Steps for Preparation of Bank Reconciliation Statements

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There are various steps involved to compose bank reconciliation statements. The steps that are required to be adopted are:

  1. Discerning plus and minus balance

Plus and minus columns are made while creating a bank reconciliation statement. Overdraft balance is stated as minus balance which means withdrawal of money from bank more than the amount deposited in an account.

In case of plus balance, a certain amount of money is deposited in the bank which is more than the amount withdrawn from there. There are certain criteria with the help of which you can identify or discern plus and minus balance.

  • Minus balance

Minus balance depicts the financially unsound condition of a company or a business.In this case, banks provide more amount to companies or customers than their deposited amount. There ar few cases when you can consider the balance to be a minus balance.

  1. Pass book displaying debit balance

In case of minus balance, a pass book’s debit balance is equivalent to a cash book’s credit balance. Here pass book shows you the amount which is deducted from your account (debited) is more than the credited amount.

If explained in simplified words, surplus debit over credit means that bank is your creditor and you are their debtor. In this scenario, the balance will be considered as minus balance where you have to pay the overdrawn or excessive amount.

  1. Cash book displaying credit balance

Showcasing at the credit side of a company’s or an individual’s cash book, when the bank makes payment on their behalf, it exhibits less deposit in the debit section in banks. When a company deposits money in their bank account, it gets posted on the debit section of cash book.

But in case of banks, they make the postings in the credit side of the pass book where they usually record the payment of drawn cheques by the company. In the credit section, you can also see the charges which a bank imposes or the sanctioned overdraft by banks. A display of excessive amount in the cash book’s credit side means higher withdrawal than fund deposition. This indicates a minus balance.

  1. Overdraft balance according to pass book or cash book

When you withdraw money from the bank which is more than the amount deposited in your account, it is called overdraft. Here, banks give you more amount to utilize making you a debtor of bank. Be it in pass book or in cash book, the other meaning of minus balance is an over draft. This overdraft is displayed in both pass book and cash book through their credit balance. Anytime when you withdraw more than your deposited amount, it is always considered as minus balance.

  • Plus balance

There are few cases regarding balances when it is treated as plus balance.

  1. No details regarding the balances in pass book or cash book

There are instances when it cannot be determined whether the displayed balance in cash book or pass book is a debit amount or a credit amount. In those cases, you need to assume that the balance in your account is a plus balance. This is because in general sense more the amount is deposited, more is the amount withdrawn. Or in most of the cases, deposits are found to increase the withdrawal amount from banks. If you consider this in case of organizations or companies, majority of firm accounts have plus balance.

  1. Pass book displaying credit balance

A bank which maintains pass books have an entirely different accounting treatment which is opposite to the transaction treatment regarding cash book. Due to this reverse procedure, the amount which is shown debited in a company’s or individual’s account is the same amount deposited in their account by bank (credited). The cash book showcases the debited amount.

In case of pass book, it displays credit balance. This credit balance means surplus amount in an individual’s or company’s bank account which is more than the amount deducted by banks from their accounts. This ratio states a plus balance.

  1. Cash book displaying debit balance

When balance in credit side of cash book is less than the debit side of cash book, that balance is known as debit balance. Credit section in cash book means withdrawal of amount from banks whereas debit section in it states deposited amount into banks. When you see surplus amount deposited in banks which is more than the withdrawal amount, then you can consider that balance to be a plus balance.

  1. Date consideration regarding statement preparation

Creating records by entering transaction details is an important part of accounting. Transactions which are entered in either pass book or cash book but not in any one of them before statement preparing date is referred as transactions for preparing bank reconciliation statement.

To make the meaning simpler, let us take the help of an example. Suppose a company has fixed a date for its bank reconciliation statement preparation which is on 31st March 2016. Transaction records of that certain company are either entered in their pass book and not in their cash book. Or it is entered in their cash book and not in their pass book by that specific fixed date. All of that transaction information will be entered to compose bank reconciliation statement.

A correct entry of transaction which is recorded in both cash book and pass book will display the balance in both books as either decreased or increased. This surplus or deducted balance amount will be similar by 31st march 2016. In these instances, such type of transactions will be disregarded while composing bank reconciliation statement.

