Bank Reconciliation Statement

Reconciliation of the cash book and the bank passbook balances amounts to an explanation of differences between them. The differences between the cash book and the bank passbook is caused by: timing differences on recording of the transactions. errors made by the business or by the bank. When a business compares the balance of its cash book with the balance shown by the bank passbook, there is often a difference, which is caused by the time gap in recording the transactions relating either to payments or receipts.

The factors affecting time gap includes : . . (a) Cheques issued by the bank but not yet presented for payment When cheques are issued by the firm to suppliers or creditors of the firm, these are immediately entered on the credit side of the cash book. However, the receiving party may not present the cheque to the bank for payment immediately.

The bank will debit the firm’s account only when these cheques are actually paid by the bank. Hence, there is a time lag between the issue of a cheque and its presentation to the bank which may cause the difference between the two balances. . .

(b) Cheques paid into the bank but not yet collected When firm receives cheques from its customers (debtors), they are