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Dubai
27 Sep 2021

Bank Reconciliation Statement

A Bank reconciliation statement is a statement that is prepared on a particular date to reconcile the bank balance as per the cash book and bank statement showing the reasons for differences between the two. It ensures that payments have been processed and cash collections have been deposited into the bank. Generally, an accountant processes reconciliation statements once a month, or weekly depending on the volume and value of bank transactions.

 

Some of the common reasons for the differences are:

  • Cheques issued but not cleared in the bank
  • Cheques received is not presented to the bank
  • Bank interest, charges, etc. are not accounted for.
  • The date of cheque issued for payment but the date of debiting the same is different.
  • Banks also can do the mistake in recording the transactions
  • Errors in accounting transactions in the books of accounts

 

Preparing Bank reconciliation statements provides numerous advantages to your company. It can detect errors, fraud, and missing items and make sure that the cash balance as shown in the balance sheet is correct. It is important for the following reasons:

 

  • It helps in identifying the disparities in entries between the passbook and the cash book and helps in knowing the actual bank balance
  • Fraud and theft can be detected. Therefore it discourages the staff from embezzling the corporate assets or engaging in other fraudulent activities
  • It helps in identifying the reasons for the differences in the cash book and pass book
  • It helps in identifying any delay in the clearance of cheques. If any large delay is found the source of delay can be identified and remedial action can be taken
  • It allows you to track the interest payments, fees, or penalties and can record them in your books on a periodical basis
  • It helps you in tracking the receivables where you can identify the receipt entries that you didn’t deposit.