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Bank Reconciliation Statement Study At HPCL Mumbai


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  • 2. DECLARATION This is to declare that the report entitled “COMPARATIVE STUDY OF BANK RECONCILIATION AT HINDUSTAN PETROLEUM CORPORATION LIMITED” submitted in partial Fulfilment of the requirement for the Award of the degree of MASTER OF BUSINESS ADMINISTRATION from School of Management And Business Studies is a record of original study done by me. This work has not been undertaken elsewhere in connection with any other academic course. ABHI P PRABHA Place: Date: 2
  • 3. ACKNOWLEDGEMENT I would like to thank the Almighty for giving me strength and skills to do the project in a successful manner. At the same time I would like to express my sincere thanks and gratitude to the following persons with respect to the work. I thank Hindustan Petroleum Corporation Limited for giving me the opportunity to work with their organization on a good project. I am grateful to Dr.K.Sreeranganathan, of School of Management and Business studies, Mahatma Gandhi University, Kottayam for permitting me to conduct the project studies. I express my sincere gratitude to my industry guide Mr. Anand G Bedmutha (Finance Officer) HPCL, for his able guidance, continuous support and cooperation throughout my project, without which the present work would not have been possible Finally I thank my friends and family members for their affection and encouragement to make this work a success. To all of them, I am grateful in measures beyond words. ABHI P PRABHA 3
  • 5. TABLE OF CONTENT Sl.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. Particulars Profile of the company About the topic Meaning of Bank Reconciliation Reasons for difference between bank pass book and cash book Objectives of the study Scope and Limitation Research methodology Types of banking accounts at HPCL NOC Banking Account Reconciliation Bank Statement Entry /Upload Reviewing JDE bank statement Bank Statement Header Bank Statement Detail Auto reconcile Void Receipts Refresh Reconciliation File Bank Reconciliation Reconcile Self-balancing items(Bank Statement Side) Reconcile Self-balancing items(General Ledger Side) Reconciliation of Operating/Main Bank Accounts Conclusion Bibliography 5 Page no. 1-22 23 24-30 30-32 33 33 34 35 35 36 36-37 37 38 40 40 41 44 45 46 47 48
  • 6. PROFILE OF THE COMPANY PETROLEUM INDUSTRY IN WORLD The petroleum industry includes the global processes of exploration, extraction, refining, transporting (often by oil tankers and pipelines), and marketing petroleum products. The largest volume products of the industry are fuel oil and gasoline (petrol). Petroleum (oil) is also the raw material for many chemical products, including pharmaceuticals, solvents, fertilizers, pesticides, and plastics. The industry is usually divided into three major components: upstream, midstream and downstream. Midstream operations are usually included in the downstream category. Petroleum is vital to many industries, and is of importance to the maintenance of industrial civilization in its current configuration, and thus is a critical concern for many nations. Oil accounts for a large percentage of the world’s energy consumption, ranging from as low of 32% for Europe and Asia, up to a high of 53% for the Middle East. Other geographic regions’ consumption patterns are as follows: South and Central America (44%), Africa (41%), and North America (40%). The world consumes 30 billion barrels (4.8 km³) of oil per year, with developed nations being the largest consumers. The United States consumed 25% of the oil produced in 2007.[1] The production, distribution, refining, and retailing of petroleum taken as a whole represents the world's largest industry in terms of dollar value. Governments such as the United States government provide a heavy public subsidy to petroleum companies, with major tax breaks at virtually every stage of oil exploration and extraction, including for the costs of oil field leases and drilling equipment. 6
  • 7. EVOLUTION OF PETROLEUM INDUSTRY IN INDIA The origin of the Indian oil & gas industry can be traced back to the late 19th century, when oil was first struck at Digboi in Assam in 1889. At independence, oil exploration and production activities were largely confined to the North-Eastern region, particularly Assam and the daily crude oil production averaged just 5,000 barrels per day. In the downstream sector, the first refinery was set up at Digboi in 1901. In view of the significance of the oil & gas sector for overall economic growth, the Government of India, under the Industrial Policy Resolution of 1954, announced that petroleum would be the core sector industry. In pursuance of the Industrial Policy Resolution, 1954, petroleum exploration & production activity was controlled by the government-owned National Oil Companies (NOCs), namely Oil & Natural Gas Corporation (ONGC) and Oil India Private Ltd (OIL). With the discovery of the Cambay onshore basin (in 1958) and the Bombay offshore basin (in 1974), the domestic oil production increased considerably. As a result, in the early 70s, almost 70% of the country‟s oil requirement was met domestically. However, by the end of the 1980s, some of the existing oil & gas fields were experiencing a decline in their production since they had already been in production for several years and were past their 3 plateau phase. At the same time, there was a steady increase in consumption of oil & gas, leading the two NOCs to meet only about 35% of the domestic oil requirement. After the oil shock of 1970s, the nationalisation of both the upstream & downstream sectors was initiated and was completed on October 14, 1981. This resulted into the exit of the international oil companies from the Indian oil & gas industry. Moreover, the resource crunch in the beginning of the 1990s that held up the NOCs from developing some of the then newly discovered oil & gas fields (such as Gandhar, Heera Phase-II & III, Neelam, Ravva, Panna, Mukta, Tapti, Lakwa Phase-II, Geleki and Bombay High Final Development scheme), had adversely impacted domestic oil production. Apart from this, controls were imposed by the Government on the pricing and distribution of crude oil and petroleum products in India. Factors like the administered oil prices and non-availability of appropriate technology logistics augmented the problem. Upto 1990s, there were three rounds of exploration bidding with no success in finding new oil/gas deposits by the foreign companies who only were allowed to participate in the bidding process. This led the government to initiate Petroleum Sector Reforms (PSR) in 1990, under which the fourth, fifth, sixth, seventh and eighth rounds of exploration bidding were announced during 1991-94. For the first time, Indian companies with or without prior experience in exploration & production activities were allowed to participate in the bidding 7
  • 8. process during these rounds. In 1995, the Government announced the Joint Venture Exploration Programme. However, this was viewed as a deterrent by major private sector oil companies. This led the government to announce New Exploration Licensing Policy (NELP) in 1997 (operationalised in 1999) as part of its Hydrocarbon Vision 20251, a landmark 25-Year planning document. Under NELP, licenses for exploration are being awarded only through a competitive bidding system and NOCs are required to compete on an equal footing with Indian and foreign companies to secure Petroleum Exploration Licenses. In addition to NELP, other efforts were made to address the need for achieving energy security. These include: 1. Acquisition of Oil and Gas assets abroad; 2. Developing strategic storage facilities at identified locations; 3. Exploring alternate sources of Energy, including Coal Bed Methane, gas hydrates, etc; 4. Improving the recovery of oil and gas from existing fields through methods such as Enhanced Oil Recovery (EOR and Increased Oil Recovery (IOR). Consequent to the various initiatives taken by the government, currently the area under exploration has increased fourfold. Prior to implementation of NELP, 11% of Indian sedimentary basins area was under exploration. With the conclusion of seven rounds of NELP, the area under exploration has increased to about 50%. One of the world‟s largest gas discoveries was made by Reliance Industries Ltd in 2002, in Jamnagar (about 5 trillion cubic metres). Besides, the entry of international companies like Hardy Oil & Gas, Santo, GeoGlobal Resources Inc, Newbury, PETRONAS, Niko Resources and Cairn Energy into India has helped boost the growth of the industry. HPCL was formed in 1974 on nationalization of ESSO India operations. The operations of Caltex were merged in 1976. Hindustan Petroleum Corporation Limited today is the second largest integrated oil refining and marketing company in India and also a fortune 500 company with a turnover of Rs.646.89 billion (US$ 14,709 Millions). The Corporation has already been identified by the Government of India as a company which has the potential to become a global giant. The company employs about 11,088 people and has a market value of US $2.73 billion as of 2005. It faces stiff competition from Bharat Petroleum and Indian Oil Corporation. It is a mega Public Sector Undertaking (PSU) with Navratna status. 8
