Question

A bank reconciliation is prepared by the ___________.

• A. bank
• B. creditors
• C. business entity
• D. supplier

Answer 1

The correct option is C business entity

A business entity maintains cash book for recording cash and bank transactions. The cash book serves the purpose of both the cash account and the bank account. It shows the balance of both at the end of a period.

Bank also maintains an account for each customer in its book. All deposits by the customer are recorded on the credit side of his/her account. A copy of this account is regularly sent to the customer by the bank. This is called 'Pass Book' or Bank Statement.

Sometimes the bank balances as shown by the cash book and that shown by the pass book/bank statement do not match. If the balances shown by the pass book is different from the balance shown in cash book, the business entity will have to identity the causes for such difference. It becomes necessary to reconcile them and for this a statement is prepared which is called the "Bank Reconciliation Statement."