JAIIB AFM Module-A Unit 4 : Bank Reconciliation Statement

16/08/2023

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JAIIB Paper 3 AFM Module A Unit 4 : Bank Reconciliation Statement (New Syllabus)

IIBF has released the New Syllabus Exam Pattern for JAIIB Exam 2023. Following the format of the current exam, JAIIB 2023 will have now four papers. The JAIIB Paper 3 (Accounting and Financial Management for Bankers) includes an important topic called “Bank Reconciliation Statement”. Every candidate who are appearing for the JAIIB Certification Examination 2023 must understand each unit included in the syllabus. In this article, we are going to cover all the necessary details of JAIIB Paper 3 (AFM) Module A (ACCOUNTING PRINCIPLES AND PROCESSES ) Unit 4 : Bank Reconciliation Statement Aspirants must go through this article to better understand the topic, Bank Reconciliation Statement and practice using our Online Mock Test Series to strengthen their knowledge of Maintenance of Bank Reconciliation Statement. Unit 4 : Bank Reconciliation Statement

Recording Transactions in cash Book

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

		₹
01	Started business with cash	80,000
04	Deposited in bank	50,000
10	Received cash from Abhinav	1,000
15	Bought goods for cash	8,000
22	Bought goods by cheque	10,000
25	Paid to Alpa by cash	20,000
30	Drew from Bank for office use	2,000
31	Rent paid by cheque	1,000

Cash book
Dr.					Cr.
Date	Receipts	L.F.	Cash ₹	Bank ₹	Date	Payments	L.F.	Cash ₹	Bank ₹
2019					2019
01 Dec	Capital		80,000		04 Dec	Bank	C		50,000
04 Dec	Cash	C		50,000	15 Dec	Purchases		8,000
10 Dec	Abhinav		1,000		22 Dec	Purchases			10,000
30 Dec	Bank	C	2,000		25 Dec	Alpa		20,000
					30 Dec	Cash	C		2,000
					31 Dec	Rent			1,000
					31 Dec	Balance c/d		5,000	37,000
			83,000	50,000				83,000	50,000

Cash Book and Passbook

BASIS FOR COMPARISON	CASH BOOK	PASSBOOK
Meaning	A book that keeps a record of cash transactions is known as cash book.	A book issued by the bank to the account holder that records the deposits and withdrawals is known as passbook.
Prepared by	Firms	Bank
Side affected	Receipts will be shown in the debit side while payments are entered in credit side.	Deposits will be shown in credit side while withdrawals are shown in debit side.
Preparation	Discretionary	Compulsory
Recording of cheque deposited for collection	Date of deposit	Date on which the amount is actually collected from the debtor’s bank
Recording of cheque issued to the creditor	Date of issue.	When the amount is paid by the bank to the creditor.
What do the balances reflect?	Debit balance shows cash at bank while the credit balance shows overdraft.	Debit balance shows overdraft while the credit balance shows cash at bank.

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___________

Closing balance in bank statement

Adjustments to the balance in the bank statement

(a)Add: cheque deposited but not yet credited

(b)Subtract: Cheque issued but not presented to the bank for payment

Adjusted balance in the bank statement

Rs…………………………………..

Rs ……………………….

Rs ………………………………..

Rs ………………………. A

Balance as per cashbook

Adjustment made to cashbook

(a)Add or subtract: clerical errors

(b) Add: Credit entries shown in the bank statement but not appearing in cash book

(c)Subtract: Debit entries shown in the bank statement but not appearing in cashbook

Adjusted (corrected) cashbook balance

Rs…………………..

Rs. ………………..

Rs………………….

Rs. ………………………

Rs. …………………….B

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

Item	Debit	Credit
Deposit entry (shown in cash column)	150
Wrong carry forward of balance	3052
Outgoing cheque recorded twice	350
Undercasting payment side		100
Cheuqe issued		131
Total	3552	231

The bank reconciliation statement will be as under:

Closing balance in bank statement

Adjustments to the balance in the bank statement

(a)Add: cheque deposited but not yet credited

(b)Subtract: Cheque issued but not presented to the bank for payment

Adjusted balance in the bank statement

Rs 15534

Rs 3699

___________________________

Rs 11835 A

Balance as per cashbook

Adjustment made to cashbook

(a)Add or subtract: clerical errors

(b) Add: Credit entries shown in the bank statement but not appearing in cash book

(c)Subtract: Debit entries shown in the bank statement but not appearing in cashbook

Adjusted (corrected) cashbook balance

Rs 8364

Rs. 3321

Rs. 250

Rs. -100

_______________________

Rs. 11835 .B

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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JAIIB AFM Module A Unit 4- Bank Reconciliation Statement (Ambitious Baba)