  • 9. COMPANY PROFILE HINDUSTAN PETROLEUM CORP. LTD. Type: Founded: Public (NSE, BSE) 1974 Headquarters: Mumbai Key People S Roy Choudhury (Chaiman & M D) Industry: Oil and Gas Products: Oil, Natural Gas, Petroleum, Lubricant, Petrochemical Revenue: US $ 28.59 billion (2011) Employees: 11250(2011) Website: HPCL accounts for 20.9 % of the market share and 10.3% of the nation‟s refining capacity with two coastal refineries, one at Mumbai (West Coast) having a capacity of 5.5 (Million Metric Tonnes Per Annum) MMTPA and the other in Vishakapatnam (East Coast) with a capacity of 7.5 MMTPA. HPCL also holds an equity stake of 16.95% in Mangalore Refinery & Petrochemicals Limited (MRPL), a state-of-the-art refinery at Mangalore with a capacity of 9 MMTPA. HPCL is well on its way towards setting up another grass root refinery in the state of Punjab, called Guru Gobind Singh Refineries Limited. HPCL also owns and operates the country‟s largest Lube Refinery, producing Lube Base Oils of international standards. With a capacity of 335,000 Metric Tonnes. This refinery accounts for over 40% of the country‟s total Lube Base Oil production. Besides, the Corporation 9
  • 10. owns 6 Lube Blending Plants (2 in Mumbai and 1 each at Budge, Ramnagar, Chennai & Silvassa) and a Lube oil pipeline for evacuation of base oil from Mumbai Refinery. Presently HPCL is producing over 300 grades of lubes, specialties and greases. HPCL is a Government of India Enterprise with a Navratna Status, and a Fortune 500 and Forbes 2000 company, with an annual turnover of Rs. 1,32,670 Crores and sales/income from operations of Rs 1,43,396 Crores (US$ 31,546 Millions) during FY 2010-11, having about 20% Marketing share in India among PSUs and a strong market infrastructure. HPCL's Crude Thruput and Market Sales (including exports) are 14.75 Million Metric Tonnes (MMT) and 27.03 MMT respectively in the same period. HPCL operates 2 major refineries producing a wide variety of petroleum fuels & specialties, one in Mumbai (West Coast) of 6.5 Million Metric Tonnes Per Annum (MMTPA) capacity and the other in Vishakapatnam, (East Coast) with a capacity of 8.3 MMTPA. HPCL holds an equity stake of 16.95% in Mangalore Refinery & Petrochemicals Limited, a state-of-theart refinery at Mangalore with a capacity of 9 MMTPA. In addition, HPCL is constructing a 9 MMTPA refinery at Bathinda, in the state of Punjab, as a Joint venture with Mittal EnergyInvestmentsPte.Ltd. HPCL also owns and operates the largest Lube Refinery in the India producing Lube Base Oils of international standards, with a capacity of 335 TMT. This Lube Refinery accounts for over 40% of the India's total Lube Base Oil production. . Presently HPCL produces over 300+ grades of Lubes, Specialitiesand Greases. HPCL's vast marketing network consists of 13 Zonal offices in major cities and 101 Regional Offices facilitated by a Supply & Distribution infrastructure comprising Terminals, Pipeline networks, Aviation Service Stations, LPG Bottling Plants, Inland Relay Depots & Retail Outlets, Lube and LPG Distributorships. HPCL, over the years, has moved from strength to strength on all fronts. The refining capacity steadily increased from 5.5 MMTPA in 1984/85 to 14.8 MMTPA presently. On the financial front, the turnover has grown from Rs. 2687 Crores in 1984-85 to an impressive Rs 1,32,670 Crores in FY 201011. HPCL has earned "Excellent" performance for fifteen Consecutive years upto 2005-06, since signing of the first MOU with the Ministry of Petroleum & Natural Gas. HPCL won the prestigious MOU Award for the year 2007-08 for Excellent Overall Performance, and for being one of the Top Ten Public Sector Enterprises who fall under the 'Excellent' category. HPCL's performance for the year 2008-09 also qualifies for "Excellent" rating. HPCL, over the years, has moved from strength to strength on all fronts. The refining 10
  • 11. thruput has increased three fold between 1984/85 to 2007/08, rising from 4.47 MMTPA in 1984/85 to 15.76 MMTPA(2009-10). Consistent excellent performance has been made possible by highly motivated workforce of over 11,360 employees working all over India at its various refining and marketing locations. HPCL continually invests in innovative technologies to enhance the effectiveness of employees and bring qualitative changes in service. Business Process Re-Engineering exercise, creation of Strategic Business Units, ERP implementation, Organizational Transformation, Balanced Score Card, Competency Mapping, benchmarking of refineries and terminals for product specifications, ISO certification of Refineries and Supply Chain Management are some of the initiatives that broke new grounds. HPCL has successfully integrated Information Technology in its activities at different levels. The Enterprise Resource Planning (ERP) system is now operational on J.D.Edwards, an Oracle product, across the Corporation. VISION, MISSION AND ORGANIZATION STRUCTURE VISION To be a World Class Energy Company known for caring and delighting the customers with high quality products and innovative services across domestic and international markets with aggressive growth and delivering superior financial performance. The Company will be a model of excellence in meeting social commitment, environment, health and safety norms and in employee welfare and relations MISSION "HPCL, along with its joint ventures, will be a fully integrated company in the hydrocarbons sector of exploration and production, refining and marketing; focusing on enhancement of productivity, quality and profitability; caring for customers and employees; caring for 11
  • 12. environment protection and cultural heritage. It will also attain scale dimensions by diversifying into other energy related fields and by taking up transnational operations." Organizational Structure of HPCL Organizational structure is framework of policies and rules, within which an organization arranges its lines of authority and communications, and allocates rights and duties. Organizational structure determines the manner and extent to which roles, power, and responsibilities are delegated, controlled, and coordinated, and how information flows between levels of management. This structure depends entirely on the organization's objectives and the strategy chosen to achieve them. In a centralized structure, the decision making power is concentrated in the top layer of the management and tight control is exercised over departments and divisions. In a decentralized structure, the decision making power is distributed and the departments and divisions have varying degrees of autonomy. HPCL is formal organization, controlled by the government of India. It is working with a specified organization policy. It has ethically sound policies and work always for the worth use of customers. In HPCL coordination, communication, tradition culture values are taken 12
  • 13. very care. BOARD OF DIRECTORS NAME DESIGNATION S Roy Choudhury B Mukherjee Chairman and Managing Director Director (Finance) K Murali Gitesh K Shah S K Roongta V Vizia Saradhi Nishi Vasudeva L N Gupta Anil Razdan Director Director Director Director (Human Resources) Director (Marketing) Director Director JOINT VENTURES AND SUBSIDIARY COMPANIES SUBSIDIARY COMPANIES 1. HPCL-Mittal Energy Ltd. (HMEL) 2. HPCL Bio fuels Limited (HBL) 3. CREDA-HPCLBiofuelLimited(CHBL) JOINT VENTURES  Hindustan Colas (HINCOL)  Prize Petroleum Company Limited  South Asia LPG Co Pvt. Ltd. ( SALPG) 13
