Bank Reconciliation Statement Homework Help

Bank reconciliation statement refers to the statement of differences between the bank statements of the organization provided by the bank and the cash statement prepared by the organization itself. It is a summary which reconciles an entity’s bank account with its financial records. In other words, bank reconciliation is the balancing of company’s cash account with a bank account.


Due to the outstanding checks, deposits in transit, errors etc. company’s cash balance and bank balance usually do not match. Therefore, the company has to carry out bank reconciliation statement.


Following which appears in company’s cash statement but not in bank records.


  1. Deposit- It means the deposits which have been sent by the company to the bank but it is not received at the time of or before issuing bank statement.
  2. Cheques Outstanding- Cheques which have been given by the company to the bank but it is not cleared before issuing bank statement.

Bank Reconciliation Statement Homework Help

Following which appears in bank records but not in company’s cash records.


  1. Service Charges- Service charges deducted by the bank may not be known to the company, so it will not be recorded before issuing of a bank statement.
  2. Interest income- Interest earned by the company on its bank account is usually not recorded until bank statement is issued.

Importance of BRS

  1. Pointing out mistakes in the cash book and pass book- Bank reconciliation statement is prepared after looking at the differences in the cash and bank balances of the organization. The comparison discloses and identifies the entries which have been made in the cash book but omitted or wrongly entered in the pass book and vice versa.
  2. Identify delay in clearing of cheques- When company compares the cash book with the passbook, it finds out the date of depositing the cheque and the clearing date. If there is any delay in the clearing, then the company can take measures to find out.
  3. Misappropriate use of funds- If a company keeps on preparing a bank reconciliation statement in a month, day or week. The company would be able to check out the differences in both the two. Thus, it will help the company in looking at the funds and if there is any misappropriation of the funds by the employee, it will come out.
  4. Accuracy- When the comparison of cash book and pass book is made, it will help the company in finding out whether the cash book is being maintained properly or not. If there is any inaccuracy, it will be identified and rectified.
  5. Control- The preparation of Bank Reconciliation statement is an important technique of control. It prevents misappropriation of cheques, bank drafts and other transactions with the bank. The malpractices of dishonest employees dealing with cash and bank are controlled and effective measures are employed to plug the loopholes if any.

Causes of differences in passbook and cashbook

a) Differences caused by Time Gap in recording transactions

  1. Cheque issued but not yet presented for the payment in the bank- When a company makes a payment in a cheque to the creditor, it immediately records the transaction in the bank column of the cash book. But the bank can only debit the account of the company when it is presented. Generally, there happens to be a gap of some days between issuing a Cheque and presenting a Cheque. When it is a case of crossed Cheque, the time lag is generally very high due to the limitation of presenting it only through some banks. Hence, cashbook will show a reduced balance until it is presented in the bank.
  2. Cheques paid for the collection in the bank but not yet credited- When a company receives a cheque from the customers, they are immediately deposited in the bank for collection and an entry is made in the debit side of the bank column of the cash book. But the bank cannot credit the amount in the bank account at the time of receiving the Cheque. It will have to receive the payment from another bank and then it can credit the amount. Again, there is a time lag between depositing the Cheque and crediting into the bank account. In case of outstation Cheques, this time lag is very high so cash book will show an increased balance until it is credited by the bank.
  3. Cash paid into the bank for the collection but dishonored by the bank- When the Cheque is received from the customer or any other external party, it is sent to the bank for the collection but if the Cheque gets dishonored, the bank will not credit the payment in the bank account. Thus, it will show an increase in the cash book of the company.
  4. Interest allowed by the bank- Banks pay interest on its savings account. And now, current account also has this interesting element associated with it. Generally, interest is credited on half yearly basis. But the customer gets to know about this when he gets to see the passbook. In this period, the balance of cash book will be lower than the balance of passbook.
  5. Interest charged on overdrafts- When an account holder gets the facility of withdrawing more than the deposit, this facility is known as an overdraft. So, bank charges fees for this and this fee is known as interest. Bank charges this interest amount time to time and debits the customer’s account. But customer will get to know about this when he will receive the statement of his account. Until then, the balances of the two books will differ.
  6. Bank charges and commission charged by the bank- Bank renders many services and charges a certain amount in return for it. The bank debits this amount from their account but cash account balance will not be reduced as the information related to such charges are only received from the statement of the bank account.
  7. Directly deposit by customers into the bank- Some customers directly deposit the amount in the bank account. Bank will immediately credit the firm’s account with the amount but the firm will not receive this immediately. The firm will come to know about this deposit when it receives the bank passbook.

b) Differences caused by errors committed in recording transactions

Mostly it happens that due to the errors committed to recording the transaction either in cash book or passbook, it shows the difference in these two books.


