State the need for the preparation of bank reconciliation statement?
Among other reasons, enlisted below are some of the most important reasons why it is important to prepare a bank reconciliation statement:
Accuracy
Each month, the passbook of the bank and the cash book of a firm, display a particular amount, which is the balance in the bank as on that date. However, due to delay in the recording time and period of the same in the respective books, there is a high possibility that on the day of comparison the balances in the two books would not match.
Hence, having prepared a bank reconciliation statement, one can determine the reasons and amounts by which the two balances differ. This analysis would further help the accountant in recording the missing amounts in each book. Hence, after the preparation of a bank reconciliation statement, the books of accounts would actually display a true and fair position of the firm.
Check on the Entries
In the process of preparing a bank reconciliation statement, an accountant will be able to point out all entries or amounts, recorded incorrectly in either of the books.
Thus, it is quite useful to prepare a bank reconciliation statement, which would help in eliminating any entries recorded erroneously.
Rectifying Incorrect Entries
In case an amount or entry has been recorded incorrectly in both, the passbook and the cash book, the accountant will be able to rectify those entries, so as to arrive at the amount of correct bank balance in the passbook and the cash book.
Updated Cash Book
Again, due to the irregularity in posting the amount of entries in the cash book and due to the delays in the recording of such amounts, it is quite possible that the cash book would fail to show the updated bank balance of the bank as on a particular date. When compared with the passbook, an accountant would be able to identify such entries and record them in the cash book instantly. This would help in reconciling the balances of both the cash book and the bank book instantly.
Detection of Delays
Due to the preparation of the bank reconciliation statement, it is possible to discover any amount of cheques that get deposited in the bank but have aren’t credited.
This difference would be evident because the amount of such deposits would appear in the cash book but not in the bank book, hence giving rise to a difference in the bank balance of both. Thus, cheques deposited but not yet collected can come to notice quickly.
Check on the Dishonest Behavior of Employees
Preparation of regular bank reconciliation statements has several benefits. It would act as a moral check on employees so that they do not indulge in the embezzlement of bank cheques, which would ultimately cause loss to the firm. This is so because even a low-value cheque can come in detection if it has been accepted but not deposited. In this way, a bank reconciliation statement serves a large purpose for a firm’s accounting cycle and people.
Read the following transactions and identify the cause of difference on the basis of time gap or errors made by business firm/bank. Put a sign (✓) for the correct cause.
| S. No. | Transactions | Time Gap | Errors made by business/ bank |
|
1.
3. 4. 5. |
Cheque issued to customer but not presented for payment. Cheque amounting to Rs. 5,000 issued to Interest credited by the bank but yet not recorded by Cheque deposited into the bank but not yet collected Bank charges debited to firm's current account by the |
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Among other reasons, enlisted below are some of the most important reasons why it is important to prepare a bank reconciliation statement:
Accuracy
Each month, the passbook of the bank and the cash book of a ...
Step-by-step explanation:
• Among other reasons, enlisted below are some of the most important reasons why it is important to prepare a bank reconciliation statement:
•
• Accuracy
•
• Each month, the passbook of the bank and the cash book of a firm, display a particular amount, which is the balance in the bank as on that date
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