  • 14.        Bhagyanagar Gas Limited (BGL) Aavantika Gas Limited Petronet India Limited (PIL) Petronet MHB Limited (PMHBL) Mangalore Refineries and Petrochemicals Limited (MRPL) Rajiv Gandhi Institute of Petroleum Technology (RGIPT) Sushrut Hospital and Research Centre HPCL-Mittal Energy Ltd (HMEL) JV with Mittal Energy Investments Pte. Ltd (MEI), Singapore, an L.N. Mittal group company, for implementation of Guru Gobind Refinery, a green field refinery project located at Bathinda,Punjab. HPCL and Mittal Energy Investments each have 49% stake, balance 2% with financial institutions IFCIL and State Bank of India. State-of-art refinery with an initial capacity of 9 MMTPA, costing around Rs 18,000 crores. The refinery is designed to process Arab Heavy Crude with flexibility to process other heavy / sour / acidic crudes. The configuration of the refinery includes primary units and secondary process units viz. CDU/VDU, VGO-HDT, FCC, NCU/ISOM, HGU, DHDT, SRU,DCU and Polypropylene manufacturing facilities. Other facilities include utilities such as CPP,Steam generation, Effluent Treatment plant, product storage etc. HPCL Bio fuels Limited (HBL) In line with Government‟s policy for blending of Ethanol, a new wholly owned subsidiary company HPCL Bio fuels Limited (HBL) was incorporated on October 16, 2009 to produce Ethanol for blending into Petrol. HBL has set up Ethanol plants for blending into petroleum fuels, through installation of integrated Sugar plant (3500 TCPD capacity), Ethanol plant (60 KLPD capacity) & Co-Gen power plant (20 MW capacity), one each at Sugauli in East Champaran District and Lauriya in West Champaran District of the State of Bihar Project commissioning activities are going on in full swing to start the commercial production as per schedule. Cane development activities are in progress. All the NOCs/Approvals/Licenses and permissions have been obtained and some of them are in final stage. The revised project cost is Rs. 727.88 Crores and project is mechanically completed in September 2011. CREDA-HPCL Biofuel Limited (CHBL) CREDA-HPCL Biofuel Limited is a Subsidiary company of Hindustan Petroleum Corporation Limited („HPCL‟), with Chhattisgarh State Renewable Energy Development Agency („CREDA‟) for the plantation of jatropha in the State of Chhattisgarh. CHBL was incorporated on 14th October 2008. Jatropha seeds are used for the production of bio-diesel as viable renewable source of energy. The Company‟s objective is to carry out jatropha 14
  • 15. planatation on 15,000 hectares of land leased to HPCL by the Govt. of Chhattisgarh. HPCL holds 74%, and CREDA holds 26% shareholding in CHBL. Hindustan Colas (HINCOL) JV promoted with M/s COLAS SA, France. Incorporated on July 17, 1995 Manufactures International quality value-added bituminous products such as bitumen emulsions cutbacks and modified bitumen. The turnover of the company crossed Rs.357 crores for the year 2010-11. The products of HINCOL are widely used by agencies associated with road construction. During 2010-11, the production of HINCOL was 159.39 MT. Currently operates seven manufacturing plants across India. Prize Petroleum Company Limited HPCL, in partnership with ICICI and HDFC, had formed this Joint Venture E & P Company for participating in exploration and production of hydrocarbons. Prize Petroleum Company Ltd (PPCL) was incorporated on October 28, 1998. PPCL is also providing consultancy services related to E & P.PPCL had signed Service Contract with ONGC for development of Hirapur Marginal Field in Cambay Basin with 50% holding in the consortium. PPCL is operator for the field and M/s. Valdel Oil & Gas Private Ltd is the Associate Contractor. PPCL had also entered into a Production Sharing Contract (PSC) with 50% Participating Interest in Sanganpur Block as Joint Operator For the period April-March 2011, 40,047 barrels of crude oil has been produced by PPCL. South Asia LPG Co Pvt. Ltd. ( SALPG) JV with Total Gas and Power India (a wholly owned subsidiary of Total of France) with HPCL's equity participation of 50% was incorporated on November 16, 1999. First of its kind in India, the underground SALPG Cavern facility for storing LPG was commissioned in December, 2007 and formally inaugurated by the Minister of Petroleum & Natural Gas on 14th January, 2008. Setup at the cost of Rs.333.30 crores,the Cavern Marine Terminal has a 60,000 MT capacity underground LPG storage Cavern and associated receiving & despatch facilities at Visakhapatnam. The SALPG Cavern is the largest LPG storage facility in South Asia with the lowest point 192 M below the Mean Sea Level (MSL) ranking among the deepest Caverns in the World. SALPG has obtained IMS certification from DNV for ISO 9001, ISO 14001, and OHSAS 18001. 15
  • 16. Bhagyanagar Gas Limited (BGL) JV with GAIL for distribution and marketing of environmental friendly fuels (green fuels) viz. CNG and Auto LPG for use in the transportation, domestic, commercial and industrial sectors, in the state of Andhra Pradesh. Incorporated on August 22, 2003. HPCL and GAIL, each, hold 22.5% of the equity while 5% is held by the Government of Andhra Pradesh and 50% by Strategic/Financial investors.BGL operates 8 CNG dispensing stations in Vijayawada, 5 in Hyderabad and 1 each at Kakinada and Rajahmundry. Aavantika Gas Limited Incorporated on June 07, 2006, is is a Joint Venture Company with GAIL for distribution and marketing of environmental friendly fuels (green fuels) viz. CNG and Auto LPG for use in the transportation, domestic, commercial and industrial sectors, in the State of Madhya Pradesh. As of March 2011, AGL is operating 1 CNG Mother Station at Indore and 7 Daughter Stations for dispensing CNG, 5 at Indore and 2 at Ujjain. During 2010-11 AGL achieved CNG sales of 5,939 MT and PNG Sales of 617 MT. Petronet India Limited (PIL) JV formed in May 1997, with 50% equity by Oil PSUs, HPCL holding 16% equity and balance 50% being taken by private companies/ Financial Institutions . PIL, with different oil companies, implement individual pipeline projects-like Petronet MHB, through Special Purpose Vehicles (SPVs). Since oil companies are now having pipelines independently, PIL has initiated action to disinvest its equity holding in individual JVs. Petronet MHB Limited (PMHBL) Promoted (PMHBL) with Petronet India Limited (PIL) for the construction and operation of Mangalore - Hassan - Bangalore product pipeline. HPCL & PIL each has 26% equity participation. ONGC with 23% equity has joined as a strategic partner. Meets fuel transportation needs between Mangalore, Hassan and Bangalore. Executed at a cost of Rs.667crores.After debt restructuring, equity holding of ONGC, HPCL and lending banks and PIL now stand at 16
  • 17. 28.77%, 28.77%, 34.57% and 7.89% respectively. In 2010-11, PMHBL achieved throughput of 2.576 MMT. Rajiv Gandhi Institute of Petroleum Technology (RGIPT) The Rajiv Gandhi Institute of Petroleum Technology (RGIPT), an Institute of national importance, was set up at Jais, Dist. Rae Bareli, Uttar Pradesh through an Act of Parliament. RGIPT is co-promoted as an energy domain specific institute by six leading Oil Public Sector Units (ONGC, IOCL, OIL, GAIL, BPCL and HPCL) in association with the Oil Industry Development Board (OIDB). The Institute is empowered to award degrees in its own right. The Institute associates with leading International Universities / Institutions specializing in the domain of Petroleum Technology. Sushrut Hospital and Research Centre HPCL is a major constituent of the Chembur Hospital Project Trust (CHPT - A public charitable trust) , which manages the hospital. Sushrut Hospital is a 90 Bedded, tertiary referral acute care private hospital. MAJOR PROJECTS: 1) Green Fuels and Emission Control Project-MR/Clean Fuels Project- VR 2) Mumbai-Pune Pipeline Extension. 3) Delhi - Mundra Pipeline. 4) Joint ventures /Subsidiaries. 5) Mangalore Refinery and Petrochemicals Ltd. 6) Punjab Refinery Project. 7) Prize Petroleum Co. Ltd. 17
  • 18. 8) South Asia LPG Co. Pvt. Ltd. 9) Bhagyanagar Gas Ltd. Products & Services offered Refineries: HPCL refineries upgrade the crude petroleum into many value-added products and over 300 grades of lubricants, specialties and greases. HPCL has two refineries. On the West Coast is the Mumbai Refinery with a capacity of 5.5 Million Metric Tonnes Per Annum, while the other at Visakhaptnam on the East Coast has a capacity of 7.5 Million Metric Tonnes Per Annum. The Lube Refinery at Mumbai is the largest in the country with a capacity of 335,000 Metric Tonnes Per Annum producing superior quality base oils. Both the refineries produce a number of value added products like petrol, high speed diesel oil, superior kerosene oil, liquefied petroleum gas, naphtha, aviation turbine fuel and others and over 300 grades of lubes, specialties and greases. Both the refineries have implemented and upgraded facilities to produce green fuels like unleaded petrol and low sulphur diesel. Aviation: Hindustan Petroleum has been providing aviation refueling (Aviation Turbine Fuel ATF) services at various airports in India for more than half a century. Its network covers all the major airports in India and is continuously expanding. Ten Aviation Service Facilities (ASFs) cater to the refueling requirements of both domestic as well as international airlines. At Mumbai, both domestic and international airports are directly connected to the refinery through a dedicated pipeline. Bulk Fuels & Specialities: The Bulk Fuel & Specialities Business unit caters to marketing of Bulk fuels & Petroleum products directly to Industrial consumers like power plants, chemicals, fertilisers, shipping companies and airlines. This unit is also involved in exports of Bulk fuels and finished Petroleum Products. International trade: 18
