#2 Bank Reconciliation Statement - Problem 1 -By Saheb Academy - Class 11

Summary

This video tutorial explains how to reconcile the cash book and the passbook in a bank reconciliation statement. It covers different scenarios where discrepancies arise, such as direct deposits, checks not presented for payment, and interest collected by the bank. The main focus is on identifying whether a transaction has been recorded in the passbook but not in the cash book and making necessary adjustments. The process involves adding or subtracting specific transactions to match the cash book balance with the passbook balance. The tutorial emphasizes simplicity, illustrating the method with examples and providing a step-by-step guide.

Takeaways

• 😀 Understanding the bank reconciliation process is crucial to matching the cash book with the passbook.
• 😀 Direct deposits by customers increase the bank balance but aren't initially recorded in the cash book.
• 😀 To reconcile, adjustments need to be made to the cash book to match the passbook after such deposits.
• 😀 Interest and dividends collected by the bank also increase the bank balance but might not be recorded in the cash book immediately.
• 😀 In the reconciliation process, focus on adjusting the cash book to reflect these unrecorded transactions.
• 😀 When a check is deposited into the bank but not yet cleared, this needs to be subtracted from the passbook balance.
• 😀 Bank charges or payments, such as insurance premiums, should also be subtracted from the passbook balance during reconciliation.
• 😀 The bank reconciliation statement can be prepared by starting with the cash book balance and adjusting with transactions that have affected the passbook.
• 😀 Add transactions like direct deposits or interest received, and subtract items like checks not yet presented or bank charges.
• 😀 Final adjustments should be made so that the adjusted cash book balance matches the passbook balance, ensuring accurate financial records.

Q & A

What is the purpose of a bank reconciliation statement?

The purpose of a bank reconciliation statement is to match the balance in the business's cash book with the balance shown in the bank's passbook, identifying any discrepancies between the two.

How do direct deposits by customers affect the bank reconciliation process?

Direct deposits by customers increase the bank balance according to the passbook but are not initially recorded in the cash book. To reconcile, the business needs to add the amount of the direct deposit to the cash book.

Why are interest on investments and dividends collected by the bank important in bank reconciliation?

Interest on investments and dividends collected by the bank increase the bank balance, but these transactions are not immediately reflected in the cash book. To reconcile, the cash book must be adjusted to include these receipts.

What happens if checks are deposited into the bank but not yet collected?

If checks are deposited but not collected, the cash book records the deposit, but the bank balance will not reflect it. This discrepancy must be subtracted from the cash book to reconcile with the passbook.

How should bank charges and insurance premiums paid by the bank be handled in the bank reconciliation statement?

Bank charges and insurance premiums paid by the bank should be subtracted from the cash book, as these amounts are deducted from the bank account but may not be recorded in the cash book.

What is the first step in preparing a bank reconciliation statement?

The first step in preparing a bank reconciliation statement is to take the balance from the cash book and identify any discrepancies between the cash book and passbook.

What types of transactions should be added to the cash book during bank reconciliation?

Transactions such as direct deposits by customers and interest or dividends collected by the bank should be added to the cash book to reconcile it with the passbook.

What types of transactions should be subtracted from the cash book during reconciliation?

Transactions like checks deposited but not collected and bank charges or insurance premiums paid by the bank should be subtracted from the cash book.

How is the final balance on the bank reconciliation statement calculated?

The final balance is calculated by adding any receipts to the cash book and subtracting any payments, then adjusting the balance according to the passbook to reflect the accurate amount.

How do you know whether to modify the cash book or the passbook during reconciliation?

If the business has recorded a receipt or payment in the passbook but not in the cash book, the cash book must be adjusted. If discrepancies are on the passbook side, the passbook needs to be adjusted.