Bank Reconciliation Statement: Jaiib/DBF Paper 2 (Module B) Unit 4

Dear bankers,

As we all know that  is Bank Reconciliation Statement for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Bank Reconciliation Statement (Unit-4), Principles of Bookkeeping & Accountancy (Module B), Accounting Finance for Bankers-Paper 2.

♦Recording Transactions in cash Book

Record the following transactions in a bank column cash book for December 2019:

♦Cash Book and Passbook

♦Understanding Reconciliation

The Bank statement is received periodically, say every month. We check it for clerical and if any errors are found, we obtain a revised statement containing no errors. The balance is this statement gives us a firm starting point to proceed for:

• Finding out entries which do not requires change in cashbook (these entries are present in the cashbook but not in the bank statement). These entries give us the ‘Adjusted bank balance’.
• Finding out clerical mistake in our cashbook and rectifying them.
• Finding out entries which require change in our cashbook (these entries are present in the statement but not in the cashbook).

♦Preparing Reconciliation Statement

• Based on these 3 steps, we can prepare a statement called “Bank Reconciliation”. It is pertinent to note that step 1 gives the adjusted bank balance which is a national figure and not the actual balance in the account with in bank while step 2 and 3 result in actually changing the balance in the cashbook by correction of errors and posting of missing entries. This cash book balance should be equal to the adjusted bank balance as arrived in step 1. This is balance which goes to the trial balance and balance sheet.

Bank Reconciliation Statement as in___________

♦Need for Preparing a Bank Reconciliation Statement

• Accuracy
• Check on the Entries
• Rectifying Incorrect Entries
• Updated Cash Book
• Detection of Delays
• Check on the Dishonest Behavior of Employees

Example:

The cash book of Mr Abhinav shows Rs 8364 as the balance at the bank as on 31 December 2018, but you find this does not agree with the balance as per the bank pass book, which shows a balance of Rs 15534.

On scrutiny, you find the following discrepancies:

• On 1^st December, the payment side of the cash book was undercast by Rs100
• A cheque of Rs 131 issued on 25^th December, was not taken in the bank column.
• One deposit of Rs 150 was recorded in the cash book as if there is no bank column therein.
• On 18^th December, the debit balance of Rs 1526 as on the previous day, was brought forward as credit balance.
• Of the total cheque, amounting to Rs 11,514 drawn in the last week of December, cheques aggregating to Rs 7815 were encashed in December.
• Dividend of Rs 250, collected by bank and, subscription of Rs 100, paid by it, were not recorded in the cash book
• One out-going cheque of Rs 350 was recorded twice in the cash book.

Rough working: Correction of cash book for errors

The bank reconciliation statement will be as under:

♦How to prepare a Bank Reconciliation statement when extracts of cash Book and Pass Book are given

When the cash book and pass book abstracts are given, the following points should be noted.

• Find out the period for which both the abstracts are given
• Compare the cash book debit side with the pass book credit side and the cash book credit side with the pass book debit side.
• When the period for which both the abstracts are given is common, i.e. the cash book abstract relates to January and the pass book abstract is also given for January, take into account only uncommon entries.
• When the period for which both the abstracts are given is uncommon, i.e, the cash book relates to January but the pass book relates to February, take into account only common entries.
• Where the period is same, uncommon entries will appear in the reconciliation statement.
• When the period is different, common entries will appear in the reconciliation statement.

♦Adjusting The Cash Book Balance

We have learnt that certain entries appear in the pass book first and then by comparing the pass book with the cashbook, these missing entries are incorporated in the cash book. The trader must know the correct bank balance at any time so that he can issue cheques only to the extent of the available bank balance. Therefore, preparing a bank reconciliation statement, the accountant makes the necessary corrections in the cash book and adjusts the cash book balance.

The items, which can usually be adjusted in the cash book are:

• Payment made by bank as per standing instructions.
• Bank charges, interest on bank overdraft debited by the bank.
• Collection of interest in securities and dividend on shares by bank.
• Debits for the dishonor of cheques in the pass book.
• Direct deposits made by customers of the trader.
• Errors committed in the cash book.

♦Advantages of Bank Reconciliation Statement

Following are the advantage of preparing the bank reconciliation statement:

• It helps the management to check the accuracy of the entries made in the cash book.
• It helps to detect errors and to take timely action for the correction of balances.
• It is a very important control technique for the management.
• It shows the correct bank balance at any particular time
• It reveals frauds committed by the staff handling cash and cheques and thus, helps the management to have effective control.

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