In this session we will be learning about what does a bank reconciliation statement VRS how to read bank accounts cashbook as for books, how to read bank statement issued by a bank, what is the need for preparing bank reconciliation statement VRS? What are the advantages of bank reconciliation, Steve, let's begin bank reconciliation statement. So, in layman's terms, what we consign means to restore friendly relations or to make it compatible for financial purposes reconcile means to make one consistent with another. So bank reconciliation is the bridge between your bank account asper books and bank statements. bank reconciliation is as on a specific date on to be precise as at a particular point of time. So, before understanding what does a bank reconciliation, let us first understand how to read up bank account asper books.

So, this is an example of bank account as the books muscle suhani limited has started a trading business on for Jan 2019 in the books of muscles suhani limited you have bank account. So, you have a particular watch a number among D particular watch number among so on the left hand side debit on the right hand side we have credit since the bank is an asset and the addition to the bank account is debited and any reduction in the bank account is credited So, if Notice the left hand side that does all the debit entries say to cash account eight lakhs to loan from the bank account 15 lakhs to methyls sukanya account one lakh 50,000. So, all the entries of the debit side are I the receipts all deposits in the bank account, whereas, if you see and the credit side we have violent account 20,000 by parama limited account one lakh 25,000 by cash account to like 50,000 by Robinson's account 50,000 So, all credit side entries are either payments or withdrawals.

So, I'm 31st Jan 2019, we have by balance carried down 20 lakh 5000 So, we are carrying it forward as on first web 2000 19 to balance brought down 20 lakh 5000. So this is a debit balance that is a normal balance in the bank account, since it's an asset it will have a debit balance. Therefore, all the debit entries will represent either your receipts or deposits whereas your credit entries will represent payment or withdrawal from a bank account. Now, let's see what does a bank statement and how do we read a bank statement? Now, this is a bank statement of muscle suhani limited from first Jan 2019 to 31st and 2019. You have bank account number and then other details are day.

Particular. You had transaction ID or check number deposit that discredits withdrawals debit and Balance. Let's see the first transactions second Jan 2019 cash deposited you have checked number 123456 deposit eight lakhs or it is also known as credit and a balance as on second Jan 2098 lakhs. Now, when the bank statement is issued by the bank, it is from the bank's point of view. So when we deposit the money in the bank bank is obliged to pay that money at some point of time. So, our account in the bank is like a liability.

So, all deposits are credited in the bank, and all withdrawals are debited in the bank. So, if you notice the effect of the each transaction in the bank statement is opposite of whatever is the effect in our bank account. Let's look at one transaction here TIFF Jan 2019 mean our bank loan check. So, we have received a loan from we know our bank and the check number is 351274 amongst us 15 lakhs, so, we have to seal the check of loan and we have deposited it in our bank account. So, for bank it is a liability. So, there is an increase in the liability So, it will credit our account.

Therefore, deposits appear on the credit side 15 lakh and balances 23 lakh as one fifth Jan 2019. Let's see one more transaction eight Jan 2019 Ren Sindhu check. So, we have issued a check to siendo for when the check number is five and six to seven one amount is 20,000. Now, since we have issued a check we are making a payment through bank. So, from the End of your bang, the liability has led us So, they have debited our account by 20,000 and the balance gets reduced to 22 lakh 80,000. So, this is how the bank statement looks like.

Now, if you see a balance 20 lakh 5000 credit as on 27 jan 2019 and it is written a car car means it's a credit balance. So, your ordinary balance will be shown as a credit balance in your bank statement. Now, let us see our bank account and bank statement together. Now, this is the same example we have bank account here and bank statement here. So, now if you look at the see the transactions on the debit side of bank Let's see the amounts you have eight lakhs you have 15 lakhs, you have one lakh 50,000. Now, if you see the bank statement the same amounts that appear on the credit side of your bank statement or on the deposit side that the 50 lakhs and one lakh 50,000.

Similarly, if you look on the credit side of your bank account as per books you have 20,001 lakh 25,002 lakh 50,000 50,000 Now, if you see your bank statement, these amounts appear on the debit side of the bank statement that the 20,001 lakh 25,002 lakh 50,050 thousand. So, the effect in the bank statement is exactly opposite of whatever is the effect enough bank account as for books now. See the balance balances on 31st jan 2019 This 20 lakh 5000 balance carried down is on the credit side, it's a debit balance, if you see the bank statement the same balance appears as a credit balance in the bank statement. So, your debit balance as per bank account will be your credit balance as per bank statement and vice versa. Now, what does it need a bank reconciliation statement. Now, this was a simple example wherein you have all transactions whatever transactions are present in your bank account as for both the same transactions are present in the bank statement.

