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Introduction

It is a common practice, these days to deposit cash and cheques received with the bank and to make payment through bank. Cash dealings through bank is always safe and convenient. We can open various types of accounts with the bank i.e., fixed deposit account, saving bank account, current account and home safe account etc. The most suitable account for the business is to. open a current account with the bank, where deposits and withdrawals can be made many times a day. The deposits of cash, cheques and drafts are made through ‘pay in slip’ also known as ‘deposit slips’ but withdrawals can be made only through cheques.

The business records all its banking transactions in its three column or bank column cash book, whereas the bank records all the transactions with its customers in its ledger accounts. In other words, we can say that ledger accounts maintained by the bank and cash book prepared by the customer record the same transactions. It seems, therefore, necessary that the bank balance being shown by both the cash book and ledger accounts must be equal. Ledger accounts are maintained by the bank confidentially, so customers cannot be allowed to have an access to the ledger accounts. As the customer needs a copy of the records maintained by the bank regarding his banking transactions, the bank supplies the pass book or statement of account to the customer. Pass book or the statement of account is the copy of the customer’s ledger account maintained by the bank. It facilitates in comparing entries with the bank column Cash book and to verify the records and bank balance.

Though cash book, prepared by the firm and the pass book maintained by the bank should show the same bank balance as both of them have been recording the same transactions but in actual practice, it does not happen. The bank balance shown by cash book and pass book are generally different. The firm would definitely like to know the causes responsible for the difference in the balance. For this purpose a statement is prepared, which is known as bank reconciliation statement.

MEANING OF BANK RECONCILIATION STATEMENT 

Bank reconciliation statement is prepared with a view to find out the causes responsible for the difference between the balances of cash book and pass book and to reconcile their balance.

 The cash book is maintained and possessed by the firm itself but the pass book or statement of customer’s account are prepared by the bank and sent to the customer for information. In this way, both the books are with the customers and he can compare them and verify records at its own convenience. Bank reconciliation statements are prepared by the firm regularly after certain interval. It may be prepared every month, every week or even daily depending upon the number of transactions and the size of firms. While preparing bank reconciliation statement the first step is to identify the transactions which cause difference between the balance of cash book and pass book.