REMEDIAL CLASS - 4: BANK RECONCILIATION STATEMENT AND SAMPLE QUESTIONS

21st May, 2020 (DAY 4)

Bank Reconciliation Statement

Meaning and Need of Bank Reconciliation Statement:

Introduction

WATCH THE VIDEO FOR THE CLARITY OF THE CONCEPT OF BANK RECONCILIATION STATEMENT BY CLICKING AT THE LINK BELOW: 

CONCEPT OF BANK RECONCILIATION STATEMENT LINK

Till now, we have observed that the Bank Column of a Cash Book is used to record all the banking transactions of a business. In today’s world, it is a very common to deposit cash and cheques received and to make payments through bank. These transactions are recorded in the customers account by the bank. This detailed list of transactions in form of a statement is given to customer for their reference and is known as Bank Pass Book or Bank Statement.

As the same transactions are recorded in both the books- Cash Book and Pass Book, so their closing balance are usually same but there may be chances that two balances are in contrast.

 This variance may be due to various reasons (discussed in the subsequent lessons). Thus, in order to match the balances of both the books, we prepare a statement termed as Bank Reconciliation Statement. 

 Meaning of Cash Book
As we already know that a Cash Book is a summary of all cash and bank transactions entered by a business during an financial year. Cash Book consists of two columns- Cash and Bank. The Bank Column of the Cash Book records all the banking transactions of the business.



Meaning of Pass Book / Bank Statement
Pass Book is a copy of the Ledger Account maintained by the Bank to record the transactions of its clients. Each customer is issued a separate Pass Book by his/her bank. The credit side of the Pass Book shows receipts of the clients, on the other hand, its debit side shows withdrawals or payments made by the clients.
Bank Account is a Personal Account which follows the rule of “Debit the receiver; Credit the giver”. Thus, when money is deposited into bank, Bank Account is debited as bank is the receiver and the bank credits the customer’s account as the customer is the giver. That is why; the credit side of the Pass Book represents the receipts of customers’.




How Banking Transactions are recorded
Banking transactions are recorded by the following two ways.

(1) Deposits transactions: The deposit of a cheque is recorded on the debit side Bank column of the Cash Book by the client, on the other hand, the bank increases its client's account by recording the deposit on the credit side of the client's account. Thus, all such receipts which are shown on the debit side of the Cash Book are credited to the client’s account in the Pass Book.

(2) Withdrawals/Payments transactions: The withdrawal or payments through cheques are recorded by the client on the credit side Bank column of his/her Cash Book. On the other hand, bank reduces the client's account by recording the withdrawals on the debit side of the client's account. Therefore, payments are recorded on the debit side of the Pass Book.

Therefore, it can be concluded from above discussion that all entries of Cash Book and Pass Book are more or less same but debit entries of Cash Book are shown on the credit side of Pass Book and vice versa.

At what time Transactions are recorded in the books (Cash Book and Pass Book)
Timing of recording transactions in the Cash Book and in the Pass Book need not to be necessarily the same. This is because in Cash Book, we record transactions at the time of their occurrence, whereas, in the Pass Book, transactions are recorded when cheque is cleared by the bank. For example, cheque issued to a supplier is recorded on the credit side of the Cash Book on the date when it is issued. However, in the Pass Book, this cheque is recorded on the debit side of customer's account on the date when cheque is presented as well as cleared by bank.

Meaning of the Bank Reconciliation Statement (BRS)

BR Statement is prepared to match the differences in the two balances- Bank balance as per Cash Book and Bank balance as per Pass Book/Bank Statement on a particular date. It is a statement that lists out the reasons of such differences between the two books and also facilitate to reconcile these differences.

SAMPLE QUESTIONS IN MCQ FORM (AS DESIRED BY STUDENTS)

1.Which of the following equation is incorrect? 

1.Capital = Assets - Liabilities

2.Liabilities = Assets + Capital

3. Liabilities = Assets - Capital 

4. Assets = Capital + Liabilities

Ans. 2

2. A ______IS SENT TO A SUPPLIER WHEN WE RETURN GOODS. 

DEBIT NOTE 

CREDIT NOTE 

PROFORMA INVOICE 

NONE OF THESE

ANS. DEBIT NOTE

3. Purchase of furniture on credit should be recorded in:

 Journal
 Purchase book 
Cash book
Journal Proper

Ans:  journal proper

4. Find out the bank balance as per cash book from the following particulars:
 overdraft as per pass book 5000 cheques paid into the bank but not credited 2000.

 Favourable balance 3000 
Overdraft 3000 
Favourable 7000
Overdraft 7000 

Ans. overdraft 3000