1) Errors committed in recording transactions by the firm- Firm commits an error and records a wrong entry in the cashbook of the firm’s account. Errors like:


  1. Cheque issued to a creditor but omitted to record in cashbook.
  2. Cheque deposited in the bank but omitted to record in the cashbook.
  3. The error totaling the bank column of the cash book.

2) Errors committed in recording transactions by the bank- Sometimes the bank commits an error and records a wrong entry in the passbook of the customer’s account. This causes a difference between the balance shown by the passbook and the balance shown by the cash book.


Method of preparing bank reconciliation statement by the debit balance of bank column of cash book- Entries on account of which the debit balance of the cash book is lesser in comparison to the credit balance of the passbook will be added while preparing reconciliation statement and vice versa.

Items to be added-

  1. Cheque issued but not yet presented for the payment.
  2. Credit made by the bank in respect of interest earned.
  3. The amount deposited directly by the customer in the bank account.
  4. Interest and Dividend collected by the bank.
  5. Cheque paid into the bank but omitted to be recorded in the cash book.

Items to be deducted-

  1. Cheque sent to the bank for collection but not yet credited by the bank.
  2. Cheque sent to the bank for collection but dishonored by the bank.
  3. Direct payment made by the bank on behalf of customers.
  4. Debits made by the bank in respect of service charges, interest etc.
  5. Cheque issued but omitted to be recorded in the cash book.

Bank Reconciliation Statement As on ---------------

Particulars Details Amount
Dr Balance as per Cash Book
Add:
a) Cheque issued but not yet presented for the payment.
b) Credit made by the bank in respect of interest earned.
c) The amount deposited directly by the customer in the bank account.
d) Interest and Dividend collected by the bank.
e) Cheque paid into the bank but omitted to be recorded in the cash book.

Less:

a) Cheque sent to the bank for collection but not yet credited by the bank.
b) Cheque sent to the bank for collection but dishonored by the bank.
c) Direct payment made by the bank on behalf of customers.
d) Debits made by the bank in respect of service charges, interest etc.
e) Cheque issued but omitted to be recorded in the cash book.

Credit Balance as per Bank Statement

Control Account

Control Accounting, often known as controlling account, is an account which summarizes and combines all the subsidiary account of the same type. It can be called a summary account that equals the sum of the subsidiary amount and it is used to simplify and organize the general ledger. It is used to simplify and organize the general ledger. General ledger has hundreds of accounts right from assets and liabilities to income and expenses account. Moreover, each account type can have hundreds of smaller accounts called subsidiary accounts. Had we used general ledger for every single account, it would be a disastrous situation for the company to manage. That is why using control account is important.


Accounting entries for credit sales and purchases
- Transfer of sales book total into the general ledger
Receivables Ledger Control Account Dr To Sales Revenue 
- Transfer of purchase book total into the general ledger
Purchases  Dr To Payables Ledger Control Account

Formats:

Stores Ledger Control Account

Particulars Amount Particulars Amount
To balance b/d (Op. Stock) By WIP A/c
To General Ledger Adj. (Purchase) By General Ledger Adjustment A/c (Purchase Return)
To WIP Control A/c (return from work order) By Factory O/H (Issued for factory repairs)
To Factory O/H Control (Return of Indirect materials) By Adm O/H control a/c (Admin. Office)
By Sales & Distribution Control A/c
By General Ledger Adj. (Insurance Claim)
By Costing profit and loss ( unrecovered abnormal loss)
By Balance C/D (Closing Stock)

Control Account Reconciliations

To match the sales and purchase ledger entries with the entries of control accounts, we use the working called reconciliation. Total of sales and purchase ledger should be same as the control accounts. If the total will not be the same it will be shown in the memorandum or the control accounts. To know about the difference, the firm should investigate and correct the following.

Format

Particulars Amount Particulars Amount
To Balance given by examiner XXX By Adj. for errors XXX
To Adj. for errors XXX Revised Balance C/F XXX
Total Total

Reconciliation of individual receivables balances with control account
Balance as extracted from list of receivables XXX
Adjustments for errors XXX
Revised total agreeing with balance c/f on XXX
control account