But practically, this is not the case. If you take bank account as on a specific date and a bank statement as on a specific day. There will be some differences there will be some transactions which are recorded in the books, but they are not ready courted in the bank statement or vice versa. In that case, we need to prepare a bank reconciliation statement wherein you will be bridging a gap of balance between your bank statement and bank account. Now, let's see what are the reasons for bank reconciliation statement? Why do we need a bank reconciliation statement?

Let's see the first one check deposited but not cleared. said this is our business. And this is Mr. Eat our client. We have received a check from Mr. e. And we deposited it in the bank. gingerly bank takes two to three days for clearing. Now as soon as we deposited the check in the bag.

We have pastor entry in the books but since the jack is not yet clear. It's not appearing in the bank statement. Now, let's take the next scenario direct deposit by third party to ban. Now, Mr. He is a client, he has deposit 10 money in our bank account directly, but he has forgot to send us the intimation. So, since he has not sent an intimation, we have not recorded this transaction in the books of account, but the same transaction will appear in the bank.

Let's take the next scenario interest credited by a bank, but intimation not received. So in computerized system, so this is our bank account. And we have some FDS and other deposits with the bank. So in computerized system at the end of every month or quarter, the interest will automatically get credited to your bank account. But see, we have not received an intimation from the bank for the interest, then this interest will be appearing in our bank statement, but since we have not received an intimation, it won't be in your bank account as top books. Next dividend credited to bank directly but in dimension not receive.

Now this is same as the interest okay. So, there is some dividend which has been credited to the bank but for the same dividend we have not received the intimation so it's not recorded in our books of accounts. Next, check issued but not present date for the payment. This is our business. And this is Mr. e. So we have issued him a check for rent. Mr. A has not deposited the seed In his bang, so, what will happen is once the issue the J the entry for the same will appear in our books of account that does bank account in our books, but since Mr. A has not deposited the check in the bank or say Mr.

He has deposited the check in the bank but it has not been cleared as on that particular day that does not present it for payment. So, it won't appear in your bank statement. Next interest in other charges directly debited by a bank. Now, there may be some interest or some other charges as for the agreement with the bank and bank has directly debited it, but since we are not sure of the amount or we are not receive the intonation they are not recorded in the books of accounts. Next, direct payments by bank direct payment sometimes a business may intimidate the bank Make certain payment, say electricity bills or rent or regular payment salaries. So Direct Payments are done by the bank and say if we don't get intimation from from the bank, this direct payments will be recorded in the bank statement, but it won't be recorded in our books of accounts, fixed deposit measured and amount with the interest credited to the bank.

Say there is some empty which is measured an amount is directly credited by the bank. It will appear in your bank statement, but it won't appear in the books of accounts. Now, apart from all this, there is one more reason let's see errors in the bank account asper books or errors in the bank statement. Now sometimes there can be errors in our bank account as per books that either it can be an error of omission that is the entry is not at All past or entry is wrongly passed in the books of accounts. Now, similarly, there can be errors in the bank statement for example, the bank has charged some amount wrongly to account or debited some charges, which are no more required to be borne by us in our account. So, in that case, what will happen is this errors will understand it through bank reconciliation statement and this need to be rectified if it is in the bank account as per books, we need to rectify it in the books or if the error is in the bank statement, we need to intimidate the man regarding that error and we have to get it rectified by the bank.

Now, let us see what are the advantages of bank reconciliation statement. Advantages of bank reconciliation statement. So, first advantages rectifying As we have already discussed, see some if there is some error in our bank account as for books or bank statement we have to rectify it according to their bank reconciliation statement. Next is detect fraud. See if there are certain checks which are shown as issued, okay says suppose a business wants to record fake expenses, they say the checks are issued, but since they are fake checks, they won't be presented for payment. So, same checks won't appear in your bank statement.

So, this might help to detect fraud. Similarly, say is there a particular business wants to show more income in a particular period of time. What they can do is they can say the speak checks are received by us So, If say there are many checks, which are received but not deposited in the bank, then they will appear only in books of accounts, they won't appear in the bank statement. So if you apply due diligence, then you will be able to detect fraud by looking at a bank reconciliation statement. Now, this was all about basics. So bank reconciliation statement.

Thank you.