Question

What is a bank reconciliation statement ? Why is it prepared ?

Answer 1

Bank Reconciliation Statement Bank Reconciliation Statement is a statement prepared to reconcile the difference between the balances as per the bank column of the cash book and pass book on any given date.A bank reconciliation is a process that explains the difference between the bank balance shown in an organisation's bank statement, as supplied by the bank and the corresponding amount shown in the organisation's own accounting records at a particular point in time. IN this way,we can say that to reconcile the balances of cash book and pass book, a statement is prepared which is called the 'Bank Reconciliation Statement'.
Need of preparing Bank Reconciliation statement it is neither compulsory to prepare Bank Reconciliation Statement nor a date is fixed on which it is to be prepared.It is prepared from time to time to check that all transactions relating to bank are properly recorded by the businessman in the bank column of the cash book and by the bank in its ledger account.It is generally experienced that when a comparison is made between the bank balances as shown in the firm's cash book, the two balances do not tally.
Hence,we have to first ascertain the causes of difference thereof and then reflect them in a statement called Bank Reconciliation Statement.IN this way to reconcile (tally) the two balances.Bank Reconciliation Statement is prepared.If the two balances differ, the entries in both the books are compared and the items on account of which the difference has arisen are ascertained with the respective amounts involved so that the bank reconciliation statement may be prepared. In this way, bank reconciliation statement helps in detecting, if there is any error in recording the transactions and ascertaining the correct bank balance on a particular date.