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What is a Bank Reconciliation Statement?

Every businessman maintains or more Bank Accounts in order to avoid the risk attached with the keeping of money in the office.

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When a bank account is opened, the bank issues a cheque book and a Pass Book to the depositor. A pass book contains a record of firm’s account in the books of bank.

At the same time, the firm also keeps its own records pertaining to Bank transactions either through the Bank Column of the cash book or through a separate bank account in the firm’s ledger. When the amount is deposited in the bank the bank account is debited in the cash book similarly when the account is withdrawn from the bank the bank account is credited. At the same time bank also enters these transactions in the Pass Book.

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When money is deposited, Bank credited customer’s account and when the money is withdrawn bank debited his account. It means the balance of bank account (in the cash book) should be equal to the balance shown by bank pass book. But sometimes these two balances do not agree.

This may happen due to some mistakes. But more usually this disagreement is caused due to time-lag between the entries made by the customer and entries made by the Bank in the Pass Book. In order to tally the balance of Bank column of the cash book and that of the Pass Book a statement is prepared.

The statement which is prepared to find out the reasons of difference in balances of cash book and pass book is known as “Bank Reconciliation Statement”.

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