Now let us understand what is a bank reconciliation statement what is a key part is a bank reconciliation statement its first and foremost it is a statement that means it is not an account it is not the result of any double entry it is just a statement a statement could be a sentence it is just a piece of paper where you indicate certain differences so it is not an account there is no double entry involved in a bank reconciliation statement it is prepared by the account holder please note it is prepared by the account holder
Not by the bank it is called a bank reconciliation statement but it is not prepared by the bank what does it do it identifies the causes of difference between the bank balance as shown in the cash book and that shown in the passbook identifies the causes of difference between the bank balance as shown in the cash book and that shown in the passbook both are bank balances and therefore should ideally have been the same but sometimes there is a difference and we want to know the causes of these difference by preparing a bank reconciliation stable also extremely important is the fact that this is irrelevant only on a particular date so a bank reconciliation statement is a relevant on a particular date it is a state length not an account it is a statement which is prepared by the account holder to identify the causes of difference between
The bank balance as shown in the cash flow and that's shown in the passbook on particular data why do we prepare a bank reconciliation stick the importance of VRS while do we need a bank reconciliation state let us consider the case of a businessman poor at the end of the one L of January he has a lot of commitments in fact he wants to assure certain checks he calls his accountant ask for the cash he checks his balance and he sees he has 40 lakhs that is more than sufficient he wanted to issue a couple of chips 20 lakhs and 15 months it should be fine however at the same time he gets his bank statement many looks of the man's statement he sees that he has 27 links there is no way he can issue budgets for 20 lakhs and 50lakhs he has no idea what has happened where the funds have gone Wiley cash boxes or tailor and why does the bank statement say in d7 in Pali he calls his Kasia tells him he does not understand
What is happening he the cash flow sends for the accountant and they sit together and draw up a bank reconciliation statement indicating why there is a difference in the balances of Boutros is there a fraud is there an error or are they all timing differences differences which are illegitimate let us try and see what kinds of errors are located so let us understand the importance of command reconciliation state it could help in locating errors if there has been an error made by the accountant while preparing the cash or the bank while preparing the customers account in its books they will be identified by preparing a bank reconciliation stick like we were talking about the businessman very often these huge differences could be due to undue delay in clearing objects let us say the reason that there was such a big difference was due to fortunes being deposited of ten thousand each none of of 110 lakhs each which were not cleared but why was it not clear it is in the process of clearing and likely have discussed before it is possible that we deposit a cheque on day one but the chick gets clear
Money is credited into the account only on base sell some of these checks if they are outstation checks checks where the customers account is in one city in one state while repairs account bank account or bank is located in another city in another state this would be outstation checks and it takes sometimes nearly two weeks to get such checks cleared when we prepare a bank reconciliation statement we identify we identify such chicks which are held up and cleared and if there has been an onion to delay we are able to locate the same and try to ascertain the reasons prevent fraud it is quite possible that our cashier has been instructed let us say to deposit funds at the end of each day into the bank the cashier has religiously recorded a deposit of different sums of money every day including one however if he does not death this cash into the bank but siphons it off but enters into the cash box so that the proprietor has no knowledge of the same while preparing a bank reconciliation statement while comparing the balance in the passbook with that in the cash book these such frauds could easily be identified another importance of the bank reconciliation statement is to arrive at the correct bank balance at the end of the year what should be the balance bank balance that should be shown in the balance sheet is it the one which is shown as both the cash book is it the one that is shown as birthday parcel with the help of the bank reconciliation statement we are live at the correct bundles which should be reflected in the balance sheet we consider errors we have made we consider all incomes and expenses which are relevant for that particular year pass necessary entries in the cash book and arrive at the correct platform we will discuss this in detail when we discuss the adjusted cash
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