Bank Reconciliation Statement
Every business keeps its bank transactions in an account called ‘bank account’ usually in the name of bank and account number.
In the same manner bank also create a record for the same account in their books of accounts in the name of customer.
At the end of every month bank emails bank statement to their customer. The account balance of both the customer and bank should tally which mostly don’t happen.
In order to agree both the balance we prepare bank reconciliation statement. The same is applicable for a regular bank account like current account, savings accounts. Overdraft bank reconciliation is also be done apart from normal account.
Causes of difference in bank ledger of depositor and bank statement
1. Outstanding cheques
Cheque issued but not presented in the bank in time for payment. Depositor credits his books of account right after the issue of cheque to a party. But that party might not present the cheque to the bank on that day for encashment.So, there lies the possibility of disagreement of balances between depositor’s book and bank statement due to time gap of issue and presentation of cheque.
Cheque deposited in bank but not yet realized. The depositor debits his ledger account immediately after the deposit of a cheque into bank.But the bank does not credit it in the bank statement till collection. Therefore, in-between these two dates if the balances are compared, disagreement might be found.
2. Deposit in transit
Cash deposit: Deposit of cash into bank on the date of submitting bank statement to the depositor is recorded in the depositor’s ledger account on that day but it is credited in the bank statement on the following date.This results in disagreement between two balances.
Cash deposit into bank directly by third party: The depositor gives instructions to its customers to deposit the amount due from them direct into his stipulated bank account. In such a case, if a customer deposits cash into depositor’s bank account directly, disagreement between two balances remains till it is recorded in depositor’s ledger account.
Cash payment by bank as per standing order of the depositor: In compliance with the standing order of the depositor, the bank makes payment on behalf of depositor for insurance premium, interest on borrowed money, share installment money etc. and debits them in the bank statement of the depositor.But the depositor cannot record all these in his ledger accounts for not receiving information in time. Therefore, for this interim period disagreement between two balances exists.
3. Dishonor of cheque
Depositor’s cheque for collection if dishonored for insufficiency of cash is debited in the bank statement and returned to the depositor marking N.S.F. on it.
But the depositor does not credit his ledger account till the information is available. As a result during the interim period two balances differ.
4. Bank charge, Commission etc.
Bank renders services to the depositor in collecting cheques, bills; a note etc. for which bank charges commission, interest etc. and debits the account of depositor for these charges.
But the depositor cannot credit his ledger accounts on the same date due to non-availability of information. During this time gap two balances differ.
5. Interest on bank deposit
Bank grants interest at a regular interval on interest bearing bank accounts, namely savings accounts, fixed deposit accounts. For this the bank credits depositor’s bank accounts.
But the depositor cannot debit his ledger account for this on the same date. This creates disagreement between two balances.
6. Banker’s error
If bank erroneously deposits or credits depositor’s bank account, disagreement between two balances remains till correction.
7. Depositor’s error
If the depositor records any amount by mistake in his books of account, disagreement exists between the two balances till correction.