MGT101 New Study Material Modules 1-18 Set 2

CHAPTER - 7 · BANK RECONCILIATION STATEMENT (BRS) · Sr. · No Course Outline Topics · Basic Concepts of Bank Reconciliation

Possible reasons of differences - Those need adjustment in cash book

Possible reasons of differences - Those need to be presented in BRS

Practice - Given: Both Balances

Practice - Given: Previous BRS, current cash book and current bank

statement

Practice - Given: Previous cash book and current bank statement

BRS – Accounting Entries · Topic 062 – 068 are included in this chapter. · Basic concept of Bank Reconciliation

It is a professional responsibility of an accountant to keep cash book balances updated in conformity with the balances as per the record maintained by bankers. Both entities i.e., Business (as a bank account holder) and Bank (in which business funds are kept), maintain proper books of accounts to record transactions between business and the bank. These transactions mainly include; deposit of money in the bank and withdrawal of money from the bank. Accountant of the business, who maintains cash book, prepares a bank reconciliation statement on a specific date, normally at the end of each month. In this statement the reasons causing difference among the balance as per cash book and balance as per bank statement are presented. These reasons arise because of timing difference, whereas for some reasons adjustments are required to be made by bankers in their records. Sometimes, while tracking transactions in the bank statement; accountant of the business comes across certain reasons of differences for which adjustments are required to be made within the cash book. These reasons may include wrong accounting treatment of banking transactions in the business records or omission of certain transactions with bank. It is important to know the nature and behavior of two balances before unfolding the possible reasons of difference among the two balances.

Balances as per: · Deposit account · (Favorable for the · entity/business) · Overdraft account (Unfavorable for the entity/business)

Business Record _ Cash Book (Bank Column) _ Bank a/c _ Bank Book Dr. Entity’s Asset Cr. Entity’s Liability

Bank Record _ Bank Statement _Pass Book Cr. Bank’s Liability Dr. Bank’s Asset

Important Tips to Remember (ITTRs):

1. Deposit account does not mean fixed deposit or time deposit account.
2. There are two types of deposit account: (i) Fixed/Time Deposit Account. (ii) Demand Deposit Account.
3. BRS is prepared for demand deposit accounts only. These may be: (i) Current Account, and (ii) Profit and Loss Sharing Account, also known as Saving Account.
4. Transactions take place frequently in demand deposit accounts.
5. Time deposit accounts are kept for fixed period.
6. Further deposits and withdrawals are not made in time deposit account till its maturity.