Bank Reconciliation Statement is very important when one studies accountancy.
Company incurs many transactions during any particular period which involves bank. For example company makes payment to supplier through bank, Company makes payment of salary to employees through bank, company makes rent payment through bank etc. It records these transactions in its own books usually recorded in Cash book under Bank Column. Similar transactions also get reflected in Bank Pass Book (also called as Bank Statement) of the company. Hence balance as per Company's own books and Company's Bank Pass Book should ideally be same. But this is not the case always and end balances as on particular date under both the books varies and hence bank reconciliation statement is prepared to reconcile these differences.
Below are the main reasons for differences between 2 books i.e. company's own books and Company's Bank Pass Book.
1. Company made payment to supplier through bank may be by cheque and thus records it in its own book but supplier have not deposited the same in the bank and it is thus not getting reflected in Company’s Bank Pass Book and hence difference arises.
2. Company made payment of salary to employees through bank may be by cheque and thus records it in its own book but employee have not deposited the same in the bank and it is thus not getting reflected in Company’s Bank Pass Book and hence difference arises.
3. Bank Levies some charges and hence same is reflected in Company’s Bank Pass book but as a company we are not aware of this charges and hence same is not reflected in our own book and hence difference arises.
4. Bank gives interest on deposits and hence same is reflected in bank pass book of company but as a company we are not aware of these income and same is not reflected in company’s own book and hence difference arises.
5. Sometimes mistake is made by either party and hence difference between two books arises.
With the help of simple mathematics we will learn through this video series how to prepare bank reconciliation statement basically under below 4 scenarios :
1. When balance as per Bank Column of Cash Book is Given.
2. When balance as per Bank Pass Book is Given.
3. When negative balance (overdraft) as per Bank Column of Cash Book is Given.
4. When negative balance (overdraft) as per Bank Pass Book is Given.
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I am CA Nilesh Phadke.
By Qualification I am Chartered Accountant from India (ICAI) as well as Chartered Accountant from UK (ICAEW) and have passion for finance, accounts and teaching.
Accounting, IFRS, Financial Management, Costing etc. are important aspects one has to learn in the field of finance & accounts.
I will cover all these areas with the help of many educational series.
