Bank Reconciliation Statement Test - 35

Cash book balance =- Rs. 10,000

Cheques deposited but not credited = - Rs. 2,500

Cheques issued but not encashed = Rs. 3,500

Balance as per pass book = - 10,000 - 2,500 + 3,500 = - 9000 

Overdraft = Rs. 9,000

An overdraft occurs when the balance of the Cash Book becomes negative, indicating that the company has withdrawn more funds than are available in the cash account. In accounting terms, a negative balance in the Cash Book is represented as a credit balance.

A bank reconciliation statement is a document that matches the cash balance on a company's books to the corresponding amount on its bank statement. Reconciling the two accounts helps to determine if accounting changes are needed. The reasons for the difference between the balance on the bank statement and the balance on the books include outstanding checks, deposits in transit, bank service charges, check printing charges, errors on the books, errors by the bank, electronic charges on the bank statement not yet recorded on the books, and electronic deposits on the bank statement that are not yet recorded on the books. Non-reconciliation of bank balance results in non-reflection of true balance of cash with bank.

A Bank Reconciliation Statement is an internal control mechanism used by businesses to ensure the accuracy and completeness of their cash records. It compares the company's cash records, typically recorded in the cash book, with the records provided by the bank in the form of a bank statement.

Through this reconciliation process, any discrepancies between the two sets of records are identified and resolved. This helps in detecting errors, omissions, or fraudulent activities such as unauthorized withdrawals or deposits

Interest and dividends collected by the bank and cheques paid into the bank but not yet collected can both contribute to the time gap in recording transactions in the cash book and passbook. These transactions may take some time to be processed and reflected in the respective books, leading to discrepancies until they are recorded.

Bank reconciliation statement is prepared by taking one of the balances of cash book or pass book, accommodating all the differences between the two and finally arriving at the other balance. Cheque deposited directly into the bank, without recording in the cash book increases the balance as per pass book as compared to cash book. So, when overdraft balance as per cash book is the starting point, a cheque of Rs. 1,00,000 will be added to arrive at the balance as per the passbook.

Cheques deposited amount but not credited by bank = - ₹ 3,800

Cheques issued but not presented by suppliers = ₹ 3,500

His bank balance as per cash book = ₹ 25,000

Balance as per pass book = - 3,800 + 3,500 + 25,000 = 24,700

Balance as per pass book statement is ₹ 24,700.

The balance shown in the balance sheet is of an adjusted cash book. An adjusted cash book refers to the cash book which has been adjusted for the discrepancies and time differences found out while reconciling the cash book and the pass book. So, when the bank balance is reported in the balance sheet it is the reconciled one taken from the adjusted cash book.

When XYZ Ltd. records the Rs. 100 cheque in its cash book and deposits it on the same day, the bank statement sent on that day might not include this transaction yet. Therefore, on the bank reconciliation statement, this discrepancy is shown by adding the uncredited deposit (Rs. 100) to the bank statement balance to reconcile the difference between the two records.

Explicit deposits by the bank holder are typically added when reconciling the cash book with the bank statement. This is because these deposits increase the actual cash balance, which may not have been recorded in the cash book yet. So, when starting with the Cash amount as per the Cash Book, adding explicit deposits brings the records in line with the bank's statement.