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Reconciling the Bank a/c
| Reconcile = | To bring (something) into a state of agreement or accord.
Getting two things to correspond Make compatible with Accept as inevitable |
|---|
Reconciling a bank account implies ensuring that the bank account balance as per the Cash Book and the Bank book is agreeing after taking into consideration all the reasons for the difference in the balance.
In reconciling the bank balance, we consider the balance either as per the Cash Book or the Bank Pass Book and make adjustments to the same to account for the difference in the books and thereby check whether we get the balance as per the other book or not.
If after taking into consideration all the reasons for the difference in balances as shown by both the books and making adjustments to the balance as shown by one of the books, we arrive at the balance as per the other book, then we assure ourselves that the balance as revealed by both the books is correct.
Balance shown in the Balance Sheet?
The balance sheet of any organisation is a statement of ledger account balances which have not been closed (Personal a/c's, Real a/c's and some Nominal a/c's) and have been transfered to the next accounting periods.The Balance Sheet of the organisation contains the ledger account balances in its books. Therefore, the Bank a/c balance as shown by the Cash Book should appear in the balance sheet. The Reconciliation statement is an additional statement that is prepared for some purpose (to explain the reasons for difference in balance as shown by the cash book and pass book) and not for adjusting the figure in the balance sheet or the ledger account.
If we consider the Balance sheet of the bank, they would consider the balance as shown by the pass book to be presented in the balance sheet.
When is BRS prepared?
Bank Reconciliation Statement (BRS) is prepared as and when needed. The need for preparation of BRS arises only when there is a difference in the bank a/c balance as revealed by the Cash Book and the Bank Pass Book. In simple terms BRS can be taken to be a statement that explains the difference.Generally we prepare a BRS at the end of the accounting period, to explain the difference between the Bank a/c balance as shown in the Balance Sheet and the balance as revealed by the pass book.
Simple Example
Considering the example in the previous pages, BRS for some days on which there is a difference in bank account balance.Aug 8th
- Cash Book » Rs. 24,600 [Rs. 12,600 + Rs. 12,000]
- Pass Book » Rs. 12,600
The Bank a/c balance as revealed by both the books differs. There is one reason for this difference, a cheque deposited but not yet collected.
Bank Reconciliation Statement Particulars Amount
(Rs.)Amount
(Rs.)Balance as per Cash Book 24,600 Add: 1. 24,600 Less: 1. Cheques deposited but not yet collected 12,000 12,600 Balance as per Pass Book 12,600 On account of the cheque deposited but not yet collected, the cash book balance would be greater and the pass book balance would be lesser.
The balance as shown by the pass book can be arrived at by deducting the amount of the uncollected cheque from the cash book balance.
Similarly the balance as shown by the cash book can be arrived at by adding the amount of the uncollected cheque to the pass book balance.
Bank Reconciliation Statement Particulars Amount
(Rs.)Amount
(Rs.)Balance as per Pass Book 12,600 Add: 1. Cheques deposited but not yet collected 12,000 12,000 24,600 Less: 1. Balance as per Cash Book 24,600 Aug 15th
- Cash Book » Rs. 45,600 [Rs. 69,600 − 24,000]
- Pass Book » Rs. 19,600
The Bank a/c balance as revealed by both the books differs. There are two reasons for this difference, a cheque deposited but not yet collected (Rs. 50,000) and a cheque issued but not yet presented for payment (Rs. 24,000).
Bank Reconciliation Statement Particulars Amount
(Rs.)Amount
(Rs.)Balance as per Cash Book 45,600 Add: 1. Cheques issued but not yet presented for payment 24,000 24,000 69,600 Less: 1. Cheques deposited but not yet collected 50,000 50,000 Balance as per Pass Book 19,600 On account of the cheque deposited but not yet collected, the cash book balance would be greater and the pass book balance would be lesser. The balance as shown by the pass book can be arrived at by deducting the amount of the uncollected cheque from the cash book balance. Similarly the balance as shown by the cash book can be arrived at by adding the amount of the uncollected cheque to the pass book balance.
On account of the cheque issued but not yet presented for payment, the cash book balance would be lesser and the pass book balance would be greater. The balance as shown by the pass book can be arrived at by adding the amount of the cheque not yet presented to the cash book balance. Similarly the balance as shown by the cash book can be arrived at by deducting the amount of the unpresented cheque from the pass book balance.
