From time to time the balance shown by the bank and cash column of the cash book is required to be verified. The balance shown by the cash column of the cash book must agree with amount of cash in hand on that date. Thus reconciliation of the cash column is simple. But if the statements do not agree it means that either some cash transactions have been omitted from the cash book or an amount of cash has been stolen or lost. The reason for the difference is ascertained and cash book can be corrected. So far as bank balance is concerned, its reconciliation is not so simple. The balance shown by the bank column of the cash book should always agree with the balance shown by the bank statement, because the bank statement is a copy of the customer’s account in the banks ledger. But the bank balance as shown by the cash book and bank balance as shown by the bank statement seldom agree. Therefore a statement is prepared periodically called bank reconciliation statement to find out the reasons for disagreement between the bank statement balance and the cash book balance of the bank, and to test whether the apparently conflicting balance do really agree.
Causes for Difference for Bank Reconciliation Statement
- Cheques issued but not presented for payment
- Cheques paid into the bank but not yet cleared
- Interest allowed by bank
- Interest and expenses charged by bank
- Interest and dividend collected by bank on behalf of the customer
- Direct payments made by the bank on behalf of the customer
- Dishonor of bill discounted with bank
- Bills collected by the bank on behalf of the customer
Note: If the balances between cash book and pass book differs, it will be because of some of the following reasons mentioned above.
