Bank Reconciliation Statement What Is

¶ … Bank Reconciliation Statement What is a Bank Reconciliation Statement? Accounting entries are made at different times in different places. This is most evident in the entries made at the bank and by individuals or businesses in their personal cash registers. This leads to discrepancies at the end of the accounting term and the balance at the bank and cash books do not tally. To avoid this discrepancy, certain adjustment entries are made.

In most cases, a statement or form is prepared to reconcile the differences that exist between the bank pass book and the personal cash book and this statement is known as Bank Reconciliation Statement. "The statement which is prepared for reconciling the balances of cash book and pass book is called a Bank Reconciliation Statement" (Sofat & Hiro, p.333). The Bank Reconciliation Statement is prepared to show the differences that exist between the bank pass book and the bank column of the personal cash book.

It is usually prepared after the bank sends the pass book back to the owner or business with the updated entries. In some cases, it is done after the account holder receives the bank statement at the end of a financial period or cycle. Purpose of a Bank Reconciliation Statement A Bank Reconciliation Statement is prepared to understand the causes of differences between the bank pass book and the bank column of the cash book.

The purpose of a bank reconciliation statement has increased in importance during the last few decades and this is primarily due to the accounting procedures involved in the handling of a dishonored check. This makes the Bank Reconciliation Statement important for businesses that routinely use checks to make deposits and payments. It helps these businesses to identify the errors and discrepancies that take place over a short period of time, such as one month and this is easier than reconciling all the entries at the end of the financial year.

It is particularly useful in the following situations: Understanding the differences The primary objective of a bank reconciliation statement is to understand the differences and make the necessary corrections to ensure that both the books reflect the same balances and entries.

Some reasons for differences arise due to checks that are issued but are not yet presented by the receiver, checks that have been sent for collection but are not yet collected, bank fees and charges, checks dishonored by the banks, interest paid by the bank on the balance, direct payments made into bank, cash payments and bills that are rebated by the bank. To avoid these discrepancies, a bank reconciliation statement is prepared.

To avoid manual errors and frauds Another reason for the preparation of a bank reconciliation statement is to identify any frauds committed by the accounting staff. A staff could make an entry in the bank column of the cash book, but may fail to deposit the check in the bank due to negligence or with an intent to fraud. This statement also helps to keep a watch over the activities of the accounting staff and ensure that they are honest towards the business.

Any manual errors made by the staff can also be identified.