Necessity of Bank Reconciliation

Why is it necessary to prepare the bank balance? The bank reconciliation is necessary for a deposit account or demand deposit account. It is rare that we find our cash per pound or equal to the balances of the balance by bank statement. I think you’re familiar with what a bank draft.

A bank statement is a monthly report from the bank to the depositor per bank from which the cash balance at the beginning, including deposits, canceled checks and other costs and credits and balance daily cash this month. In fact, it is an exact copy of the book of the applicant in the records of the bank.

To answer the question, let us illustrate some basic operations related to the applicant and the bank.

Suppose Quilt and Shams Corporation (applicant) collected $ 10,000 from a client in the settlement of an account. The collection was deposited with Manhattan Bank. On the books of the corporation, the date of registration of the collection and deposit:

Debit or cash to the bank .. 10,000; receive credit .. 10.000

On the books of the bank, stating:

Cash flow .. 10,000; deposit account for credit .. 10.000

(The same is placed on the ledger of Quilts & Shams Corporation).

If the bank credits the account of the applicant, acknowledges its responsibility for the applicant. The law recognizes a debtor-creditor relationship between the bank and the depositor. The bank is the debtor and the creditor applicant. Therefore, if the applicant’s account is credited with the same increase.

Suppose further, Quilts & Shams Company issued a check for $ 3,000 in payment of invoices. On the books of the company, the words:

Debit the accounts payable .. 3000; cash credit to the bank .. 3000

The entry in the books of the bank:

Debit account the filing of the application .. 3000; repayment of credit .. 3000

When the company issued check, the recipient of the same to the bank for payment. The applicant is actually ordering the bank to the beneficiary or the holder of the check to repay its deposits to the bank. Therefore, the bank debits the account of the depositor, which its liability to the applicant. So, if the applicant has fallen into the same flow.

If balances are taken in cash in the bank account on the book of the applicant has a balance of € 7,000 and Quilts & Shams in the book of the bank has a balance of $ 7,000.

The two bills because they have equal balances between accounts. This means that when an account is debited, the account is credited to others. The reason is that the two accounts to cover or to reflect the same products or transactions. So, if no error committed in the record, and the same information is recorded by the two accounts, both have the same or the same balance.

Usually there are objects on the book by the applicant does not appear on the bank documents on the same date. For example, audits by the applicant does not pay to the Bank or deposits may be made after the bank statement is sent to the applicant.

There are regular items on the bank documents that are not on the book of the applicant. For example, the bank may have led to the account of the applicant service charges levied by the applicant can not know until a certificate is received from the bank. Comments agreed with the bank for payment may be collected by the bank and credited to the applicant, but notice the collection is not received from the bank.

In light of the foregoing, it is necessary to reconcile balances. A bank reconciliation is prepared statement that the agreement brings to the cash balance per book and the cash balance by the bank. It is usually prepared monthly, as the Bank shall give the applicant a bank statement at the end of each month.