Question
How is a Bank Reconciliation Statement prepared?
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Answer
Following points should be kept in mind, while preparing Bank Reconciliation Statement:
- Date: The date on which Bank Reconciliation Statement is prepared.
- Balance: Which balance, i.e., that of Cash Book or of Bank Statement or Bank Pass Book, is the basis of bank reconciliation. In this regard it should also be kept in mind that:
- Balance as per Cash Book means the balance as per bank column of Cash Book.
- Debit balance or favourable balance in Cash Book means that the amount is lying deposited in the bank. It is an asset of the firm.
- Credit balance in the Cash Book means overdraft balance, i.e., withdrawals are in excess of deposits. It is a liability of the firm.
- Credit balance or favourable balance as per Bank Statement or Bank Pass Book means that the amount is lying deposited in the bank, it is an asset of the firm.
- Debit balance as per Bank Statement or Bank Pass Book means overdraft balance, i.e., withdrawals are in excess of deposits. It is a liability of the firm.
- Debiting an item in the Cash Book increases Cash Book balance and crediting decreases it.
- Debiting an item in the Bank Statement or Bank Pass Book decreases the Bank Statement or Bank Pass Book balance or increases the overdraft balance and crediting increases the balance or decreases the overdraft balance.
- Preparing Bank Reconciliation Statement: After deciding which entries are to be added to the balance of the concerned book (i.e., the starting balance of Bank Reconciliation Statement) and which entries are to be subtracted, Bank Reconciliation Statement is prepared in a statement form.
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