  • 19. The activities relate to Crude oil imports, Petroleum Product Imports / Exports, Shipping, Production planning for Refineries, Supplies for domestic Markets, and Product exchange with other Indian Oil Companies and Oil price risk management. LPG - HP GAS: HPCL has over 24% of market share of LPG business in the country. HP Gas, the HPCL brand of LPG, is bottled at 40 plants across the country with a total capacity of 1554 TMT per annum. The over 17 million LPG consumers of HPCL are serviced through a nationwide network of over 1865 dealers. Lubes - HP LUBES: HP Lubes is an integral part of Hindustan Petroleum Corporation Limited, one of India's frontline oil majors, committed to providing energy and fuelling growth in every significant area of development. The range of HP Lubes is comprehensive and catering to the minutest needs; from new generation cars to ploughing tractors and industrial machinery. Retail (Petrol Pumps etc.): The Retail Business Unit is oriented towards delivering better and faster service to consumers. The retails network consists of a nationwide network of over 4700 retail outlets and over 1600 SKO/LDO resellers. The scope of the HP petrol pump has been redefined. The consumers‟ larger interests are served by transforming the petrol pump into a one-stop convenience outlet t where one can shop for anything from fuels to grocery and lubricants to gifts. A nationwide chain of convenience stores has been set up at HP petrol pumps. A number of outlets provide customers Internet access while instant access to cash through ATMs of leading banks is available at prominent locations. Exploration & Production: HPCL has ventured into new business opportunities to access additional revenue streams and to emerge as an integrated energy company. The Corporation‟s foray into the upstream sector would provide access to equity oil to ensure energy security. HPCL Plans to invest approx. US $500 Million in the Upstream Sector during the current XI plan ending 2011 2012. Joint Ventures: Opportunities are also being explored to access new revenue streams, and augment downstream businesses. Accordingly, HPCL has ventured in upstream activities (Exploration and Production) and piped gas distribution with joint ventures like HPCLMittal Energy Ltd., Hindustan Colas, Prize Petroleum Company Limited, South Asia LPG Co Pvt. Ltd., Bhagyanagar Gas Limited, Aavantika Gas Limited, Petronet India Limited, Petronet MHB Limited, Mangalore Refineries and Petrochemicals Limited, CREDA-HPCL Bio fuel Limited, Sushrut Hospital and Research Centre. Alternate Energy: 19
  • 20. HPCL's maiden renewable & alternate energy Wind Energy Generator was commissioned at Dhule in Maharashtra State in May 2007. Power generated from this venture is being sold to the Maharashtra State Electricity Board (MSEB). HPCL commissioned another Wind power project in Jaisalmer in Rajasthan State on 1st January 2009. The power generated is wheeled through the Rajasthan State Electricity grid and is partly consumed by HPCL‟s centers at Ajmer, Jaipur, Kota, Pali and Jodhpur. Surplus power is being sold to Rajasthan State Electricity Board. (RSEB). HISTORY 1952 - The Company was incorporated in the name of Standard Vacuum Refining Company of India Limited on July 5, 1952 under the Indian Companies Act, VII of 1913. 1962 - On 31st March the name was changed to ESSO Standard Refining Company of India Limited. 1974 - On July 15th the name of the company was changed to its present Name Hindustan Petroleum Corporation Limited., by virtue of Lube India And ESSO Standard Refining Company of India Limited Amalgamation Order. 1974 -Dated July 12, passed by the Company Law Board, Department of Company Affairs, GOI, New Delhi and as published in the Gazette of India Extra-Ordinary GSR No.320(E) dated July 15. A certificate to this effect was issued by the Registrar of Companies, Mumbai on September 4th. 1976 - With the nationalisation of Caltex Undertakings in India the same were also taken over by the Government of India and subsequently merged with HPCL. 20
  • 21. 1979 - The undertakings of Kosangas Company Ltd. were merged with HPCL. As part of the disinvestment in PSUs, shares of HPCL were sold by the Government to Financial Institutions, Mutual Funds and Banks. Presently the Government holding in HPCL is 60.31%. The balance is being held by Financial Institutions, Mutual Funds, Banks, Foreign Institutional Investors, Employees and Individual Shareholders. 1983 - The capacity of lube plant was increased by an additional 74,000 tonnes per annum of high viscosity index lube base stocks. 1985 - The crude unit and related off-sites were commissioned in January and fluid catalytic cracking unit was commissioned in August. - During the year corporation embarked upon a project to expand the crude distillation capacity at Mumbai by 2 million tonnes per annum at an estimated cost of Rs.45 crores. This project was commissioned in April. 1988 - Mangalore Refineries & Petrochemicals Ltd., is the first joint sector refinery being set up in the country after the Government has allowed entry of the private sector in the petroleum refining industry. 1989 - During the year corporation installed the latest C-generations concept 3*10 MW gas turbines to meet the power requirement at Bombay Refinery with facilities to generate steam simultaneously. 1991 - During September 3*10 MW gas turbine generators and heat recovery steam generators were commissioned at a cost of Rs.79.22 crores at Mumbai. 21
  • 22. 1994 - In March 1993, an MOU was signed between the Government of India,HPCL, Government of Sultanate of Oman and Oman Oil Company to form a Joint Venture Company. Accordingly, on March 4, Hindustan Oman Petroleum Company Ltd. (HOPCL) was incorporated. The project is estimated to cost approx. Rs. 4426 crores (at June prices) and both promoters will have a 26% stake each in the equity. 1995 - During February, the company issued 173,50,000 equity shares of Rs.10 each with detachable warrants of Rs.380 - During the year company entered into a MOU with Saudi Arabian Oil Co.(Saudi Armaco) for setting up a 1 million tonnes p.a refinery Punjab. Armaco would contribute to the extent of 26% in the equity capital of the company. 1996 - During the year March a joint venture with Colas S.A of France, the company commenced its first State-of-the-art Bitumen emulsion Plant of 20,000 TPA capacity at Vashi, named Hindustan Coalas Ltd. 1997 - A new Terminal was commissioned at Kakinada with 30000 KL Tankage and allied facilities at a cost of Rs. 15.06 crores. 1998 - Hindustan Petroleum Corporation Ltd (HPCL) has signed a commercial agreement with Kondapalli Power Corporation Ltd (KPCL) for the supply of naphtha for the latter's 355-MW combined cycle power generation unit at Kondapalli in Krishna district of Andhra Pradesh. 22
  • 23. - State owned Hindustan Petroleum Corporation's (HPCL) joint venture with Aditya Birla Group, Mangalore Refineries and Petrochemicals Ltd(MRPL), is keen to set up an independent marketing network. 1999 - American Express and Hindustan Petroleum Corporation has signed a memorandum of understanding (MoU) for card acceptance at various gas stations. - Hindustan Petroleum Corporation Ltd (HPCL) and Gas Authority of India Ltd (GAIL) have entered into an agreement for setting up a liquefied petroleum gas (LPG) pipeline and infrastructure from Visakhapatnam to Secunderabad via Rajamundry and Vijayawada. 2000 - Scheme of amalgamation of Industrial Perfumes Ltd. with the company is effective from 9th February, with retrospective effect from 1st January, 1999. 2001 - Hindustan Petroleum Corporation Ltd. has introduced its smart card in Bangalore for the first time in the country. 2002 - Hindustan Petroleum Corporation Ltd has informed that the Government of India has appointed Shri Arun Balakrishnan as Director-Human Resources of the Corporation. -M B Lal appointed as Chairman & M D of HPCL. -Hindustan Petroleum Corporation Ltd has informed that Shri Naresh Narad, Special Secretary, Ministry of Petroleum & Natural Gas has ceased to be a part time ex-officio Director of the Corporation with effect from November 11, 2002 consequent upon his movement from Ministry of Petroleum & Natural Gas, as Secretary, Ministry of Heavy Industries & Public Enterprises. 2004 -HPCL - Marketing Initiatives in Sri Lanka 23
  • 24. - Hindustan Petroleum Corporation Ltd (HPCL) has formed a 50:50 joint venture with Total Gas and Power India (TGPI), a wholly-owned subsidiary of Total France, to develop the biggest underground 'Cavern LPG Storage' project at Visakhapatnam 2006 -Nirlep Appliances Ltd, manufacturer of cookware, has entered into a marketing pack with HPCL for marketing non-stick cookware, regular inner and outer lid pressure cookers and gas stoves. 2007 -Hindustan Petroleum Corporation Ltd (HPCL) has informed that Shri.Arun Balakrishnan earlier Director (HR) has taken charge as Chairman & Managing Director of the Company effective April 01, 2007 (AM). 2008 -Hindustan Petroleum Corporation Ltd (HPCL) has informed that Shri. L N Gupta, Joint Secretary Refineries, Ministry of Petroleum & Natural Gas (MOP&NG) has been co-opted as part-time exofficio Director on the Board of HPCL at the Board Meeting held on June 25, 2008 (PM). 2009 - Hindustan Petroleum Corporation Ltd (HPCL) has appointed following firms as statutory / Branch Auditors for the Financial year 2009-10. V. Sankar Aiyar & Co. : Joint Statutory Auditor Om Agarwal & Co. : Joint Statutory Auditors Gandhy & Co. : Branch Auditors for Visakh Refinery. 2010 24