  1. Balance identification which is essential to compose bank reconciliation statements

With the help of the balanced displayed in pass book or cash book, bank reconciliation statement can be constructed. You can create a statement when you are provided with the required balance information.

Preparation of bank reconciliation statement is simple in this case. If you are provided with the balance information of cash book, you will create it with its help. In case you are provided with balance information regarding pass book, you need to create a statement with the help of provided pass book.

If you are provided with balance information of both the pass book and cash book, then you can choose any one between the two and create a bank reconciliation statement.

  1. Regulating the effects regarding transaction

It is with balance information from pass book or from cash book with whose help you can create bank reconciliation statement. But there is a slight difference while studying its effect. If you use the balance information from cash book to prepare the statement, transaction effect can be seen on pass book instead of cash book.

In this case, if there is a decrease in the bank balance displayed in pass book, items will be subtracted. Similarly, if there is an increase in the bank balance displayed in cash book, there will be addition of items.

Suppose you have issued a cheque which you have not presented for payment. This will show a deducted balance in cash book. But there will be no change in bank’s pass book as they have not passed an entry of that cheque.

This imbalance of balance entry in pass book and cash book will show dissimilarity in the records. From the above example, you can see that balance according to cash book will be less than balance as per pass book. In order to make balances of both cash book and pass book similar or at least near to same level, you need to add items in balance of cash book.

Now, if you have to create bank reconciliation statement with the help of balance information in passes book, transaction effect will be showcased in cash book. If you see the provided example above, there is a balance difference in both cash book and pass book. This difference was because of the customer or company who did not present the issued cheque to the bank.

According to his cash book, a certain amount is debited, but as per bank’s pass book, there is no change, as bank is not provided with that cheque. Therefore, items will be required to be subtracted because of decreased balance in pass book with whose help bank reconciliation statement will be prepared.

You can take another instance of bank charges to understand it in a better way. Suppose there is a deduction of balance from your account because of bank charges which are recorded in your pass book. But there has not been any entry of it in your cash book. This variation of balance record will be highlighted in your pass book as well as your cash book. Your cash book will display more balance than your pass book.

If you create the statement with the help of balance information from your cash book, you need to deduct some items. This deduction is because of balance in cash book which is more in comparison to balance in pass book.In case this statement is made with balance record of cash book, you will be required to add items.

If to be stated briefly, if you use balanced of pass book to create bank reconciliation statement, you need to follow this:

  • Debit items which result in decrease of balance according to records of cash book
  • Credit items which result in the increase of bank balance according to cash book records

When you use balanced of cash book to create bank reconciliation statement, you need to follow this:

  • Debit items which result in increase of balance according to records of pass book
  • Credit items which result in the decrease of bank balance according to pass book records
  1. Balancing the statement

Balancing the minus and plus balance columns while preparing the statement is considered as the most important and final step. When you prepare bank reconciliation statement with the balance record of pass book, you will find the balance of cash book. Similarly while composing bank reconciliation statement with the help of cash book, the findings will be of pass book balance. If amount of minus items are more than plus items, then it will display minus balance. In case of plus balance, there will be a surplus of plus items in totality over the total amount of minus items.

Summary of bank reconciliation statement’s preparation

  1. Payment or deposition of cheques into banks which are not credited or cleared or collected by banks.
  • Created with cash book balance – minus balance
  • Created with pass book balance – plus balance
  1. Payment of cheques into bank but forgotten to be recorded in cash book.
  • Created with cash book balance – plus balance
  • Created with pass book balance – minus balance
  1. Interest is credited or collected by banks but not recorded in cash book
  • Created with cash book balance – plus balance
  • Created with pass book balance – minus balance
  1. Banks charging interest on deposits or on overdrafts which is still not entered into pass book
  • Created with cash book balance – minus balance
  • Created with pass book balance – plus balance
  1. Bank imposing rebate on bill retirement
  • Created with cash book balance – plus balance
  • Created with pass book balance – minus balance
  1. Other parties depositing cheques directly into company accounts or funds are directly collected by banks which is not recorded in cash book
  • Created with cash book balance – plus balance
  • Created with pass book balance – minus balance
  1. No debit record in pass book or customer who has not cashed the cheque which is already issued to him
  • Created with cash book balance – plus balance
  • Created with pass book balance – minus balance


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