Preparation of Reconciliation Statement :: Problem Solving

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Preparation of Reconciliation Statement :: Problem Solving

In solving problems involving preparation of a Bank Reconciliation Statement, you can make it look simple, if you can follow the following simple steps.

bank,reconciliation,statement

• Identify the Reasons for Difference

  The reasons for the difference in the bank account balance as revealed by the Cash Book and the Pass Book may be given straightaway in the problem. If they are not given, you are required to idenfity the reasons from the data given in the problem.

• Decide on the book you have to start with

  In most of the problems, you may be given the balance as per one of the books i.e. either the Cash Book or the Pass Book. Consider the book and the balance and note the nature of the balance you are starting with.

  The nature of the balance you are starting with need not be considered (should be ignored), if you are using negative sign to represent overdraft balance.

• Identify Whether to Add or Deduct

  For each aspect forming the reason for the difference in balance as revealed by the Cash Book and the Pass Book, you need to decide whether you have to add the value invovled to the amount considered or to deduct it from the amount considered.
  1. Draw two ledger accounts in "T" form and name them (a) Cash Book and (b) Pass Book

     Cash Book	and	Pass Book

     Cash Book representing the Bank a/c as shown in the Cash book and the Pass Book representing the Customer a/c in the Bank books.

  2. Identify the amount involved in the explanation that forms the reason for the difference in the balance.

     Say, there is a cheque issued but not presented for payment, Rs. 12,000

  3. Consider an amount greater than that amount.

     Considering the above example, since the amount involved is Rs. 12,000 consider any amount higher than that, say Rs. 15,000.

  4. Enter the amount so considered in the ledger accounts

     Balance in the book you started with is Normal or favorable

     1. If your BRS starts with the bank a/c balance as per cash book

        Cash Book To Balance 15,000

        →

        Pass Book     By Balance 15,000

     2. If your BRS starts with the bank a/c balance as per pass book

        Pass Book     By Balance 15,000

        →

        Cash Book To Balance 15,000

     Balance in the book you started with is overdraft or unfavorable

     1. If your BRS starts with the bank a/c balance as per cash book

        Cash Book     By Balance 15,000

        →

        Pass Book To Balance 15,000

     2. If your BRS starts with the bank a/c balance as per pass book

        Pass Book To Balance 15,000

        →

        Cash Book     By Balance 15,000

• Record the effect of the transaction in the books based on what has actually happened and based on the balance decide whether to ADD or DEDUCT.

  Cheques issued but not yet presented for payment, Rs. 12,000. This implies that the transaction has been recorded in the organisations account books but has not been recorded in the bank books.

  Journal Entries in their Respective Books
  Organisation Books Party a/c Dr – 12,000 To Bank a/c – 12,000	Bank Books Cash/Bank a/c Dr – 0 To Customer a/c – 0

  Balance in the book you started with is Normal or favorable

  1. If your BRS starts with the bank a/c balance as per cash book

     Cash Book [Bank a/c] To Bal b/d 15,000 By Party. By Bal c/d 12,000 3,000 15,000   15,000 To Bal b/d 3,000

     →

     Pass Book [Customer a/c] To Bal c/d 15,000   By Bal b/d 15,000 15,000   15,000     By Bal b/d 15,000

     From Cash Book » Rs. 3,000	→	To Pass Book » Rs. Rs. 15,000	ADD

  2. If your BRS starts with the bank a/c balance as per pass book

     Pass Book [Customer a/c] To Bal c/d 15,000 By bal b/d. 15,000   15,000   15,000     By Bal b/d 15,000

     →

     Cash Book [Bank a/c] To Bal b/d 15,000   By Party. By Bal c/d 12,000 3,000 15,000   15,000 To Bal b/d 3,000

     From Pass Book » Rs. 15,000	→	To Cash Book » Rs. Rs. 3,000	DEDUCT

  Balance in the book you started with is Overdraft or unfavorable

  1. If your BRS starts with the bank a/c balance as per cash book

     Cash Book [Bank a/c] To Bal c/d 27,000 By Bal b/d By Party. 15,000 12,000 27,000   27,000     By Bal b/d 27,000

     →

     Pass Book [Customer a/c] To Bal b/d 15,000   By Bal c/d 15,000 15,000   15,000 To Bal b/d 15,000

     From Cash Book » Rs. 27,000	→	To Pass Book » Rs. Rs. 15,000	DEDUCT

  2. If your BRS starts with the bank a/c balance as per cash book

     Pass Book [Customer a/c] To Bal b/d 15,000 By Bal c/d 15,000   15,000   15,000 To Bal b/d 15,000

     →

     Cash Book [Bank a/c] To Bal c/d 27,000   By Bal b/d By Party 15,000 12,000 27,000   27,000     By Bal b/d 27,000

     From Pass Book » Rs. 15,000	→	To Pass Book » Rs. Rs. 27,000	ADD

bank,reconciliation,statement

What you need to know?

The procedure explained above is to enable you to decide whether to add or deduct the amount involved in the reason for the difference.

What you really need to understand is the influence of the various bank transactions on the bank account balance and how and when they are recorded in the cash book and the pass book. In all the above situations the journal entry that you would have to recollect is the same.

If you apply the logical steps above and are thorough with the knowledge of recording the bank transactions in both the books, then preparing BRS is very simple.

 

Author Credit : The Edifier

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