  • 25. - Hindustan Petroleum Corporation Ltd (HPCL) has appointed Dr. Gites K. Shah as Part-time NonOfficial Director on the Board of HPCL effective December 07, 2009. REFINERIES  Mumbai Refinery - 5.5 Million Metric Tonnes (MMT) Capacity  Visakhapatnam Refinery – 8.3 MMT at Visakhapatnam  Mangalore Refinery Pvt. Ltd. – 9.69 MMT at Mangalore, Karnataka(HPCL has 16.65 % Stake).  Guru Gobind Singh Refinery – 9 MMT at Bhatinda, Punjab(HPCL & Mittal Energy each have 49% stake). International rankings HPCL is a Fortune Global 500 company as per the ranking of 2011 and was ranked at position 311. HPCL was featured on the Forbes Global 2000 list for 2009 at position 1002. 25
  • 26. It is 10th most valuable brand in India according to an annual survey conducted by Brand Finance and The Economic Times in 2010. Leadership Style: Control: HPCL has undertaken a Business Process Re-engineering (BPR) study with the assistance of M/s. Arthur Andersen & Associates to sharpen the Corporation's competitive edge in critical areas of operations, and specially the challenges arising out of deregulation of the Petroleum Sector, to make the organization more responsive to market requirements and to update information technology for quicker decision making. The conclusions of the BPR study have been accepted by the Management and are under implementation in all major areas of activity. The exercise includes: • Creation of 4 Strategic Business Units (SBUs) within Marketing - Lubricants, Retail, I&G and LPG. • Development of an action plan to reposition and strengthen the Lubricants business. • Decentralization of the purchase functions to SBUs to quicken purchase process. • Broad banding of various positions, to allow greater continuity and development of expertise. • Delayering/flattening the organization to quicken decision making process. • Enterprise Resource Planning (ERP) system to meet the long-term information technology needs of the Corporation. HPCL has kept itself abreast with the developments in the field of Information Technology, deploying state-of-the-art computers and systems for its activities. The apex level decision making authority is the Board of Directors of HPCL, except for matters which, as per the Companies Act 1956 are to be decided by the shareholders in the Annual General Body Meeting. The Board has constituted several sub committees, such as Committee of Functional Directors (CFD), the Audit Committee, the Investment Committee, the HR Committee, the Investor Grievance Committee, etc. The meetings of these committees are convened on need basis and the minutes of these meetings are placed 26
  • 27. for information of the Board. Majority of the members of the Committees except the CFD are independent Non-Executive of Government nominated directors with the whole time directors playing a facilitating role. The Corporation has constituted an Executive Council comprising of C&MD, the Functional Directors and the Business Unit Heads. This Council discusses important issues concerning the organization, analyze the same and recommend the „way forward‟ in respect of matters discussed. The emphasis laid by this council is on team approach, mutual support of functions and joint deliberations on issues which has enhanced further the decision making process. It has thus facilitated an integrated thinking process and an aligned approach across the Corporation for achieving the Corporate Vision. Exercise of Authority: The Corporation has well documented Limits of Authority Manual, Purchase Manual, Chart of Accounts, etc, facilitating the decision making process at various levels within the organization. Limits of Authority Manual: LAM, as it is called, lays down the authorities that can be exercised at various levels, i.e. the Board, Committee of Functional Directors, the Executive Committee, the Contracts Committee, the Bids Committee and also the senior individual positions, etc. for different activities of the Corporation. The manual is divided into segments representing different functions like Sales, Crude & Shipping, Capital Projects, Operations & Distribution, Finance, HR etc., and provides for a decision making process through various committees as above, represented by inter-functional groups including Finance. This ensures a transparent and streamlined decision making process adhering to the laid down systems and procedures and thereby leaving no room for arbitrariness. The Committee of Functional Directors has delegated further powers to various subcommittees within the organization, viz., Contracts Committee, Bids Committee, Credit Committee etc. Feedback: The Corporation believes that the key to organizational excellence is human resource development. It has around 11,500 employees and its policies are employee oriented. HPCL's performance appraisal system ensures growth based on merit as well as seniority. It 27
  • 28. has a residential training institute at Nigdi near Pune and it has always been the Corporation's endeavor to constantly upgrade the skills of its personnel. ABOUT THE TOPIC 28
  • 29. INTRODUCTION A company's general ledger account Cash contains a record of the transactions (checks written, receipts from customers, etc.) that involve its checking account. The bank also creates a record of the company's checking account when it processes the company's checks, deposits, service charges, and other items. Soon after each month ends the bank usually mails a bank statement to the company. The bank statement lists the activity in the bank account during the recent month as well as the balance in the bank account. When the company receives its bank statement, the company should verify that the amounts on the bank statement are consistent or compatible with the amounts in the company's Cash account in its general ledger and vice versa. This process of confirming the amounts is referred to as reconciling the bank statement, bank statement reconciliation, bank reconciliation, or doing a "bank rec." The benefit of reconciling the bank statement knows that the amount of Cash reported by the company (company's books) is consistent with the amount of cash shown in the bank's records. Because most companies write hundreds of checks each month and make many deposits, reconciling the amounts on the company's books with the amounts on the bank statement can be time consuming. The process is complicated because some items appear in the 29
  • 30. company's Cash account in one month, but appear on the bank statement in a different month. For example, checks written near the end of August are deducted immediately on the company's books, but those checks will likely clear the bank account in early September. Sometimes the bank decreases the company's bank account without informing the company of the amount. For example, a bank service charge might be deducted on the bank statement on August 31, but the company will not learn of the amount until the company receives the bank statement in early September. From these two examples, we can understand why there will likely be a difference in the balance on the bank statement vs. the balance in the Cash account on the company's books. It is also possible (perhaps likely) that neither balance is the true balance. Both balances may need adjustment in order to report the true amount of cash. After you adjust the balance per bank to be the true balance and after you adjust the balance per books to also be the same true balance, you have reconciled the bank statement. BANK RECONCILIATION Bank reconciliation is a process that explains the difference between the bank balance shown in an organization's bank statement, as supplied by the bank, and the corresponding amount shown in the organization's own accounting records at a particular point in time. Such differences may occur, for example, because a cheque or a list of cheques issued by the organization has not been presented to the bank, a banking transaction, such as a credit received, or a charge made by the bank, has not yet been recorded in the organization's books, or either the bank or the organisation itself has made an error. It may be easy to reconcile the difference by looking at very recent transactions in either the bank statement or the organisation's own accounting records (cash book) and seeing if some combination of them tallies with the difference to be explained. Otherwise it may be necessary to go through and match every single transaction in both sets of records since the last reconciliation, and see what transactions remain unmatched. The necessary adjustments should then be made in the cash book, or any timing differences recorded to assist with future reconciliations. 30
