Table of Contents
- 1 Why a bank reconciliation statement?
- 2 Reasons of difference in bank book and depositor book.
- 3 Cheques issued by the depositor to his client but he has not en cashed the cheque.
- 4 Check deposited in bank yet to collected by bank.
- 5 Check Credited but dishonoured.
- 6 Interest or some collections on behalf of depositor by bank.
- 7 Bank charges interest , collection charges, folio charges without depositor knowledge.
- 8 Errors in Both the books.
What is Bank reconciliation statement. This is an important tool of the Management and Finance department of any organisation in order to utilize the Funds effectively.We all know what is a bank passbook?. This is a book where all transactions of a depositor are recorded. Still bank passbooks are popular in spite of on-line banking and free downloadable bank statement through out their on-line banking account.
Why a bank reconciliation statement?
The balance in bank Ledger book and the depositors account book should agree. But this happens in very rare cases. Difference between bank passbook and depositors ledger is quite common. This is the reason why we are generating bank reconciliation. The major causes of the differences are, these two accounts are handled by two different entity.Bank passbook is handled by banker and the depositors ledger handled by the depositor itself.
Reasons of difference in bank book and depositor book.
There are many reasons why a banker and depositor cannot post transactions in similar way. The important reasons are mentioning below.
Cheques issued by the depositor to his client but he has not en cashed the cheque.
This is one of the major situation where disagreement comes. At the time of issuing check , the depositor enter transaction in his bank account ledger, hence a decrease in his bank account balance. But the person who got the check has not been to bank on the same date. He is collecting the amount after one week of check receipt. This causes difference in bank book and depositors ledger. If the depositor update his passbook on the next day he will find excess balance in his bank account.
Check deposited in bank yet to collected by bank.
Another instance of major difference in passbook and ledger book of depositor is, When the depositor deposit a check received from a client; The depositor debit his bank account on the same day. Hence his balance increases. But bank has sent it for collection process and would take one week for the completion of collection process & credited to the depositor account. during the time when the depositor find a shortfall in his bank account.
Check Credited but dishonoured.
This usually happens when a depositor deposit check into bank account, bank & depositor credited the amount to their respective depositor account on the same day.but the check was dishonoured by other bank due to some reasons like insufficient balances, expiry of instruments and so forth.
Hence bank debited depositor account, but the depositor unaware of the situation for a time being. Hence a difference in depositor account and bank passbook caused.
Interest or some collections on behalf of depositor by bank.
Bank credited some amount like interest on deposit or collected on behalf of depositor like , dividend, pension, subsidy from government. This kind of credits are not came into the depositors knowledge. hence a difference causes.
Bank charges interest , collection charges, folio charges without depositor knowledge.
This is usual things when bank charges interest on facility like overdraft, check collection charges or other account maintenance charges. Bank debit depositor account hence causes differences.
Errors in Both the books.
Books are maintained by human being, errors may happens, for instance posting of debit into credit and reversal, hence the disagreement of books too.
The solution is bank reconciliation statement
To rectify the mismatch, one should analyse the account, the comparison between both the passbook and ledger book can solve the disagreement. Depositor at least compare his deposit ledger with bank passbook once in a month. If the depositor is a business,daily comparison may helps a better financial planning.
There arise the need of Reconciliation statement.
In a business there are huge volume of bank transactions happens, in such cases comparing the passbook and ledger at a glance is not easy or impossible. In such circumstances we can create a statement showing the reason for mismatch and what to do for tallying both the account. In the next chapter we can understand, how to prepare reconciliation statement? & The format of a typical reconciliation statement.