Bank Reconciliation Statement & Its Objective(s)(Part1)
Posted by: slang in h. Bank ReconciliationAs the company’s bookkeeper, you are recording the transactions in your company’s bank account in the Cash Book. How do you know that all the entries recorded are accurate and also you have taken up all the appropriate transactions? The answers lie in reconciling all the items in your bank account with a statement given by your bank on a regular basis. The statement given by the bank is called a bank statement which gives details of money drawn out and deposits made by your company. The statement that gives the final answers after reconciling the difference between the items in the company’s bank account and the items in the bank statement is known as a BANK RECONCILIATION STATEMENT
From the company’s viewpoint:
- whenever a company deposits money in the bank, the Cash Book is debited and vice versa credited when a firm draws out money.
From the bank’s point of view:
- on the bank statement, the entries are the REVERSE of those in the Cash Book. To the company, a deposit at the bank is an asset and it is recorded as a debit in the Cash Book. But to the bank, a deposit by a customer is a liability as it has to make payment to the customer on demand. So the bank will credit any deposit made by a customer in the bank’s books. A withdrawal of money will be debited in the bank’s books.
Let’s recap:
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Reason For A Bank Reconciliation Statement |
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Due to the timing of the recording of the receipts and payments in the Cash Book from the recording by the bank, very frequently, a Bank Statement balance may not agree with the balance in the Cash Book. Hence, a bank reconciliation statement needs to be drawn up to reconcile the difference in the balance between the Bank Statement and the Cash Book. The importance or the objective(s) of having bank reconciliation statements are as follows:-
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