Why Bank Reconciliation Statement is Prepared

When company has to regularly make deposit or withdraw money from the bank there is always some differences between the records as shown by bank and records which are shown by the cash book of the company. In order to rectify it bank reconciliation statement is prepared. Bank reconciliation statement refers to a statement which is made by the company in order to check or reconcile the balance of cash in company’s records with that of records of bank on a particular date.

The reasons due to which the amount shown in bank passbook and balance of cash in company’s cash book does not match are as follows –

1 Cheques issued by bank but not presented for payment.

2. Cheques paid into bank but not yet collected.

3. Amount directly deposited in the bank by the debtors of the company.

4. Interest and dividends collected directly by the bank but not recorded in the company’s cash book as they there is some timing difference between intimation to the company by the bank and receipt of dividends and interests.

5. Sometimes bank directly pays to the creditors of the company which obviously will not be recorded by the company until it knows about it.

6. When the cheque is dishonored then also there will be differences between the bank passbook and cash book of the company.

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