A Bank Reconciliation is a process that explains the difference between the bank balance shown in an organizations bank statement, as supplied by the bank, and the corresponding amount shown in the organizations own [accounting] records at a particular point of time.”(Carl S. Warren). Copy the link given below and paste it in new browser window to get more information on Bank Reconciliation Statement:- http://www.transtutors.com/homework-help/accounting/bank-reconciliation-statement.aspx

2. Definition of Bank Reconciliation
Statement
Bank Reconciliation Statement helps in reconciling the
bank balance as per cash book with the balance as per
pass book by showing the difference between the two
It is a very important financial internal control to
detect fraud
After finding the reasons for their differences a
reconciliation is prepared and presented in the form of
a statement known as the Bank Reconciliation
Statement

3. Differences can arise due to many reasons:
a) Cheque issued but not deposited by the customers
b) Cheque deposited in the bank, but not yet cleared
c) Direct payment by bank as per standing instructions
d) Penalties/charges/interest levied by the bank without
intimation to the firm
e) Wrong posting/wrong entry

4. Purpose of Bank Reconciliation
Statement
It detects the frauds and error in the cash and bank
book. It also observes if any customer cheques have
bounced, or if any cheques issued were altered or
even stolen and cashed without our knowledge. The
main purpose of bank reconciliation statement is to
detect fraud. It becomes necessary to reconcile it on
daily basis to prevent fraud

5. Importance of Bank reconciliation
Statement
Bank Reconciliation Statement is a very important tool
as it detects errors, frauds, and irregularities in the
cash or bank book
Reconciliation helps in regular monitoring of cash
flows as it is prepared monthly
It helps in finding the actual cash balance
Bank reconciliation statement ensures the accuracy of
the balances shown by the pass book and cash book

6. Causes of Difference
TIMING DIFFERENCE
1. Cheques issued but not presented for payment:
2. Cheques paid into the bank but not cleared:
3. Interest and dividends collected by the bank:
4. Direct payment by the bank
5. Dishonor of a bill discounted by the bank

7. • ERROR IN RECORDING ENTRIES
1. Omission of entry
2. Wrong recording of amount
3. Recording of entry on the wrong side of the
book
4. Wrong balancing of the book

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