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BANK RECONCILIATION STATEMENT

 It is necessary to understand the transaction relationship between bank and company.

For company, bank account is an asset and increase in asset recorded as debit and decrease as credit. So whenever company makes deposit in the bank account, recorded as debit in company books (cash book) and whenever withdraw from bank, recorded as credit.
While customer bank account is liability for the bank. So increase in liability recorded as credit and decrease as debit in bank records. Whenever customer deposits amount in the bank, bank recorded it as credit in their records (bank statement) due to increase in liability and in case of withdrawal of the amount from bank account by customer, bank records as debit.




ITEMS REQUIRED TO ADD IN BANK STATEMENT:

  • Uncleared cheque / Last day deposit / Late deposit / Deposited but not shown in bank statement.
  • Deposit in transit
  • Any error made by bank which result decrease in balance.

ITEMS REQUIRED TO LESS FROM BANK STATEMENT:

  • Unpresented cheque / Outstanding cheque / Cheque issued but not shown in bank statement.
  • Any error made by bank which result increase in balance.

ITEMS REQUIRED TO ADD IN CASH BOOK:

  • Note/bill received by bank as per instructions.
  • Interest on note/bill received by bank as per instructions.
  • Interest credited by bank.
  • Dividend collected by bank on behalf of the company.
  • Any amount of profit received by bank as per instructions.
  • Direct deposit by a customer into bank account.
  • Any error made by company which results decrease in receipts side or increase in payment side.

ITEMS REQUIRED TO LESS FROM CASH BOOK:

  • Note/bill paid by bank as per instructions.
  • Interest on note/bill paid by bank as per instructions.
  • Interest debited by bank.
  • Bank service charges / Collection charges.
  • Dishonoured cheque / N.S.F.
  • Post dated cheques.
  • Withholding tax deducted by bank.
  • Any amount of liability or expense paid by bank as per instructions.
  • Any error made by company which results increase in receipts side or decrease in payment side.

EXAMPLE:

SOLUTION
(1) Unpresented cheques:
Cheques issued but not presented to the bank for payment, but will be presented in future so it will be deducted from bank statement.

(2) Unlceared Cheques:
Cheques deposited into bank but not recorded by the bank due to in the process of clearing but it will be deposited by the bank later so it will be added in the bank statement.

(3) Direct Deposit by Customer:
Customer directly deposited into bank has been recorded by the bank but did not recorded by the company so it will be added by the company as increase in bank account.

(4) Collection Charges:
Collection charges deducted by the bank but not recorded by the company so it will be recorded by the company in cash book as decrease in cash book.

(5) Profit by Bank:
Profit recorded by the bank but fails to records in company's cash book so it will be added in the cash book as increase in bank account.

After the following adjustments, balance of cash book and bank statement is reconciled.


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