,400 was issued to a creditor. The creditor did not present the cheque to the bank by the end of the month. The Cheque was recorded in Cash Book when it was issued by cashier, but obviously it could not be recorded in Pass Book in January 2007. So the balance as per bank statement will not be $20,000 as the cash book shows.

That is why; Bank Reconciliation Statement is prepared to reconcile the differences between the balances of Cash Book and the Bank Statement.

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