Bank Reconciliation Statement Video Lecture - Commerce

Hey! welcome to a new accounting session.
So far we covered how postings are done from
a journal to a ledger.
But are we sure that whatever we have done
so far is true ? is correct � Not sure there
may always be clerical/human errors ..We can
check this internally by going back to source
documents and verifying each and every thing
. Once it is correct from our end .. how do
we double check.... we have to reconcile with
third party .... Because there may be a mistake
in internal evidence �
Let me tell you some problems that Daniel
faced this month with his bank related records
even when he checked all his internal evidences.
1.He was checking his bank ledger A/c and
remembered he was to receive certain amount
from a customer, but it has still not been
received.
He called the customer and reminded him for
payment but they said that they had already
deposited the amount in Daniel�s bank A/c
2.
He also saw that in his ledger that he had
paid MR B ..But Mr. B said had still not received
this amount.
3.
He had also to receive interest on his fix
deposit �But he was not sure if it has come
into his bank A/c
So what do you think is the problem here??
Daniel had not confirmed his records with
the external party that is the bank to see
if this money had really come into his account
or deducted from his A/c.
So Like we get external confirmation from
debtors and creditors to reconcile balances
with them, In the same manner, we need to
reconcile our records with the bank .
BANK BOOK AND PASSBOOK
So To check such transactions ,A bank needs
to send its customers a regularly updated
statement showing how his account stands in
their books �This statement is called as
the Passbook or the Bank Statement.
If Daniel would have compared his bank A/c
in his ledger or his bank subsidiary book
to the bank passbook he would have found out
exactly how much amount has the bank debited
or credited.
� This bank A/c ledger or Bank book is bank
a/c. in our books of a/c. whereas bank passbook
or a bank statement is nothing but our account
in the books of bank
� These two books generally show a difference
in amounts even if there is no mistake just
because of processing time or sometimes no
intimation from the bank .. sometimes due
to errors and omissions.
� These delays usually do not matter as
sooner or later entries are made both by the
bank and by the business
� So ideally bank book and pass book should
be like mirror image reflecting all entries
in both the books �.
But like we said they both will not be matching
on a particular date so there must be a statement
just to explain this difference or reconcile
this difference even if there may be no mistake
.. Such a statement is called the �bank
reconciliation statement� .It can be prepared
weekly, monthly,or quarterly depending on
the number of bank transactions.
This is a very important step to perform before
finalizing annual accounts..
So let�s take a look at our bank book and
the bank passbook
We see that the balances are not matching.
To travel from point A to point B ..to reconcile
.We have to to copy or mimic or repeat what
the bank has done .. just follow their footsteps..We
are not making any changes in any of the books
just preparing this BRS statement to bridge
the gap..to check for accuracy and explain
this difference.
so we have to think like an accountant from
the business point of view ..
So we will write down the balance we have
as per our cash book (1575) ..we generally
write negative numbers in accounting in brackets
instead of writing the minus sign for convenience
and to avoid calculation mistakes.
..We have to reach to the balance 225.
How do we read the bank book ..as we debit
what comes in .. debit sides are deposits
whereas we credit what goes out so all the
amounts on credit side will be our payments
�and on this passbook it is the opposite
withdrawals are on the debit side and deposits
are on the credit side because �(when we
deposit cash in bank �Bank becomes receiver
from our point of view so we debit bank �
But from bank�s point of view we are their
givers so they credit our A/c (debit receiver
credit the giver)
Okay coming back ..we deposited cash 500 . .Bank
to cash is the entry �in both the books
..then we paid for wages 200(the balance reduces
in both the books).. we withdrew again for
drawings 600 (balance is reduced even more)
it has gone in minus as we have used excess
amount than what was in our bank .This is
called as an overdraft facility where up to
a limit excess amount can be withdrawn from
our account for a fee .. (may be given to
some current A/c holders) So far the entries
are same in both books.
1.On 19th there is an entry in the pass book
which is not in bank book we got a direct
deposit from a third party for 1,000 and we
did not get intimation so we did not record
that in bank book ...
Since the balance in our passbook has increased
we should also add this amount 1000 in the
statement.
We are just copying them.
REASON: This is a Direct deposit in bank .. not
recorded in bank book
2.On the 24th there is again withdrawal of
675 to pay for purchases.
this is same in both books
3.On 25th payment is made to supplier Harry
traders by check but this is not in our passbook.
What could this mean?
This means a check was issued to Harry Traders
but he may have still not presented the check
in his bank so the check is still not cleared.
This means the passbook balance has not been
affected yet..
But we credited it in our bank book�so to
cancel out this effect to match their balance
we will give debit effect means add it in
the statement.
REASON: So this was a check issued but not
presented for payment.
4.What is next on 26th bank has charged us
a fee and they deducted the amount directly
no intimation so it is not recorded in our
bank book.
now that we have checked the passbook we know
that bank has reduced our balance by charging
a fee so we have to subtract this in our statement
REASON: Bank charges not recorded in bank
book �bal negative 25
5.ON 26th the bank has directly deposited
250 as interest on Fix deposit directly.
So again after confirming with passbook we
know that bank balance has increased so we
add this 250 .
REASON: Interest on fix deposit credited in
passbook .Not recorded in bank book
Now we have the same results as our passbook.
Balance is 225 �.We have reached our desired
point B ..which means our balances have been
reconciled with the bank.
So let�s quickly revise the Reasons we saw
for mismatch and how it showed on our reconciliation
statement
With this we now are clear with the various
reasons of difference in both books and the
need to prepare reconciliation statement before
proceeding .Now we will need to go back to
all our books journal and ledger and pass
the necessary entries for which transactions
took place and intimation was not given.