What is Bank Reconciliation

What is Bank Reconciliation Statement ?  This question, is relevant for most of the accountants, who are responsible for managing the  bank statement of an organization. In simple language, a bank reconciliation statement, is a statement , which identifies the reasons for difference in balance of the bank as per the  books of accounts of the the business, and the balance which is as per the records of the bank, also called the balance as per the pass book. There are several reasons, for such a difference. Some of the reasons are as under: –

  •  Cheque deposited but not collected (credited) by the bank
  •  Deposited cheque or bill of exchange dishonoured
  •  Bank charges
  •  Interest charged by the bank
  •  Bill payable paid by the bank but not recorded in the cash book
  •  Cheque recorded but not deposited e pass book
  •  Direct payment made by the bank
  •  Cheque issued but not presented for payment
  •  Cheque directly deposited into bank
  •  Cheque recorded but not deposited
  •  Dividend collected by the bank not recorded in cash book
  •  Interest allowed by the bank not recorded in cash book
  •  Wrong credit granted by the bank




Further, each of these reasons may require an adjustment, depending on whether we  take the starting point, as the balance of the passbook in the records of the bank, for the balance in the bank account, as per the accounts of the company which would help you understand What is Bank Reconciliation ? There could be various situations as under : –
  • There is a Debit  balance in the books of accounts, and a debit  balance as per the bank passbook
  • There is a Debit  balance in the books of accounts, and a  credit balance as per the bank passbook
  • There is a  credit balance in the books of accounts, and a debit   balance as per the bank passbook
  • There is a  credit balance in the books of accounts, and a  credit balance as per the bank passbook
Each of the adjustments discussed above, would   have an impact of addition or  subtraction, depending on which of these four situations are given in the problem.




Our examples for each of these situations, can be accessed from the following link which would help you understand what is Bank Reconciliation . Each of these links contains several problem, dealing with, all the adjustments discussed above, in each of these situations : –
  • There is a Debit balance in the books of accounts, and a debit  balance as per the bank passbook
  • There is a Debit balance in the books of accounts, and a  credit balance as per the bank passbook
  • There is a  credit balance in the books of accounts, and a debit   balance as per the bank passbook
  • There is a  credit balance in the books of accounts, and a  credit balance as per the bank passbook

We hope the note and links would  help in answering your question of What is Bank Reconciliation ?

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