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Topics - fahmidaemran

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Faculty Sections / Signaficance of bank Reconciliation Statement
« on: November 15, 2016, 02:51:08 PM »
Needs and Importance of Bank Reconciliation Statement :

Bank reconciliation statement is an important technique by which the accuracy of the bank balance shown by the pass book and cash book is ensured. The need and importance of bank reconciliation statement can be summarized in the following points.

1.      Pin pointing mistakes in the Cash Book and Pass Book. Bank Reconciliation statement is prepared by comparing the information of the cash book with the information of the pass book. The comparison discloses and identifies the entries which have been made in the cash book but omitted or wrongly entered in the pass book and vice versa.
2.      Identifying delay in the clearance of cheques. The comparison of cash book with the Pass book or Rank statement issued by the bank reveals the date of depositing the cheque into the bank and the date of the clearance. In case there is substantial delay, causes for delay may be investigated and remedial measures can be applied.
3.      Checking on embezzlement. The continuous comparison of the cash book with the pass book keeps check on employees trying to indulge in embezzlement and misappropriation of funds. As the balances of cash book and pass book are checked, compared and tallied while preparing Bank Reconciliation statement on monthly, weekly or even daily basis, misappropriation and embezzlement of funds becomes very difficult.
4.      Checking the accuracy of Cash Book. The comparison of the Cash Book with the Pass Book satisfies the management that the Cash Book is being maintained properly. If there is any inaccuracy in the posting the mistake is identified and rectified.
5.        Technique of Control. The preparation of Bank Reconciliation statement is an important technique of control. It prevents misappropriation in cheques, bank drafts and other transactions with the bank. The malpractices of dishonest employees dealing with cash and bank are controlled and effective measures are employed to plug the loopholes, if any.
Some other significance of Bank Reconciliation are given below:

* Bank reconciliation statement helps to detect and rectify any error committed in both the books.

* Bank reconciliation statement helps to update the cash book by discovering some entries not yet recorded.

* Bank reconciliation statement indicates any undue delay in the collection and clearance of some cheques.

This paper establishes the importance of Bank Reconciliation as a mandatory activity for ensuring effective financial management. Every financial manager wants to keep close tab on the bank balances as his job involves real time decisions that have cost implications in his favor or against. A little delay in the clearing of an effect could result in huge financial losses to the organization in terms of interest charges or other opportunity costs. A delay could also be the source of loss of goodwill which can spell huge consequences for the entity’s business relationships. The paper affirms that there are several ways of carrying out bank reconciliation.
However, it further concludes that the bank reconciliation process ensures that undue losses are not sustained through inadvertence of the staff of either the focal organization or the bank.

Key words: Bank reconciliation; Opportunity cost; Uncleared effect; Uncredited cheques; Stale effects;Due date; Unpresented effects; Effective financial management; Fair view; Due process

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