Bank reconciliation statement is a statement that reconciles the
bank account and financial records of an entity. This statement(
for a specific period) outlines the deposits, withdrawals and other
activities that affects the bank account. Bank reconciliation
statement is prepared to find out if there is any discrepancies in
the accounting records of the entity and bank.
Importance of preparing Bank reconciliation statement:
- It helps to identify any error in the accounting record of the
bank or the company.
- It protects the cash ( that is the most valuable asset of an
entity) by providing a control mechanism that uncovers any
irregularities for example: unauthorized bank withdrawals.
- It helps to monitor cash flow of a business.
- If the balance as per cash book and balance as per pass book
matches it states that the transactions are recorded
correctly.
The adjustments and the treatment of the adjustments that needs
to be considered under bank statement and cash book statement:
- Cheque issued but not presented: This happens when a cheque is
issued and sent to the supplier but is not presented in the bank
for payment.
- Interest credited by the bank: It happens when interest has ben
credited by the bank but is not recorded in the books of the
company.
- Cheque deposited but not credited by the bank: This happens
when a cheque is deposited with the bank but that cheque is not
cleared by bank.
- Bank charges not recorded in the cash book: It happens that
bank directly deducts charges such as bank charges which is not
recorded in the books of the company.