Generally Bank gives a small books to its customer
in which the transactions made by us(customer) with bank are recorded. This
small book is known as Bank Pass Book. It contains a copy of the customer
account at bank. The balance shown by the bank passbook should agree with the
bank balance shown by cashbook. However, often there is a difference even if
there is no mistake. The difference is due to following reasons:
i. Cheques received are entered in
the cash book as soon as they are received, however the same has not deposited
in to bank.
ii. The received cheque has been
deposited into bank but the cheque has not been realised and the bank has not
given a credit to the customer. In this case, the cash book will show more
balance than what the bank shows in the customer’s account.
iii. When the Cheques are issued to
the other, the entry for issuing a Cheque is recorded in cash book but the
person who received a cheque did not present the cheque into bank for payment,
this means that the bank shows a higher balance in favour of the client than
what the cashbook of the client shows.
The bank often makes some bank charges for services it renders. If there is an
overdraft, the bank will also charge interest. These bank charges and interest
are recorded in the passbook and the entry is generally made in cashbook only
when the passbook is received.
v. Sometimes the bank is entrusted
with the task of collecting interest on securities or dividends on shares or
even the collection of amounts due on bills of exchange or promissory notes.
The bank will credit the customer as soon as the amounts are received but the
entry by the customers in the cashbook must await receipt of information by the
customer from the bank.
vi. The bank may also make payments
according to the standing instruction of the client or in respect of any
special instruction such as presentation of documents for supply of goods for
which a letter of credit has been opened previously. Entries in the cashbook in
such cases are made on receipt of advise from bank.
To know the reason or differences between
balances shown by the bank pass book and that shown by the in cashbook on a
particular date and to be sure, that no mistakes have been committed there must
be statement. The statement is known as the bank reconciliation statement. It
helps management to check the accuracy of the entries made in the cashbook and
keep track of checks, e.t.c. which may have been sent to bank for collection.
The bank reconciliation statement can be prepared starting from the bank
passbook balances as well as cashbook balances.
Preparation of the Bank
Take the cash book or the pass book balance and
then see what has been done or not been done in the other book. Thus if we
start from the pass book balance, we must see what has been or not been done in
the cash book. Then work out the balance as if the entries passed in the cash
book had also been passed in the pass book and the entries not passed in the
cash book had also been removed from the pass book. If we start from the cash
book, we should follow the pass book entries.
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