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ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

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7. METHODS OF BANK RECONCILIATION

There are following two methods of reconciling the bank balances :

 

7.1 BANK RECONCILIATION STATEMENT WITHOUT PREPARATION OF ADJUSTED 

CASH-BOOK

For reconciliation purposes students can take any of the four balances as the starting point and can proceed further with the causes of differences.  Based on the earlier explanation the following table has been prepared for student’s ready reference when reconciliation is done on the basis of ‘Balance’ presentation. The final balance, which will come after addition and subtraction, will be the balance as per the other book.

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

It is proper to prepare a neat statement showing the reconciliation of the two balances. Taking the example given in the para 5.2, the statement may be prepared as follows:

1. ‘Balance’ presentation.

2. ‘Plus & Minus’ presentation.

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

 

Illustration 1 From the following particulars ascertain the balance that would appear in the Bank Pass Book of A on 31st December, 2011.

(1) The bank overdraft as per Cash Book on 31st December, 2011 ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation6,340.

(2) Interest on overdraft for 6 months ending 31st December, 2011 ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation160 is entered in Pass Book.

(3) Bank charges of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation30 are debited in the Pass Book only.

(4) Cheques issued but not cashed prior to 31st December, 2011, amounted to ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation1,168.

(5) Cheques paid into bank but not cleared before 31st December, 2011 were for ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation2,170.

(6) Interest on investments collected by the bank and credited in the Pass Book ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation1,200.
 

Solution

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

The above illustration can also be presented with the column for “Plus” and “Minus.”

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

 

7.2 BANK RECONCILIATION STATEMENT AFTER THE PREPARATION OF 
 ADJUSTED CASH-BOOK

Adjusting the cash-book before preparing the bank reconciliation statement is completely optional, if reconciliation is done during different months. But if reconciliation is done at the end of the accounting year or financial year, the cash-book must be adjusted so as to reflect the correct bank balance in the balance sheet. While adjusting the cash-book all the errors (like wrong amount recorded in the cash-book, entry posted twice in the cash-book, over/under casting of the balance etc.) and omissions (like bank charges recorded in the pass-book only, interest debited by the bank, direct receipt or payment by the bank, dishonour of cheques/bills etc.) by the cash-book are taken into care but delay in recording in the pass-book due to difference in timing (like cheque issued but not presented for payment, cheque deposited but not collected) is taken to bank reconciliation statement. This adjusted cash-book balance is taken to bank reconciliation statement. 

Errors occurred in the pass-book are not to be adjusted in the cash book. All the adjustments considered in the adjusted cash-book are not carried again to the bank reconciliation statement.

 

Illustration 2 On 30th September, 2011, the bank account of X, according to the bank column of the Cash- Book, was overdrawn to the extent of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 4,062. On the same date the bank statement showed a balance of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation1,400 in favour of X. An examination of the Cash Book and Bank Statement reveals the following :

1. A cheque for ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation1,140 deposited on 29th September, 2011 was credited by the bank only on 3rd October, 2011.
2. A payment by cheque for ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation160 has been entered twice in the Cash Book.
3. On 29th September, 2011, the bank credited an amount of  ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation1,740 received from a customer of X, but the advice was not received by X until 1st October, 2011.
4. Bank charges amounting to ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 58 had not been entered in the Cash Book.
5. On 6th September, 2011, the bank credited ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation2,000 to X in error.
6. A bill of exchange forICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation1,000 was discounted by X with his bank. This bill was dishonoured on 28th September, 2011 but no entry had been made in the books of X.
7. Cheques issued upto 30th September, 2011 but not presented for payment upto that date totalled ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation3,760.

You are required : 

(a) to show the appropriate rectifications required in the Cash Book of X, to arrive at the correct balance on 30th September, 2011 and
(b) to prepare a bank reconciliation statement as on that date.
Solution

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

Note : Bank has credited X by 2,000 in error on 6th September, 2011. If this mistake is rectified in the bank statement, then this will not be deducted in the above statement along with ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation3,760 resulting in debit balance of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation600 as per pass-book.


Illustration 3 On 30th December, 2011 the bank column of A. Philip’s cash book showed a debit balance of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation461. On examination of the cash book and bank statement you find that :

1. Cheques amounting to ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation630 which were issued to trade payables and entered in the cash book before 30th December, 2011 were not presented for payment until that date. 2. Cheques amounting to ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation250 had been recorded in the cash book as having been paid into the bank on 30th December, 2011, but were entered in the bank statement on 1st January, 2012.
3. A cheque for ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation73 had been dishonoured prior to 30th December, 2011, but no record of this fact appeared in the cash book.
4. A dividend of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 38, paid direct to the bank had not been recorded in the cash book.
5. Bank interest and charges amounting to ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation42 had been charged in the bank statement but not entered in the cash book.
6. No entry had been made in the cash book for a trade subscription of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation10 paid vide banker’s order in November, 2011.
7. A cheque for ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation27 drawn by B. Philip had been charged to A. Philip’s bank account by mistake in December, 2011.

