Preparation of bank reconciliation statement

Preparation of bank reconciliation statement

After having identified the causes of differences, the reconciliation may be done in the following way:

Bank reconciliation statement can be prepared either from the balance as per cash book or bank statement. If it is prepared from the balance of cash book, the effect of the transaction will be studied on the balance as per bank statement. If it is prepared from the balance as per bank statement, the effect of the transaction will be studied on the balance as per cash book.

Given the causes of disagreement, the balance of one record (cash book or bank statement) can be either more or less compared to the other record (cash book or bank statement).

For example, if the reconciliation is started with debit balance as per cash book and there is a cheque deposited in the bank, but not cleared, the balance as per bank statement will be less. In this case, the amount of cheque should be subtracted from the cash book balance to arrive at the balance as per bank statement. Similarly, after making all the adjustments the balance as per the other book is obtained. It is important to note that the debit balance as per cash book means the credit balance as per bank statement and vice-versa.

To illustrate it further, take an example of bank charges. The balance as per bank statement will be lesser as compared to cash book. This is because, the bank balance has already been reduced with the bank charges, but, it has not yet been recorded in the cash book. In this case, if balance as per cash book is taken to prepare the reconciliation statement, the amount of bank charges has to be subtracted, because the balance as per bank statement is lesser than cash book balance.

Bank reconciliation statement can be prepared on the basis of ‘Balance’ presentation, or ‘Plus & Minus’ presentation

1. Balance presentation method

When balance of cash book or bank statement is given:

Format

The abridged version of the above statement is given below:

If unfavourable balance as per cash book is the starting point, then reverse is the procedure for preparing bank reconciliation statement. This means that, items that are added are to be subtracted and items that are subtracted are to be added.

Based on the earlier explanation the following table has been prepared for ready reference when reconciliation is done on the basis of ‘balance presentation’. The final balance, which is obtained after addition and subtraction, will be the balance as per the other book.

When balances of cash book and/or bank statement is given:

Illustration 1 (When balance as per cash book is favourable)

From the following information, prepare bank reconciliation statement to find out balance as per bank statement on 31st March, 2017.

Solution

Illustration 2

On 31st March, 2018, the bank column of the cash book of Senthamarai Traders showed a debit balance of Rs. 40,200. On examining the cash book and the bank statement, it was found that:

·        A cheque for Rs. 2,240 deposited on 29th March, 2018 was credited by the bank only on 4th April, 2018.

·        A payment made through net banking for Rs. 180 has been entered twice in the cash book.

·        A bill of exchange for Rs. 1,000 was discounted by Senthamarai Traders with its bank. This bill was dishonoured on 30th March, 2018 but no entry had been made in the books of Senthamarai Traders.

·        Cheques amounting to Rs. 500 which were issued to trade payables and entered in the cash book before 31st March, 2018 were not presented for payment until that date.

·        Cheque amounting to Rs. 2,000 had been recorded in the cash book as having been deposited into the bank on 30th March, 2018, but was entered in the bank statement on 3rd April, 2018.

·        Transport subsidy amounting to Rs. 3,000 received from the Government of Tamilnadu directly by the bank, but not advised to the Senthamarai Traders.

·        A sum of Rs. 1,500 was wrongly debited to Senthamarai Traders by the bank, for which no details are available.

·        On 31st March, 2018 the payment side of the cash book was undercast by Rs. 1,200

Solution

Bank reconciliation statement of Senthamarai traders as on 31st March, 2018

Illustration 3 (When balance as per cash book shows overdraft)

From the following information, prepare bank reconciliation statement as on 31st December,2017 to find out the balance as per bank statement.

Solution

Illustration 4

Rony is the proprietor of Veena photos. The bank column of cash account of his business was balanced on 31st March 2018. It showed an overdraft of Rs. 12,000. The bank statement of Veena photos showed a credit balance of Rs. 5,000. Prepare a bank reconciliation statement taking the following into account.

·        The bank had directly collected dividend Rs. 3,000 but was not entered in the cash book.

