RECONCILIATION ACCOUNT

INTRODUCTION

Reconciliation is an accounting process in which business owner and

their accountants match transactions that have been recorded internally
against statements from external sources such as bank, vendor, customer
etc. Reconciliation gives business owner the confidence that the value
recorded in their
accounts are accurate
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Reconciliation can be of many types like Bank reconciliation, Vendor

reconciliation, Customer reconciliation, Intercompany reconciliation,
Business specific reconciliation.

Bank reconciliation: It is the most important type of reconciliation and

require business to reconcile their cash position by comparing the value
of recorded bank transaction to those on their bank statements.

1. Compare internal cash register to the bank statement

First we compare transactions in the internal register and the bank

account to see if the payment and deposit transaction match in both
records and we identify the bank statement that are not backed up by
any evidence.

2. Identify payments recorded in the internal cash

register and not in the bank account statement
The transaction may include ATM transaction and checks. These
transaction should be deducted from bank statement balance.

The transaction appearing in the bank statement but missing in the cash
book should be noted like ATM service charges, check printing fees,
overdrafts etc.

3. Check both the cash book and the bank statement for
transaction that appear in both records

Find direct deposits and account credits that appear in the cash book but
not in the bank statement, and add them to the bank statement balance
and vice versa.

4. Check the bank statement for error

A bank error is an incorrect debit or credit on the bank statement of a

check or deposit recorded in the wrong account. Bank errors are
infrequent, but the company should contact the bank immediately to
report the errors. The correction will appear in the future bank statement

5. Balance both records

Once the difference have been identified and rectified, both internal and
external records should be equal in order to demonstrate good financial
health.

Importance of Reconciliation Account:

Identify fraud: The main objective of reconciliation is to identify the sign

of fraud happening in bank account.
 Validate data entry: Reconciliation helps us to identify any irregularities,
such as wrong amount, duplicate entries and other data entry error.

Accurate tax reporting: In order to generate a correct tax return, we

must reconcile our bank statement.

Control theft: Reconciliation helps us to prevent employees and other

people from stealing from our business.

EXCHANGE EARNERS FOREIGN CURRENCY ACCOUNT

Exchange Earners Foreign Currency (EEFC) Account is foreign

currency-denominated account maintained with banks dealing with
foreign exchanges. The Reserve Bank of India introduced this scheme in
1992 to enable exporters and professionals to retain their foreign
exchange receipts in banks without converting it into the local currency.

Any person residing in India who receives inward remittances in foreign

currency or a company with foreign currency earnings can open EEFC
account but they don’t earn any interest from the deposits and it is a
non-interest bearing scheme.

Types Credit allowed in EEFC Account

 100% foreign exchange earnings can be credited to the EEFC account

subject to the condition that the total of the accruals in the account
during a calendar month should be converted into Rupees before the
last day of succeeding calendar month.
 Payments received by a 100% export-oriented unit, export processing
zone, software Technology Park and electronic hardware Technology
Park.
 Professional earnings (directors fee, consultancy fee, lecture fee,
honorarium, etc.) received by a professional by rendering services in his
individual capacity.
 Advance remittance received by an exporter towards export of goods or
services.

Types of Credit not allowed in EEFC Account

 Remittances received on account of foreign currency loan or investment

received from abroad can’t be deposited in EEFC.

Key Points:

 EEFC is a zero-balance account like normal current accounts. The account

holder is not bound to maintain any average or minimum balance in the
EEFC account.
  Here is no restriction on withdrawal in Rupees of funds held in an EEFC
account. However, the amount withdrawn in Rupees shall not be eligible
for conversion into foreign currency and for re-credit to the account.
 Resident individuals can include ‘resident close relatives’ (members of
HUF, husband, and wife) as a joint holder in their EEFC bank accounts on
a former or survivor basis (the joint holder can operate the account only
in case of death of the first holder.

The key purpose of the account is to reduce foreign currency

transaction costs.
 FOREX DEPOSIT

INTRODUCTION

Foreign exchange reserves are assets held on reserve by a central bank

in foreign currencies. Foreign exchange reserves can include banknotes,
deposits, bonds, treasury bills and other government securities.
These assets serve many purposes but are most significantly held to
ensure that a central government agency has backup funds if their
national currency rapidly devalues or becomes all together insolvent.

The main use of FOREX reserves are:

 Countries use their foreign exchange reserves to keep the value of

their currencies at a fixed rate
 Those with a floating exchange rate system use reserves to keep
the value of their currency lower than the dollar.
 Critical function is to maintain liquidity in case of an economic
crisis.
 FOREX reserves are always needed to make sure a country will
meet its external obligations. These include international payment
obligations, including sovereign and commercial debts.