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Bank Reconciliation Statements

Amendments in Cash Book

Money deposited into a bank is recorded in the bank column of a Cash Book on the debit side while withdrawals are recorded on the credit side. The bank also maintains an account of a customer in its books of accounts.

It credits such account for deposits and debits such account for any withdrawals. A copy of it is also given to the customer for the knowledge in the form of a Pass Book or a Statement of Account. Learn Amendments in Cash Book here.

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Amendments in Cash Book

Deposits and withdrawals made during a period are recorded in both Cash Book and Pass Book. Therefore, the balances shown by the two at the end of the period should agree.

But, sometimes the two balances differ. It becomes necessary to know the reason for the difference. Therefore, a Bank Reconciliation Statement is prepared on a particular date to reconcile the bank balances in both Cash Book and Pass Book by showing the reason for differences.

In order to find out the correct balance at Bank or cash, it sometimes requires to amend the Cash Book before the preparation of Bank Reconciliation statement. After an amendment, the Bank Reconciliation Statement should be prepared by taking the balance shown by the amended Cash Book.

Read the Steps for Preparing Bank Reconciliation Statement here in detail

Before making any amendment one should remember that usually two types of transactions are recorded in amended Cash Book i.e.

  • Items which are not at all recorded in Cash Book.
  • Any error made by Cash Book.

Then the rest of the transactions i.e the transaction other than already recorded in Cash Book will go to Bank reconciliation statement. But one should remember that preparation of amended Cash Book is possible only when the balance as per Cash Book is given.

Amendments in Cash Book

Source:freepik.com

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Steps for Preparing Cash Book

  • Open the cash with the Balance as per Cash Book, whether favorable or unfavorable.
  • Charge the items i.e., which are not recorded in Cash Book as any other error made by Cash Book against such balances.
  • Close the Cash Book to find out the balance,
  • Prepare Bank Reconciliation Statement by taking the Cash Book balance and remaining transactions which are not adjusted against amended Cash Book.

Solved Example for You

The following is a summary from Cash Book of M/s Avinash Trading for the month of Sept 2018

Particulars Amount Particulars Amount
Balance b/d 1,407 Payments 15,520
Receipts 15,073 Balance c/d 960
16,480 16,480

On investigation, the following are the findings:

(a) Bank charges of Rs. 350 were not entered in the Cash Book.

(b) A cheque of Rs. 470 issued to the supplier was entered by mistake as a receipt in the Cash Book.

(c) A cheque of Rs. 180 was returned by the Bank marked as ‘refer to drawer’ but it’s not entered in Cash Book.

(d) The balance brought forward in Sept 2018 should have been Rs. 14,700.

(e) Cheques paid to suppliers Rs. 2,140, Rs. 3,700 and Rs. 300 have not been presented for payment.

(f) Deposits of Rs. 15,420 on 30th Sept were cleared by the Bank on 2nd October.

(g) The Bank charged a cheque wrongly to Avinash trading Rs. 720.

(h) Bank statement shows overdraft of Rs. 1,240 as on 30th Sept 2018.

Show what adjustments will you make in the Cash Book and prepare a Bank reconciliation statement as on 30/09/2018.

 Solution:

 Cash Book for Sept 2018                                                                                                                                                                                                                                                                      

Particulars Amount Particulars Amount
To Original balance b/d 9,600 By Bank charges not recorded earlier 350
To Error in balance carried

(1,470 – 1,407)

630 By Cheques issued recorded as receipt now corrected

(2×47)

940
    By Cheque returned 180
    By Revised balance c/d 8,760
  10,230   10,230

Bank Reconciliation as on 30/9/2018

Particulars Amount Amount
Balance as per Cash Book   8,760
Add: Cheques issued but not presented (2,140 + 3,700 + 300)   6,140
    14,900
Less: (i) Deposits not cleared 15,420  
         (ii) Cheques charged by mistake 720 16,140
Overdraft as per Pass Book   (1,240)

 

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