  • 31. For this reason, and to minimise the amount of work involved, it is good practice to carry out such reconciliations at reasonably frequent intervals. Reconciliations are generally performed by specialised accounting software though the understanding of what occurs is important for a successful reconciliation OBJEICTIVES OF BANK REICONCILIATION STATEMENT  To know the correct bank balance.  To record the correct balance of cash at bank in the trial balance and the balance sheet.  To make necessary adjustments prior to the end of the term.  To find out the errors if any and to correct them in time.  For the completion of cash records.  To verify the payment made through checks.  To know the amounts of checks and draft collected. 31
  • 32. Bank Reconciliation Process Step 1. Adjusting the Balance per Bank We will demonstrate the bank reconciliation process in several steps. The first step is to adjust the balance on the bank statement to the true, adjusted, or corrected balance. The items necessary for this step are listed in the following schedule: Step 1. Balance per Bank Statement on Aug. 31, 2011 Adjustments: Add: Deposits in transit Deduct: Outstanding checks Add or Deduct: Bank errors Adjusted/Corrected Balance per Bank Deposits in transit are amounts already received and recorded by the company, but are not yet recorded by the bank. For example, a retail store deposits its cash receipts of August 31 into the bank's night depository at 10:00 p.m. on August 31. The bank will process this deposit on the morning of September 1. As of August 31 (the bank statement date) this is a deposit in transit. Because deposits in transit are already included in the company's Cash account, there is no need to adjust the company's records. However, deposits in transit are not yet on the bank statement. Therefore, they need to be listed on the bank reconciliation as an increase to the balance per bank in order to report the true amount of cash. 32
  • 33. A helpful rule of thumb is "put it where it isn't." A deposit in transit is on the company's books, but it isn't on the bank statement. Put it where it isn't: as an adjustment to the balance on the bank statement. Outstanding checks are checks that have been written and recorded in the company's Cash account, but have not yet cleared the bank account. Checks written during the last few days of the month plus a few older checks are likely to be among the outstanding checks. Because all checks that have been written are immediately recorded in the company's Cash account, there is no need to adjust the company's records for the outstanding checks. However, the outstanding checks have not yet reached the bank and the bank statement. Therefore, outstanding checks are listed on the bank reconciliation as a decrease in the balance per bank. Recall the helpful tip "put it where it isn't." An outstanding check is on the company's books, but it isn't on the bank statement. Put it where it isn't: as an adjustment to the balance on the bank statement. Bank errors are mistakes made by the bank. Bank errors could include the bank recording an incorrect amount, entering an amount that does not belong on a company's bank statement, or omitting an amount from a company's bank statement. The company should notify the bank of its errors. Depending on the error, the correction could increase or decrease the balance shown on the bank statement. (Since the company did not make the error, the company's records are not changed.) Step 2. Adjusting the Balance per Books The second step of the bank reconciliation is to adjust the balance in the company's Cash account so that it is the true, adjusted, or corrected balance. Examples of the items involved are shown in the following schedule: Step 2. Balance per Books on Aug. 31, 2011 Adjustments: 33
  • 34. Deduct: Bank service charges Deduct: NSF checks & fees Deduct: Check printing charges Add: Interest earned Add: Notes Receivable collected by bank Add or Deduct: Errors in company's Cash account Adjusted/Corrected Balance per Books Bank service charges are fees deducted from the bank statement for the bank's processing of the checking account activity (accepting deposits, posting checks, mailing the bank statement, etc.) Other types of bank service charges include the fee charged when a company overdraws its checking account and the bank fee for processing a stop payment order on a company's check. The bank might deduct these charges or fees on the bank statement without notifying the company. When that occurs the company usually learns of the amounts only after receiving its bank statement. Because the bank service charges have already been deducted on the bank statement, there is no adjustment to the balance per bank. However, the service charges will have to be entered as an adjustment to the company's books. The company's Cash account will need to be decreased by the amount of the service charges. 34
  • 35. Recall the helpful tip "put it where it isn't." A bank service charge is already listed on the bank statement, but it isn't on the company's books. Put it where it isn't: as an adjustment to the Cash account on the company's books. An NSF check is a check that was not honored by the bank of the person or company writing the check because that account did not have a sufficient balance. As a result, the check is returned without being honored or paid. (NSF is the acronym for not sufficient funds. Often the bank describes the returned check as a return item. Others refer to the NSF check as a "rubber check" because the check "bounced" back from the bank on which it was written.) When the NSF check comes back to the bank in which it was deposited, the bank will decrease the checking account of the company that had deposited the check. The amount charged will be the amount of the check plus a bank fee. Because the NSF check and the related bank fee have already been deducted on the bank statement, there is no need to adjust the balance per the bank. However, if the company has not yet decreased its Cash account balance for the returned check and the bank fee, the company must decrease the balance per books in order to reconcile. Check printing charges occur when a company arranges for its bank to handle the reordering of its checks. The cost of the printed checks will automatically be deducted from the company's checking account. Because the check printing charges have already been deducted on the bank statement, there is no adjustment to the balance per bank. However, the check printing charges need to be an adjustment on the company's books. They will be a deduction to the company's Cash account. Recall the general rule, "put it where it isn't." A check printing charge is on the bank statement, but it isn't on the company's books. Put it where it isn't: as an adjustment to the Cash account on the company's books. 35
  • 36. Interest earned will appear on the bank statement when a bank gives a company interest on its account balances. The amount is added to the checking account balance and is automatically on the bank statement. Hence there is no need to adjust the balance per the bank statement. However, the amount of interest earned will increase the balance in the company's Cash account on its books. Recall "put it where it isn't." Interest received from the bank is on the bank statement, but it isn't on the company's books. Put it where it isn't: as an adjustment to the Cash account on the company's books. Notes Receivable are assets of a company. When notes come due, the company might ask its bank to collect the notes receivable. For this service the bank will charge a fee. The bank will increase the company's checking account for the amount it collected (principal and interest) and will decrease the account by the collection fee it charges.Since these amounts are already on the bank statement, the company must be certain that the amounts appear on the company's books in its Cash account. Recall the tip "put it where it isn't." The amounts collected by the bank and the bank's fees are on the bank statement, but they are not on the company's books. Put them where they aren't: as adjustments to the Cash account on the company's books. Errors in the company's Cash account result from the company entering an incorrect amount, entering a transaction that does not belong in the account, or omitting a transaction that should be in the account. Since the company made these errors, the correction of the error will be either an increase or a decrease to the balance in the Cash account on the company's books. Step 3. Comparing the Adjusted Balances After adjusting the balance per bank (Step 1) and after adjusting the balance per books (Step 2), the two adjusted amounts should be equal. If they are not equal, you must repeat the process until the balances are identical. The balances should be the true, correct amount of cash as of the date of the bank reconciliation. Step 4. Preparing Journal Entries 36
