Bank Reconciliation Statement Rules

Bank reconciliation statement is a statement which explains the difference between the bank balance in the cash book of the company and bank account maintained with the bank by the company. Bank reconciliation can be a tricky process as it involves many variables which in turn may lead to confusion and that is the reason one should follow some rules before making bank reconciliation statement –

  1. The first and most important rule is that the bank reconciliation statement is prepared by the company and not by the bank.
  2. Another important rule is the starting point because if one is starting with cash book balance then treatment of various items will be different and if one is starting with bank account balance then treatment of various items will be different.
  3. If the individual is taking cash book balance as the starting point then he or she has to adjust or make changes in cash book in accordance with the bank account of the company and if the individual is taking bank account as starting point then he or she has to adjust bank account in accordance with the cash book of the company.
  4. If the balance as per cash book is taken as starting point then items like cheques issued but not presented for payment, interest credited by the bank, deposits made in the bank directly etc.., are added to the cash book balance and items like cheques deposited but not cleared by the bank, cheques which are dishonored but no entry is shown in cash book, interest and other bank charges deducted by the bank etc.., are deducted from the cash balance of the cash book.
  5. If the balance as per bank account is taken as starting point then items like cheques issued but not presented for payment, interest credited by the bank, deposits made in the bank directly etc.., are deducted from the bank account statement and items like cheques deposited but not cleared by the bank, cheques which are dishonored but no entry is shown in cash book, interest and other bank charges deducted by the bank etc.., will be added in the bank account statement.

The need for bank reconciliation system arises only due to difference in date of recording of transactions either by the bank or by the company and that is the reason why at the end of any month the bank balance and cash book balance will not match the only exception being the companies which have single or few transactions with the bank in a month.

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