Bank Reconciliation Statement Particulars Amount
(Rs.)Amount
(Rs.)Balance as per Pass Book 19,600 Add: 1. Cheques deposited but not yet collected 50,000 50,000 69,600 Less: 1. Cheques issued but not yet presented for payment 24,000 24,000 Balance as per Cash Book 45,600 Aug 17th
- Cash Book » Rs. 45,600
- Pass Book » − Rs. 4,400 [Rs. 19,600 − 24,000]
The Bank a/c balance as revealed by both the books differs. There is one reason for this difference, a cheque deposited but not yet collected (Rs. 50,000).
Bank Reconciliation Statement Particulars Amount
(Rs.)Amount
(Rs.)Balance as per Cash Book 45,600 Add: 1. 45,600 Less: 1. Cheques deposited but not yet collected 50,000 50,000 Balance as per Pass Book − 4,400 The sign of the the Cash Book balance and the Pass Book balance being different is indicative of the balances being of opposite nature. Since Cash book reveals a favorable or normal balance (+ ve), the pass book balance should be overdraft or unfavourable (since it is −ve).
On account of the cheque deposited but not yet collected, the cash book balance would be greater and the pass book balance would be lesser. The balance as shown by the pass book can be arrived at by deducting the amount of the uncollected cheque from the cash book balance. Similarly the balance as shown by the cash book can be arrived at by adding the amount of the uncollected cheque to the pass book balance.
Bank Reconciliation Statement Particulars Amount
(Rs.)Amount
(Rs.)Balance as per Pass Book − 4,400 Add: 1. Cheques deposited but not yet collected 50,000 50,000 45,600 Less: 1. Balance as per Cash Book 45,600 Alternative when you start with an overdraft balance
Using the signs to indicate overdraft balance would give a unified approach to problem solving. However, some times you may be specifically asksed not to use signs when you would be required to change the logic for deciding whether to add or deduct the amount involved.The pass book shows an overdraft balance indicating that the organisation owes to the bank. In such situations, the amount owed would increase when any amount is paid out and would decrease when the amount is deposited in the bank account.
Bank Reconciliation Statement Particulars Amount
(Rs.)Amount
(Rs.)Overdraft Balance as per Pass Book 4,400 Add: 1. 4,400 Less: 1. Cheques deposited but not yet collected 50,000 50,000 Balance as per Cash Book − 45,600 The sign of the the Cash Book balance and the Pass Book balance being different is indicative of the balances being of opposite nature. Since pass book balance reveals an overdraft balance, the cash book balance should be normal or favourable (since it is −ve).
On account of the cheque deposited but not yet collected, the cash book balance (overdraft or amount owed) would be lesser and the pass book balance would be greater.
The balance as shown by the cash book can be arrived at by deducting the amount of the uncollected cheque from the pass book balance.
This method would seem exactly opposite to the one when we start with a regular balance. Where you would add if the balance with which you started is regular, you would have to deduct if you have started with an overdraft balance.
Aug 18th
- Cash Book » Rs. 45,600
- Pass Book » Rs. 45,480 [− Rs. 4,400 + Rs. 50,000 − 120]
The Bank a/c balance as revealed by both the books differs. There is one reason for this difference, bank charges of Rs. 120 are not yet recorded in the Cash book.
Bank Reconciliation Statement Particulars Amount
(Rs.)Amount
(Rs.)Balance as per Cash Book 45,600 Add: 1. 45,600 Less: 1. Bank Charges not yet recorded in the Cash Book 120 120 Balance as per Pass Book 45,480 On account of the bank charges debited by the bank in its books and not yet recorded in the cash book, the cash book balance would be greater and the pass book balance would be lesser. The balance as shown by the pass book can be arrived at by deducting these charges from the cash book balance. Similarly the balance as shown by the cash book can be arrived at by adding the charges not recorded to the pass book balance.
Bank Reconciliation Statement Particulars Amount
(Rs.)Amount
(Rs.)Balance as per Pass Book 45,480 Add: 1. Bank charges not yet recorded in the Cash Book 120 120 45,600 Less: 1. Balance as per Cash Book 45,600
Note:
The BRS is required to be prepared only when there is a difference in the bank account balance as revealed by the Cash Book and the Pass Book. It is prepared on a particular day taking into account the reasons for difference.The number of examples on various days is given to enable understanding. Genreally BRS is prepared on the last day of the accounting period to explain the difference between the Bank a/c balance that is shown in the B/S and the pass book balance as on the last day of the accounting period.
| Author Credit : The Edifier | ... Continued Page 6 |
