INTRODUCTION TO BANK RECONCILIATION STATEMENT

The word "reconcile ' means 'to make compatible. It frequently happens in
business that two'sets of figures which should agree, for some reason do not. For
example, we might estimate that a certain profit should be made in a given period, but
in fact we fail to achieve this expected profit. A good accountant would seek to
reconcile the two sets of figures, examining the reasons for the discrepancy.

Perhaps the commonest of all such situations is the reconciliation of the Bank Account,
as shown in our ledger, with the Bank Account in the Bank's Ledger, as shown
when the Bank sends us a Bank Statement.

By reconciliation, the Cash Book balance can be proved by comparing it with the Bank
Statement. Bank Reconciliation Statement is an important part of the internal
control system over cash balance lying in the Bank.

At present, the major Indian Banks are in the process of switching to a

computerized system which is changing the way in which Bank Statements are
rendered to customers. However, this is unlikely to affect the need for Bank
Reconciliation Statement.

Aims and Objectives

a. To validate that there are no unrecorded:          

1. checks that cleared the bank

2. deposits that showed in the bank
3. bank debits or credits
4. recorded deposits cleared the bank or in-transit; and cleared in correct amounts
5. cash deposits are recorded intact the following day
6. checks that cleared the bank are valid in amounts
7. other adjustments in the book are valid or need to be adjusted in the books
8. any bank errors or adjustments from previous period are corrected by the bank this month

b. To ascertain that the:

1.   recorded deposits cleared the bank or in-transit; and cleared in correct amounts
2. cash deposits are recorded intact the following day
3. checks that cleared the bank are valid in amounts
4. other adjustments in the book are valid or need to be adjusted in the books
5. any bank errors or adjustments from previous period are corrected by the bank this month 

c. To verify the following:

1. outstanding checks in the bank

 2. deposits-in-transit in the bank
3. sweep investment balance, if any

Explain Bank Reconciliation Statement. Why is it prepared?

Bank Reconciliation Statement is a statement prepared to reconcile the balances

of cash book maintained by the concern and pass book maintained by the bank
at periodical intervals. At the end of every month entries in the cash book are
compared with the entries in the pass book. The causes of differences in balances
of both the books are scrutinized and then reconciliation statement is prepared.
This statement is prepared for a special purpose and once in a month. It is
prepared with a view to indicate items which cause difference between the
balances as per the bank columns of the cash book and the bank pass book at a
particular date.