Question

list some examples of timing differences and for each difference determine if it would affect the book side of the reconciliation or the bank side of the reconciliation

Answer 1

Nowadays, online transfer or IMPS are common in use but few years back, when cheque payments were made, there was need to reconcile balance in cheque book with balance in pass book by entering temporary differences either on the Bank side or the Book (company) side.

Few Temporary Differences alongwith their treatment are mentioned below:

1. Cheque deposited by the company in the bank and recorded it in cheque book or company’s accounts. However bank generally take 2-3 days for verification and processing of cheque before crediting the amount in bank account. Therefore for the lag or delay 2-3 days, such amount is not presented in the Pass book provided by bank. Hence the temporary difference arises due to mismatch in company accounts and pass book. Now such difference shall be added to the bank side of reconciliation as the entry is already entered in books of company.
2. Cheque issued by company and entered as payments in their books of accounts. However generally cheque has a validity of 3 months. Assuming the receiver of cheque was busy and deposited the cheque after few days for collection and thatswhy such entry is not reflected in pass book. Therefore for the lag or delay 2-3 days, such amount is not presented in the Pass book provided by bank. Hence the temporary difference arises due to mismatch in company accounts and pass book. Now such difference shall be subtracted to the bank side of reconciliation as the entry is already entered in books of company.
3. Generally bank deducts the bank charges such as overdraft charges, Non maintainence of account, low balance etc itself from the bank account at month end without informing us. Hence such amount is reflected in pass book but not entered in to the books of company. Hence the temporary difference arises due to deduction of bank charges by bank. It shall be subtracted to the book side of reconciliation as the entry is already entered in pass book of company.
4. Bank provides interest on deposits made and credit the interest in our account automatically at month/quarter end. Hence such amount is reflected in pass book but not entered in to the books of company. Hence the temporary difference arises due to deposit of interest by. It shall be added to the book side of reconciliation as the entry is already entered in pass book of company.