A Bank reconciliation statement is a statement prepared mainly to reconcile the difference between the ‘Bank balance’ shown by the cash book and bank passbook. Here are the bank reconciliation statement class 11 notes.
Topics Discussed
Causes of Difference in the Cash Book and Pass Book Balance
1) Differences caused by Time Gap in Recording Transactions
- Cheques issued but not yet presented for payment in the bank: When a cheque is issued to a creditor by the firm, it is immediately recorded on the credit side of the bank column of the cash book.
- Cheques paid into the bank for collection but not yet credited by the bank: When a firm receives cheques, drafts, etc. from its customers, they are immediately deposited into the bank for collection and an entry is made on the debit side of the bank column of the cash book.
- Cheques paid into the bank for collection but dishonored by the bank: When the cheques received from outside parties are deposited with the bank, these are immediately recorded on the debit side of the bank column of the cash book, but if the cheques are dishonored, the bank will not make any entry in the credit of customer’s account.
- Interest allowed by the bank: If a trader maintains a savings bank account, the bank allows a certain percentage of interest on the minimum balance of each month in such an account.
- Interest charged by the bank on overdraft: When a bank gives a firm the facility of withdrawing more than its deposits, this excess withdrawal is called an overdraft.
- Bank charges and commission charged by the bank: The Bank renders many services to its clients and charges a certain amount for these services.
- Direct deposit by customers into the bank: Some customers may directly deposit the amount in the firm’s bank account.
- Interest and dividend collected by the bank: Sometimes bank collects interest and dividends on customers’ investments.
- Direct payment made by the bank on behalf of customers: Sometimes an account holder gives a standing order to the bank to make certain payments such as insurance premiums, rent, etc.
2) Differences caused by Errors Committed in Recording Transactions:
| Errors committed in recording transactions by the firm | Such errors may be: i) Cheques issued to a creditor but omitted to be recorded in the Cash Book. ii) Cheques deposited into the bank but omitted to be recorded in the Cash Book. iii) Error in totaling or balancing the bank column of the Cash Book. |
| Errors committed in recording transactions by the bank | Sometimes the bank commits an error and records a wrong entry in the customer’s account which causes a difference between the bank balance shown by the cash book and the balance shown by the passbook. |
Need & Importance of Bank Reconciliation Statement
- A bank reconciliation statement locates the errors or omissions that may have been committed either on the part of the customer or the bank.
- By preparing a bank reconciliation statement, the customer becomes sure of the correctness of the bank balance shown by the cash book.
- A reconciliation statement facilitates the preparation of a revised cash book.
- Periodic preparation of this statement reduces the chances of embezzlement by the staff of the firm or even that of the bank.
- A reconciliation statement helps in revealing the unnecessary delay in the collection of cheques by the bank.
- It also helps in keeping track of cheques which have been sent to the bank for collection.
Why Presentation is more than Knowledge in Exams?
Procedure of Preparing Bank Reconciliation Statement
A bank reconciliation statement can be prepared by taking the balance either as per cash book or as per pass book as a starting point.
If the statement is started with the balance as per the bank column of the cash book, the answer arrived at in the end will be the balance as per the passbook.
The balance as per cash book may be either debit or credit and similarly, the balance as per pass book may also be either debit or credit:
- Debit balance as per cash book indicates that the trader has a large balance of deposit at the bank.
- Credit balance as per cash book indicates the amount which has been withdrawn in excess of the deposits.
Credit balance as per cash book is also called ‘Overdraft Balance as per Cash Book’. - Credit balance as per pass book indicates that the trader has a large balance of deposit at the bank.
- Debit balance as per pass book indicates the amount which has been withdrawn in excess of the deposits. Debit balance as per pass book is also called ‘Overdraft as per Pass Book’.
A bank reconciliation statement can be started from any of the balances mentioned below:
- Dr. balance (Favourable balance) as per Cash Book.
- Cr. balance (Unfavourable balance) as per Cash Book.
- Dr. balance (Unfavourable or Overdraft balance) as per Pass Book.
- Cr. balance (Favourable balance) as per pass book.
Format of Bank Reconciliation Statement
When Debit balance as per Cash Book is taken as a starting point:
| Particulars | Plus Items (Rs.) | Minus Items (Rs.) |
| Dr. balance (Favourable balance) as per Cash Book Add: i) Cheques issued or drawn but not yet presented for payment: xx ii) Interest allowed by the bank not recorded in Cash Book: xx iii) Amount directly deposited by the customers in our bank account: xx iv) Interest and dividends collected by the bank on trader’s investment: xx v) Cheques paid to the bank but omitted to be entered in the cash book: xx vi) Any wrong credit given by the bank in the passbook: xx | xx xx | |
| Less: i) Cheques paid to the bank for collection but not yet credited by the bank: xx ii) Cheques paid into the bank for collection but dishonored by the bank: xx iii) Direct payment made by the bank according to the standing instructions of customers: xx iv) Bank charges and commission charged by the bank: xx v) Cheques issued but omitted to be recorded in the cash book: xx vi) Any wrong debit given by the bank in the passbook: xx | xx | |
| Total | xx | xx |
| Cr. Balance (Favourable balance as per Pass Book) | xx |
These are the Bank Reconciliation Statement Class 11 Notes. If you have any doubt, you can ask in the comments. You can join our telegram group if you want to get free book PDFs, Notes, Solutions, Previous Year Question Papers, and more from here: https://t.me/commerceclarity24