Bank Reconciliation Statement Test - 33

Interest on balance would require an adjusting entry if appearing on a bank reconciliation, because outstanding cheques and deposits in transit are merely time differences which would get cleared automatically and adjusted cash balance is already taken care for the errors. Whereas interest on balance would be cleared only when an entry for the same is passed in the cash book.

Cheques deposited amount but not credited by bank = - Rs. 4000

Cheques issued amount but not presented by suppliers = Rs. 3,600

Her bank balance as per Cash Book = Rs. 24000

Balance as per pass book = - 4000 + 3,600 + 24,000 = Rs. 23,600

If the overdraft balance is deducted from the cash book balance, the corrected balance will be the actual balance available in the account. Therefore, in this case, Rs. 5,000 needs to be added to the cash book balance to adjust for the double debit in the pass book.

Debit balance as per cash book: Rs. 1500

Cheque deposited but not cleared: Rs. 100

Cheque issued but not presented: Rs. 150

Adjusted balance = Cash book balance + Cheques deposited but not cleared - Cheques issued but not presented

Adjusted balance = Rs. 1500 + Rs. 100 - Rs. 150

Adjusted balance = Rs. 1550

A bank reconciliation statement compares the bank statement (passbook) provided by the bank with the company's cash book (also known as a cash ledger or cash account). The purpose of this reconciliation is to identify any differences between the two records. These differences can arise due to transactions recorded by the bank but not yet recorded in the company's books (such as bank fees or interest earned), as well as timing differences and errors in recording transactions. By comparing the cash book with the bank statement, discrepancies can be identified and resolved, ensuring the accuracy of the company's financial records.

When an amount is debited twice in the bank column of the cash book the pass book balance would be showing a lower balance so, in order to reconcile we would have to add the amount to the pass book balance.

Example:

Credit Balance as per passbook                                     Rs. 5000

Add: Cheque received debited twice in cash book        Rs. 2500

Debit balance as per bank column of cash book           Rs. 7500

If any amount is directly deposited into the bank, then cash book will show more balance and bank book will show less. This is because the cash book records the transactions as they occur, so a direct deposit into the bank increases the cash balance according to the company's records. However, since this deposit bypasses the company's physical cash holdings, the bank's records will reflect the increase, but the company's cash book won't show a corresponding decrease.

When the extracts of the Cash Book and Pass Book are given for the same period, only uncommon items are considered for the preparation of the Bank Reconciliation Statement. In this process, only items that are not common between the two records are considered. These uncommon items are the ones that cause discrepancies between the Cash Book and the Pass Book balances. For example, outstanding checks, deposits in transit, bank charges, and interest earned may be recorded in one record but not yet reflected in the other. These are the items that need to be adjusted for to ensure the balances in both records match.

Bank Reconciliation Statement

as on March 31, 2022

An amended cash book is prepared by taking cash book balance as the starting point and then rectifying any entries that affect the cash balance.

• Cheques issued but not presented for payment.
• Cheques deposited but not credited by bank.
• Any wrong entry in the pass book.

 All the above adjustments do not affect the cash balance rather they affect the bank balance as per pass book and cash book and so all of the above entries will not be considered while preparing an amended cash book.