The purpose of a bank reconciliation statement is to check the accuracy of an organisation’s bank account record by comparing it with the record of the account held by the bank. In Chapter 8 we saw that there is often a timing delay between the transaction occurring (and therefore being recorded in the cash book) and it being processed by the bank. It is this timing difference that is usually the cause of any difference between the balances. However, there are some transactions of which the organisation will not be aware until they receive their bank statement. These include bank charges, commissions and dishonoured cheques (where the drawer’s bank has refused to honour the cheque drawn upon it), and may also include direct debits and standing orders if the account holder has not been separately notified of their being paid.
In order to ensure that both the bank’s and the organisation’s records are correct a comparison is made of the two sets of records and a reconciliation statement produced.
SIGNIFICANCE OF BANK RECONCILIATION STATEMENT
(i) It highlights the causes of difference between the bank balance as per cash book and the balance as per pass book. Necessary adjustments can, therefore, be carried out at an early date.
(ii) It reduces the chance of fraud by the staff dealing in cash.
(iii) It acts as a moral check on the staff of the organization to keep the cash records always up to date.
(iv) Bank balance as per cash book cannot be accepted as final unless it is supported by statement of passbook. When these two balances do not tally, reconciliation becomes essential to determine the correct bank balance that can be used while finalizing the accounts.
(v) It helps in finding out actual position of the bank balance.