State the need for the preparation of bank reconciliation statement?
Among other reasons, enlisted below are some of the most important reasons why it is important to prepare a bank reconciliation statement:
Accuracy
Each month, the passbook of the bank and the cash book of a firm, display a particular amount, which is the balance in the bank as on that date. However, due to delay in the recording time and period of the same in the respective books, there is a high possibility that on the day of comparison the balances in the two books would not match.
Hence, having prepared a bank reconciliation statement, one can determine the reasons and amounts by which the two balances differ. This analysis would further help the accountant in recording the missing amounts in each book. Hence, after the preparation of a bank reconciliation statement, the books of accounts would actually display a true and fair position of the firm.
Check on the Entries
In the process of preparing a bank reconciliation statement, an accountant will be able to point out all entries or amounts, recorded incorrectly in either of the books.
Thus, it is quite useful to prepare a bank reconciliation statement, which would help in eliminating any entries recorded erroneously.
Rectifying Incorrect Entries
In case an amount or entry has been recorded incorrectly in both, the passbook and the cash book, the accountant will be able to rectify those entries, so as to arrive at the amount of correct bank balance in the passbook and the cash book.
Updated Cash Book
Again, due to the irregularity in posting the amount of entries in the cash book and due to the delays in the recording of such amounts, it is quite possible that the cash book would fail to show the updated bank balance of the bank as on a particular date. When compared with the passbook, an accountant would be able to identify such entries and record them in the cash book instantly. This would help in reconciling the balances of both the cash book and the bank book instantly.
Detection of Delays
Due to the preparation of the bank reconciliation statement, it is possible to discover any amount of cheques that get deposited in the bank but have aren’t credited.
This difference would be evident because the amount of such deposits would appear in the cash book but not in the bank book, hence giving rise to a difference in the bank balance of both. Thus, cheques deposited but not yet collected can come to notice quickly.
Check on the Dishonest Behavior of Employees
Preparation of regular bank reconciliation statements has several benefits. It would act as a moral check on employees so that they do not indulge in the embezzlement of bank cheques, which would ultimately cause loss to the firm. This is so because even a low-value cheque can come in detection if it has been accepted but not deposited. In this way, a bank reconciliation statement serves a large purpose for a firm’s accounting cycle and people.
Popular Questions of Class 11 Accountancy
- Q:- Explain the qualitative characteristics of accounting information.
- Q:-
Mr. Sunrise started a business for buying and selling of stationery with ₹ 5,00,000 as an initial investment. Of which he paid ₹ 1,00,000 for furniture, ₹ 2,00,000 for buying stationery items. He employed a sales person and clerk. At the end of the month he paid ₹ 5,000 as their salaries. Out of the stationery bought he sold some stationery for ₹ 1,50,000 for cash and some other stationery for ₹ 1,00,000 on credit basis to Mr. Ravi. Subsequently, he bought stationery items of ₹ 1,50,000 from Mr. Peace. In the first week of next month there was a fire accident and he lost ₹ 30,000 worth of stationery. A part of the machinery, which cost ₹ 40,000, was sold for ₹ 45,000.
From the above, answer the following :
1. What is the amount of capital with which Mr. Sunrise started business?
2. What are the fixed assets he bought?
3. What is the value of the goods purchased?
4. Who is the creditor and state the amount payable to him?
5. What are the expenses?
6. What is the gain he earned?
7. What is the loss he incurred?
8. Who is the debtor? What is the amount receivable from him?
9. What is the total amount of expenses and losses incurred?
10. Determine if the following are assets, liabilities, revenues, expenses or none of the these: sales, debtors, creditors, salary to manager, discount to debtors, drawings by the owner. - Q:- Describe the role of accounting in the modern world.
- Q:- What do you mean by an asset and what are different types of assets?
- Q:-
Differentiate between source documents and vouchers.
- Q:-
Complete the following sentences with appropriate words:
(a) Information in financial reports is based on .....................
(b) Internal users are the ..................... of the business entity.
(c) A ..................... would most likely use an entities financial report to determine whether or not the business entity is eligible for a loan.
(d) The Internet has assisted in decreasing the ..................... in issuing financial reports to users.
(e) ..................... users are groups outside the business entity, who uses the information to make decisions about the business entity.
(f) Information is said to be relevent if it is ......................
(g) The process of accounting starts with ............ and ends with ............
(h) Accounting measures the business transactions in terms of ............ units.
(i) Identified and measured economic events should be recording in ............ order. - Q:-
What is a journal? Give a specimen of journal showing at least five entries.
- Q:-
Define accounting and state its objectives.
- Q:-
Enumerate informational needs of management.
- Q:-
Complete the following work sheet:
(i) If a firm believes that some of its debtors may ′default′, it should act on this by making sure that all possible losses are recorded in the books. This is an example of the ___________ concept.
(ii) The fact that a business is separate and distinguishable from its owner is best exemplified by the ___________ concept.
(iii) Everything a firm owns, it also owns out to somebody. This co-incidence is explained by the ___________ concept.
(iv) The ___________ concept states that if straight line method of depreciation is used in one year, then it should also be used in the next year.
(v) A firm may hold stock which is heavily in demand. Consequently, the market value of this stock may be increased. Normal accounting procedure is to ignore this because of the ___________.
(vi) If a firm receives an order for goods, it would not be included in the sales figure owing to the ___________.
(vii) The management of a firm is remarkably incompetent, but the firms accountants can not take this into account while preparing book of accounts because of ________ concept.
Recently Viewed Questions of Class 11 Accountancy
- Q:-
State the meaning of:
(a) Outstanding expenses
(b) Prepaid expenses
(c) Income received in advance
(d) Accrued income - Q:-
The journal entry to record payment of monthly bill will include:
(a) Debit monthly bill and Credit capital.
(b) Debit capital and Credit cash.
(c) Debit monthly bill and Credit cash.
(d) Debit monthly bill and Credit creditors. - Q:-
Which of following errors will be rectified through suspense account:
(a) Sales return book undercast by Rs. 1,000.
(b) Sales return by Madhu Rs. 1,000 not recorded.
(c) Sales return by Madhu Rs. 1,000 recorded as Rs. 100.
(d) Sales return by Madhu Rs. 1,000 recorded through purchases returns book. - Q:-
Show the effect through Journal entries:
Credit sales to Mohan 10,000 were posted to his account as 12,000
This is an error of ..................................
The wrong effect has been:The correct effect should have been:
The rectification entry will be.
- Q:-
Tick the correct answer :
Incomplete record mechanism of book keeping is :
(a) Scientific (b) Unscientific
(c) Unsystematic (d) both (b) and (c) - Q:-
'Accounting information should be comparable'. Do you agree with this statement? Give two reasons.
- Q:-
Why is the evidence provided by source documents important to accounting?
- Q:-
The framework of storage and processing of data is called as ........
- Q:-
Database is implemented using ........
- Q:-
Find the correct statement:
(i) Credit a decrease in assets
(ii) Credit the increase in expenses
(iii) Debit the increase in revenue
(iv) Credit the increase in capital
- NCERT Chapter