  • 37. Journal entries must be prepared for the adjustments to the balance per books (Step 2). Adjustments to increase the cash balance will require a journal entry that debits Cash and credits another account. Adjustments to decrease the cash balance will require a credit to Cash and a debit to another account Reasons of difference between cash book & pass book balance: Cheque issued but not presented for payment: When cheque are issued then immediately make entry in the cash book. The cheque issued can be presented for payment to the bank within three month from the date of cheque as per banking law. The cheques are presented for payment after the expiry of the above period then payment is refused by the bank. This cheque is also known as stale cheque. It is possible at the time when the balances of the two books are being compared, thus more chances of causing a disagreement b/w the two balances. Cheque paid into the bank but not yet cleared: As soon as the cheques are deposited into the bank, the immediately entry is passed in the cash book. This will make entry in pass book only when cheques are cleared. It is possible at the time when the balances of the two books are being compared, thus more chances of causing a disagreement b/w the two balances. Interest allowed by the bank: Bank might have credited the account of the customer with the interest and may have made the entry in the pass book. It is possible that the entry of such interest may not have been made by the customer in the cash book, thus causing a disagreement b/w the two balances. Interest and Bank charges debited by bank: Sometime bank charges interest from the customer then immediately entry in the pass book but not in cash book. so, in this case when check the balance b/w cash and bank book then disagreement b/w the two balances. So, it is the main reason to create difference b/w two books. 37
  • 38. Interest, dividend collected by the bank: sometime interest on government security or dividend on share is collected by the bank and is credited to customer account. If the entry does not appear in the cash book then balance will differ. Direct payment by bank: Sometimes, standing instruction from the clients that, certain payment like insurance premium, club fees instalment etc. are made by the bank. Then this entry is recorded only in the pass book. This entry is made in the cash book only when the necessary intimation to that effect is received from the bank by the client. The entries in the cash and pass book may be on different dates. Direct payment into the bank by a customer: Sometimes, our customer deposit money direct into the account in the bank. It is only recorded in the pass book not in the cash book. It is possible at the time when the balances of the two books are being compared, thus more chances of causing a disagreement b/w the two balances. Dishonour of bill discounted with the bank: Sometimes, customers get their bills discounted with the bank. If the bank is not able to get payment of these bills on the due date. it will debit the customer account with the amount of the bills together with the nothing charges if any. The customer will pass the entry in the cash book only. when balance of the two books are being compared, thus more chances of causing a disagreement b/w the two balances. Dishonour of cheque: When the received cheques are deposited into bank, these are immediately recorded in the cash book. As a result cash book balance is increased. but the deposited cheque is dishonoured due to lack of funds or due to other reasons. Bank does not credit the amount of the depositor as a result disagreement b/w the two balances. Error and omissions: If any error is committed either by the bank or by a customer in the cash book While recording a transaction in their respective books, it 38
  • 39. Causing a disagreement b/w the two balances. the error may be: 1. Under cast/overcast of receipt side or payment side. 2. Bank charges omitted from the banks or recorded twice in the books. 3. Wrong carry forward of cash book balance. 39
  • 40. OBJECTIVES OF THE STUDY  To know preparation of Bank Reconciliation at HPCL.  To know the efficiency of preparation.  To analyse the factors relating to differences in bank account and GL. SCOPE AND LIMITATIONS Scope This study has been conducted in the Hindustan Petroleum Corporation (Regional office)Mumbai. It covers the preparation of the bank reconciliation in HPCL and the problems encountered in the preparation of the same. The study is mainly done to find out various cause of the unmaching of reconciliation.It does not cover other aspects of accounting. Limitations The report is limited to the Hindustan Petroleum Corporation Regional Office at Vashi. For taking Bank Reconciliation as a project gives only a small area of operation. 40
  • 41. Research methodology Research design: Methodology is a systematic procedure of collecting information in order to analyze and verify a phenomenon. The collection of data through two principle sources viz. (1) Primary data (2) Secondary data PRIMARY DATA: It is the information collected directly without any reference. In the study it was mainly interviews with concerned officers and staffs. Some of the information had verified or supplemented with personal observation, the data collected through conducting the personal interview with my project guide in HINDUSTAN PETROLEUM CORPORATION LIMITED. SECONDARY DATA: The secondary data was collected from already published reports of Hindustan Petroleum Corporation Limited. Reference from text books and relating to Bank Reconciliation. 41
  • 42. PREPARATION OF BANK RECONCILIATION AT HPCL Types of Banking Accounts at HPCL:   Non-Operative Collection Bank Account (NOC) Operating Bank Accounts and Main Bank Accounts NOC Bank Account Reconciliation Following steps are involved in reconciliation for a NOC Bank Accounts for the location:        Bank Statement Entry/Upload Review Bank Statement Auto Reconcile Void Receipts Refresh Reconciliation Bank Reconciliation Reconcile self-balancing items (Bank Statement side) Reconcile self-balancing items (General Ledger side) 1. Bank Statement Entry/ Upload The user depending on the requirements will use any one of the following methods of creating a bank statement: In cases where the user receives a printed Bank Statement only, he/ she will enter each transaction from the statement in the system using an interactive program “Review Bank Statement”. In cases where a location receives Bank Statement in electronic format such as a DBF file, the file needs to be formatted in specific format .Locations can create the requisite format in an MS Excel worksheet and upload the electronic bank statement received from the bank in it. PREPARATION For copying the Bank Statement records from the Excel File to the Bank Statement Detail just select the cells in the Excel file and click copy. On the Bank Statement Detail click on the first cell on the grid and press “Ctrl‟ + „v‟. The records will get created in the detail section. Wait for all the records to get read by the system. Finally the cursor will come to rest on the last row with data in it. Bring the cursor down to the last blank row. Click „OK‟. While uploading the records in this manner care should be taken to see that the dates (Value date and GL date) are in DD/MM/YYYY format with 42
  • 43. only “/” as the separator. Using “-“ or “.” as the separator will result in the Default GL date from the Header to be entered in the records. From your Location specific Bank Reconciliation menu, select Review JDE Bank Statement (P09160). The following screen appears: 2. Reviewing JDE Bank Statement The Bank Statement so obtained above would be an exact replica of the Statement received from your Bank for that period. If required, even at this stage this can be revised to make it an exact replica of the Bank Statement. The appearance of this JDE Bank Statement is the same as the Dummy Bank Statement. PREPARATION From your Location specific Bank Reconciliation menu, select Review JDE Bank Statement (P09160). The following screen appears: 43
  • 44.  Bank Statement Header The user may ensure that the Bank Statement created in the system using the above described method ties to the opening and closing balance as per Bank Statement. The following fields need to be entered and reviewed carefully: Beginning Balance Enter the opening balance as per Bank Statement Ending Balance Enter the closing balance as per Bank Statement Total Withdrawal The system updates this total after entry of each transaction with a negative amount in the detailed part of the form. Total Deposit The system updates this total after entry of each transaction with a positive amount in the detailed part of the form. Remaining Amount After you enter the first transaction, the system displays a remaining amount. The remaining amount changes as you enter each subsequent transaction. When the remaining amount is zero, the statement is in balance. 44