·        Cheques amounting to Rs. 9,000 were issued on 27th March, 2018, of which, cheques amounting to Rs. 7,000 were not presented for payment before 31st March 2018.

·        The debit balance in the cash book of Rs. 4,100 was brought forward as a credit balance.

·        Cheque book charges of Rs. 200 debited by the bank but not recorded in cash book.

·        Bank locker rent of Rs. 1,000 debited by the bank but not recorded in cash book.

Solution

Illustration 5 (When balance as per bank statement is favourable)

Prepare bank reconciliation statement as on 31st December, 2017 from the following information:

i.            Balance as per bank statement (pass book) is Rs. 25,000

ii.            No record has been made in the cash book for a dishonour of a cheque for Rs. 250

iii.            Cheques deposited into bank amounting to Rs. 3,500 were not yet collected

iv.            Bank charges of Rs. 300 have not been entered in the cash book.

v.            Cheques issued amounting to Rs. 9,000 have not been presented for payment 

Solution

Illustration 6

From the following information, prepare bank reconciliation statement as on 31st December, 2017 to find out the balance as per bank statement.

Solution

Illustration 7 (When balance as per bank statement is an overdraft)

From the following data, ascertain the cash book balance as on 31st December, 2017.

Solution

Illustration 8

The bank statement of Sudha and Company showed an overdraft of Rs. 10,000 on 31st December, 2017, prepare a bank reconciliation statement.

i.            A cheque deposited on 30th December 2017 for Rs. 15,000 was not credited by the bank.

ii.            Interest on term loan Rs. 500 was debited by bank on 31st December, 2017 but not accounted in the books of Sudha and Company.

iii.            A cheque issued for Rs. 550 on 24th December, 2017, paid by the bank was recorded as Rs. 505 in the bank column of the cash book.

iv.            One outgoing cheque on 27th December, 2017 of Rs. 200 was recorded twice in the cash book.

v.            Bank recorded a cash deposit of Rs. 2,598 as Rs. 2,589.

vi.            A sum of Rs. 2,000 deposited in cash deposit machine by a customer of the business on 31st December, 2017 was not recorded in the books of Sudha and Company.

vii.            Interest on overdraft of Rs. 600 was not recorded in the books of Sudha and Company.

viii.            Two cheques issued on 29th December, 2017 for Rs. 500 and Rs. 700, but only the first cheque was presented for payment before 31st December, 2017.

Solution

When an extract of cash book and bank statement is given

When an extract of the cash book and bank statement is given, the following points are to be remembered:

Remember, the starting balance in the bank reconciliation statement can be either cash book balance or balance as per bank statement.

Illustration 9 (When an extract of cash book and bank statement is given)

Given below are the entries in the bank column of the cash book and the bank statement.

Prepare a bank reconciliation statement as on 31st October, 2017.

Solution

2. Plus or Minus presentation

Bank reconciliation statement can also be presented in an alternative method. In such presentation, two columns are given, one to record items that increase the balance (plus items) and the other one to record items that decrease the balance (minus items). Balances as per the cash book or bank statement are written as the starting balance.

Points to be noted:

·        Debit balance of cash book is written in the “Plus” column.

·        Credit balance of cash book (overdraft) is written in the “Minus” column.

·        Debit balance as per bank statement (overdraft) is written in the “Minus” column.

·        Credit balance as per bank statement is written in the “Plus” column.

After the causes of difference are written, the two columns (plus column and minus column) are totalled and the difference is ascertained. The difference is the balance/ overdraft as per cash book / bank statement, as per the given starting point.

Balance as per bank statement is arrived by comparing the total of plus amount and the minus amount. If the plus amount is more than the minus amount, then show the difference amount in minus column. This represents favourable balance as per bank statement.

If the plus amount is less than the minus amount, then show the difference amount in plus column. This represents bank overdraft (unfavourable balance) as per bank statement.

Format of Plus or minus presentation of bank reconciliation statement: