State the need for the preparation of bank reconciliation statement?
The need for preparation of Bank Reconciliation Statement arises because when a comparison is made between the bank balance as shown in the firm's cash book and the bank statement (passbook), the two balances often do not tally.
Therefore, it becomes necessary to first ascertain the causes of difference between the two balances. The Bank Reconciliation Statement helps in identifying the items on account of which the difference has arisen, along with the respective amounts involved.
Ultimately, the statement is prepared to reconcile (tally) the two balances and ensure that the records of the firm and the bank are in agreement.
Explanation
The answer is derived from Section 5.1 'Need for Reconciliation' of the provided textbook context. It highlights three key aspects: (1) the common occurrence of mismatch between cash book and passbook balances, (2) the need to identify causes of such differences, and (3) the ultimate purpose of reconciling the two balances. The answer follows the word limit and formatting requirements for a 3-mark short answer question.