You are required : (a) to make appropriate adjustments in the cash book bringing down the correct balance, and
(b) to prepare a statement reconciling the adjusted balance in the cash book with the balance shown in the bank statement.
Solution

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

Illustration 4 From the following information, prepare a Bank reconciliation statement as at 31st December, 2011 for Messrs New Steel Limited :

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

Solution

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

Illustration 5 The Cash Book of Mr. Gadbadwala shows ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation8,364 as the balance at Bank as on 31st December, 2011, but you find that it does not agree with the balance as per the Bank Pass Book. On scrutiny, you find the following discrepancies :

(1) On 15th December, 2011 the payment side of the Cash Book was undercast by ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation100.
(2) A cheque for ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation131 issued on 25th December, 2011 was not taken in the bank column.
(3) One deposit of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation150 was recorded in the Cash Book as if there is no bank column therein.
(4) On 18th December, 2011 the debit balance of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation1,526 as on the previous day, was brought forward as credit balance.
(5) Of the total cheques amounting to ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation11,514 drawn in the last week of December, 2011, cheques aggregating ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation7,815 were encashed in December.
(6) Dividends of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 250 collected by the Bank and subscription of ` ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation100 paid by it were not recorded in the Cash Book.
(7) One out-going Cheque of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 350 was recorded twice in the Cash Book. Prepare a Reconciliation Statement.

Solution (If the books are not closed on 31st December, 2011)

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

Illustration 6 The following are the Cash Book and Pass Book of Jain for the month of March, 2011 and April, 2011.

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation
Solution

On scrutiny of the debit side of the Cash Book of March 2011 and receipt side of the Pass Book of April, 2011 reveals that :

1. Two cheques deposited in Bank (Goyal ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation3,300 and Patel ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation6,500) in March were not credited by the Bank till 31/3/2011 and on scrutiny of the credit side of the cash book and payment side of the Pass Book reveals that :

2. A cheque issued to Ramesh for  ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation1,500 in March 2011, had not been presented for payment in Bank till 31/3/2011. Therefore the Bank Reconciliation statement on 31/3/2011 will appear as follows : -

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

Illustration 7 When Nikki & Co. received a Bank Statement showing a favourable balance of  ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation10,392 for the period ended on 30th June, 2011, this did not agree with the balance in the cash book.
An examination of the Cash Book and Bank Statement disclosed the following

1. A deposit of  ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation3,092 paid on 29th June, 2011 had not been credited by the Bank until 1st July, 2011.
2. On 30th March, 2011 the company had entered into hire purchase agreement to pay by bank order a sum of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 3,000 on the 10th of each month, commencing from April, 2011. No entries had been made in Cash Book.
3. A customer of the firm, who received a cash discount of 4% on his account of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation4,000 paid the firm a cheque on 12th June. The cashier erroneously entered the gross amount in the bank column of the Cash Book.
4. Bank charges amounting to ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 300 had not been entered in Cash-Book.
5. On 28th June, a customer of the company directly deposited the amount in the bank ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 4,000, but no entry had been made in the Cash Book.
6. ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation1,200 paid into the bank had been entered twice in the Cash Book.
7. A debit of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 100 appeared in the Bank Statement for an unpaid cheque, which had been returned marked ‘out of date’. The cheque had been re-dated by the customer and paid into Bank again on 5th July, 2011.

Prepare Bank Reconciliation Statement on 30 June, 2011.

Solution:

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

Illustration 8 The bank account of Mukesh was balanced on 31st March, 2011. It showed an overdraft of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation5,000. The bank statement of Mukesh showed a credit balance of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation76,750. Prepare a bank reconciliation statement taking the following into account :

(1) Cheques issued but not presented for payment till 31.3.2011 ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation12,000.
(2) Cheques deposited but not collected by bank till 31.3.2011 ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation20,000.
(3) Interest on term-loan ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation10,000 debited by bank on 31.3.2011 but not accounted in Mukesh’s book.
(4) Bank charges ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation250 was debited by bank during March, 2011 but accounted in the books of Mukesh on 4.4.2011.
(5) An amount of  ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation1,00,000 representing collection of Murukesh’s cheque was wrongly credited to the account of Mukesh by the bank in their bank statement.

Solution :

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

Illustration 9 From the following information (as on 31.3.2011), prepare a bank reconciliation statement after making necessary amendments in the cash book.

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

Solution:

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

Bank Reconciliation Statement as on 31.3.2011

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

The bank balance of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation2,81,850 will appear in the trial balance as on 31st March, 2011.

Illustration 10 On 31st March, 2011 the pass-book of a trader showed a credit balance of ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 1,565, but the pass book balance was different for the following reasons from the cash book balance:

1. Cheques issued to ‘X’ for ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 600 and to ‘Y’ for ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 384 were not yet presented for payment.
2. Bank charged ` 35 for bank charges and ‘Z’ directly deposited ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation816 into the bank account, which were not entered in the cash book.
3. Two cheques one from ‘A’ for ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 515 and another from ‘B’ for ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation 1,250 were collected in the first week of April, 2011 although they were banked on 25.03.2011.
4. Interest allowed by bank ` 45.
Prepare a bank reconciliation statement as on 31st March, 2011.

Solution :

ICAI Notes 3, Bank Reconciliation Statement- 2 Notes - CA Foundation

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