Question

Prepare bank reconcilation statement
Bank balance as per cash book is 100000
• a bank deposit of 2000 was recorded in the cash book as if there is no bank column therein
• a cheque issued for 2500 was recorded as 2050 in the cash column. Bank has made the payment of this cheque

Answer 1

When a business compares the balance of its cash book with the balance shown by the bank passbook, there is often a difference, which is caused by the time gap in recording the transactions relating either to payments or receipts. The factors affecting time gap includes : 5.1.1(a) Cheques issued by the bank but not yet presented for payment When cheques are issued by the firm to suppliers or creditors of the firm, these are immediately entered on the credit side of the cash book. However, the receiving party may not present the cheque to the bank for payment immediately. The bank will debit the firm’s account only when these cheques are actually paid by the bank. Hence, there is a time lag between the issue of a cheque and its presentation to the bank which may cause the difference between the two balances. 5.1.1(b) Cheques paid into the bank but not yet collected When firm receives cheques from its customers (debtors), they are immediately recorded in the debit side of the cash book. This increases the bank balance as per the cash book. However, the bank credits the customer account only when the amount of cheques are actually realised. The clearing of cheques generally takes few days especially in case of outstation cheques or when the cheques are paid-in at a bank branch other than the one at which the account of the firm is maintained. This leads to a cause of difference between the bank balance shown by the cash book and the balance shown by the bank passbook. 5.1.1(c) Direct debits made by the bank on behalf of the customer Sometimes, the bank deducts amount for various services from the account without the firm’s knowledge. The firm comes to know about it only when the bank statement arrives. Examples of such deductions include: cheque collection charges, incidental charges, interest on overdraft, unpaid cheques deducted by the bank – i.e. stopped or bounced, etc. As a result, the balance as per passbook will be less than the balance as per cash book. 2