BANK RECONCILIATION STATEMENT Points to recall The following points are to be recalled before learning bank reconciliation statement: • When transactions are more in number, subsidiary books are used. • Cash and bank transactions are recorded in the cash book. • Deposit made into the bank is debited in the bank column of the cash book. • Payment made by the bank is credited in the bank column of the cash book.
• Debit balance as per bank column of the cash book is favourable balance. • Credit balance as per bank column of the cash book is overdraft. Key terms to know • Bank statement • Bank overdraft • Unpresented Cheques • Uncleared Cheques • Dishonoured cheques • Standing instructions • Bank reconciliation statement. Accountancy - .
Introduction Student activity Imagine that you are the owner of a small shop. You maintain the three column cash book for your business. Now, think on the following points and discuss with the whole class: How often would you check your cash balance in hand? Everyday/once in a week?
Why do you check your cash balance? How will you make sure that the bank column in cash book is correct and is the same as shown by the bank statement? From the above activity, it is clear that physical cash in hand can be checked easily with the cash column of cash book. But, checking the accuracy of transactions in the bank column of the cash book cannot be done without bank statement (pass book).
. . Bank statement or bank pass book It is very common in business these days, to deposit cheques received and cash, with the bank. Payments can also be made through bank.
Because, dealing cash through bank is always safe. Also, it is legally necessary to operate the transactions through bank beyond a certain limit. When any bank transaction is undertaken, two records are kept of the transactions. One is kept by the business [customers to the bank], which is the cash book.
The other one is kept by the bank, which