Part 1 · Keeping the books · Chapter 1.11
Money in, money out
Draft: the wording may change.
The idea
Every rupee that comes in needs a receipt and every rupee that goes out needs a payment entry. Your bank account is then written in two diaries: yours (the bank book) and the bank's (the statement). Once a month you read them side by side, and every difference must have a reason.
Receipts and payments
A receipt is money only (chapter 1.2): no goods move.
- Ravi Stores pays ₹600 in cash against bill #245. Receipt R-02: debit Cash, credit Ravi Stores.
- We pay the company ₹11,800 by NEFT for its bill. Payment P-14: debit the company, credit Bank.
Two habits make these entries useful later:
- Name the bill. Write which bill the money is against. "₹600 against #245" can be checked; "₹600 on account" cannot.
- One receipt for every collection. A salesman who collects cash on the beat writes a receipt there, with a copy for the retailer. Money without a receipt is money nobody can prove.
At the counter: the two diaries in October
On 31 October our bank book says ₹48,500. The bank statement says ₹52,140. Neither is wrong. They were written by two people who saw things at different times.
Read them line by line and tick every item that appears in both. What is left:
| Item | In our book? | In the statement? |
|---|---|---|
| Cheque from a retailer ₹6,000, deposited 31 Oct | Yes | Not yet — still clearing |
| Cheque to the transporter ₹4,500 | Yes | Not yet — he hasn't banked it |
| Bank charges ₹118 | No | Yes |
| UPI ₹5,258 from a retailer | No | Yes |
Now walk from one balance to the other:
| ₹ | |
|---|---|
| Balance as per our bank book | 48,500 |
| Add: cheque issued, not yet presented | 4,500 |
| Less: cheque deposited, not yet cleared | 6,000 |
| Less: bank charges not in our book | 118 |
| Add: UPI received, not in our book | 5,258 |
| Balance as per bank statement | 52,140 |
This is a bank reconciliation. The difference is fully explained.
Two kinds of difference
- Timing — the cheques. Both diaries will agree in a few days. Do nothing, but check next month that they did clear. A deposited cheque that never clears is a bounced cheque, and the retailer owes that money again.
- Missing from our book — the bank charges and the UPI. These really happened. Enter them now: a payment for the charges, and a receipt for the UPI against the right retailer's bill. Find out who sent it from the UPI reference or by calling the salesman.
Also remember: when the bank says "credit", it means money came into your account. The bank writes from its own side (chapter 1.4).
Common mistake
Letting unknown UPI and bank deposits pile up in a "suspense" heading, or not entering them at all. The retailer has paid, but his ledger still shows the bill unpaid. The salesman chases him, he gets angry, and the next month he buys from someone else. Name every receipt within the week.
Where you'll use this
In Part 3, collection on the beat — cash, cheque and UPI in one van run — is matched to bills the same way. Company payments and claim credits that arrive straight into the bank are found by this same monthly reading of the two diaries.
Check yourself
- A retailer's cheque was deposited on the last day of the month and is not in the statement. What do you do?
- The statement shows ₹250 of bank charges you didn't enter. What do you do?
- Why should a receipt name the bill it is against?
Answers
- Nothing yet — it is a timing difference. Check next month that it cleared.
- Enter a payment for ₹250 to bank charges; it really happened.
- So you can see which bills are paid and which are still open, and prove it to the retailer.