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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...
It can help the owner to understand a pattern when it comes to deposits and collections and based on this information, the business is in a better position to formulate its credit and other financial policies.
Conclusion
In short, a bank reconciliation statement is a useful form for businesses to help them to balance their accounting books and to get a better idea of their financial position and policies at any given time.
References
Sofat, Rajini' Hiro, Preeti. (2010). Basic Accounting, Second Edition. New Delhi: PHI Learning Private Limited.
Kimuda, Daniel. (2008). Foundations of Accounting. Nairobi: East African Educational Publishers Ltd.
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