  • 45.  Bank Statement Detail Sr. Field No. NOC Accounts Main Bank Operating Accounts Description Accounts 1 Transaction Code BDS BDS / CK BDS / CK / Hard Coded / JE / OTH JE / OTH / / TT TT 2 Amount Required Required Required Amount deposited/withdrawn 3 Value Date Required Required Required Original Date – Value Date (Date on which the bank debits/credits the bank account. 4 GL Date Required Required Required Date on which the transaction is booked 5 Reference BDS Number HPCL Location Code Cheque Number for BDS / CK, 0 for others 6 Doc. Type Required Required Required  Transaction Code Glossary: Transaction Description/ usage Document Type Code JE You can write a journal entry to record an adjustment made by JB the bank, such as a service charge or a Telegraphic Transfer (TT) fee. When you reconcile bank statements, the system updates the Account Ledger table with a journal entry between the bank account and the G/L account that you specify in the Account Number field in the Details option of the exit bar. During Reconciliation, the system marks transactions with this 45
  • 46. code as reconciled. BDS This transaction code is used in case of BDS credits and TT JG entries, which have to be reconciled for Value Date, Amount and document reference. Please note that this code indicates to the system that for reference, the matching has to be done from Bank Statement Reference (Payment/ Rcpt No field) to Reference 2 field of the General Ledger Reconciliation Work Table file. OTH This transaction code is used for all other transactions including JB Payment and Journal Entries and the matching is done based on Document Reference Number (Payment/ Rcpt No field) to Reference 1 of the General Ledger Reconciliation Work Table file. TT This transaction code is used to create Transfer entries (in/out) JB to other bank accounts. There is no need to give the other account number in the Detail exit bar, as this account number is hard coded in the Bank Account information set-up. During Reconciliation, the system marks transactions with this code as reconciled. 46
  • 47. 3. Auto Reconcile Void Receipts: PREPARATION From your Location specific Bank Reconciliation menu, select Auto Reconcile Void Receipts. This program is to be run before the Refresh Reconciliation File program is run so that zero-amount and voided receipts are not included in the worktable. Auto Reconcile Void Receipts: From the Account Reconciliation menu, choose Auto Reconcile Void Receipt. The system selects receipts that were voided manually. The Auto Reconcile Void Receipt program marks voided receipts as reconciled in the Account Ledger table. 4. Refresh Reconciliation File The “Refresh” application extracts all the transactions from GL Bank Account that are not previously reconciled to a temporary work file. This application needs to be run before running the bank reconciliation application viz. “Bank Statement Journal Processing”. The “Bank Statement Journal Processing” application, which completes the matching process, uses this work file and the Bank Statement created above. This application uses a date range provided in the Processing Option. It is very important to remember to leave the from date as <Blank> which would ensure to pick up all the open transactions of the GL Bank Account that is being refreshed. PREPARATION From your Location specific Bank Reconciliation menu, select Refresh Reconciliation (R09130). At the Data Selection dialog box, enter the short account ID of your GL Bank Account. Then click „OK‟ to submit the data selection. Upon submitting the data selection, the system will prompt at Processing Options dialog box. Review and/or update the Processing Options. Give the appropriate through date for which the worktable is to be refreshed. 47
  • 48. 5. Bank Reconciliation The last step is to complete the matching of records between the General Ledger Bank Account records with the corresponding Bank Statement records. The application should be run in “Proof” mode first. At this time, the system will not generate any entries. The application has several matching iterations that could run to drop items depending upon the user requirement. The following Matrix shows each iteration to be used, and the case in which it should be used. Using of iterations in a wrong sequence would result in erroneous results. When Processing Bank Statements across multiple periods: While reconciling Bank Statements for multiple periods, run the reconciliation report for respective Bank Statement separately. This can be achieved by giving the respective Statement Date as an additional Data Selection criteria. PREPARATION From your location specific menu, select GL Bank Statement Reconciliation – Proof/Final (R55B170). At the Data Selection dialog box, verify that it contains the short account ID of your GL Bank Account and reconciliation code of not equal to „R‟. Then click „Ok‟ to submit the data selection. Upon submitting the data selection, the system will prompt at Processing Options dialog box. Review and/or update the Processing Options. Of these, the Variance tab contains the iterations, which will be the basis on which the records are reconciled. Use the information below for entering the iterations as required for running the Bank Reconciliation. Iteration Transaction Code Main/Local Bank Consolidation 0 1 2 3 4 5 BDS Main Off NA Y Y Y Y N BDS Local (NOC) On NA N N N N Y BDS Local (NOC) Off NA Y Y Y Y Y OTH / CK Local (Optg) On Y N N N N N OTH / CK Local (Optg) Off Y N N N N N 48
  • 49. The values in the above table determine the basis for the iteration: 0 = Check No + Amount This iteration compares the Check No and Amount fields on the GL and Bank Statement side for an exact match. 1 = Value Date + Amount This iteration compares the Value date of the Bank statement with the value date in the GL (Check Date field) and the amount fields on both sides for an exact match. 2 = Doc No + Date + Amount This iteration compares the Value date of the Bank statement with the value date in the GL (Check Date field), the Amount fields on both sides and the Reference 2 field with the Pymnt/Rect Number field on the Bank Statement side. It also checks for BDS or Reference 1 field in the GL with the Pymnt/Rect Number field on the Bank Statement side for other transactions for an exact match. 3 = Doc No + Date (+/- 5 days) + Amount This iteration uses the same fields as that in Iteration 2 but with a number of days tolerance set to 5 days 4 = Doc No + Date + Amount (+/- Tolerance) This iteration uses the same fields as that in Iteration 2 but with a user defined tolerance of amount depending upon the value set in another processing option for this purpose. While using this iteration it is important to populate the Processing Option no 2 on the Variance tab with „1‟ to automatically create a Journal entry for the write off amount. Also the Account Number to be used for the write off is to be provided in Processing Option no.5 of the same tab. 5 = Doc No + Amount This iteration compares the Amount fields on both sides and the Reference 2 field with the Pymnt/Rect Number field on the Bank Statement side for BDS or Reference 1 field in the GL with the Pymnt/Rect Number field on the Bank Statement side for other transactions for an exact match. 49
  • 51.  Consolidation ON/OFF: The consolidation flag determines whether the Bank Journal process groups the records on either side while comparing to a single record on the other side. This is meant to address situations where a particular amount issued/ received by us has been the bank side has been debit/credited on the bank side in part amounts and vice versa. On the Bank Statement side, the application groups the items on the basis of the Doc Number (Pymnt/ Rect Number field) and Value Date On the GL side, the application groups items on the basis of Referece2 for BDS and Reference 1 for Non-BDS items and Value Date. This would be the last in the series of iterations run for the Bank Reconciliation process. Detailed description of reports generated by this application and how to interpret the messages in them is given below: Bank Reconciliation Report: This report shows detail information about each transaction on the bank statement. It includes the status of each transaction after the reconciliation process. This report contains the following messages:   Cleared - Represents information in the Bank Statement. Issued - Represents information in the Account Ledger. Cleared Not Issued Report: This report shows transactions that are in the Bank Statement Detail table with a clear date that is earlier than the G/L date in the Account Ledger table. 51
  • 52. Amounts Not Equal Report: This report shows transactions that have different amounts in the Bank Statement Detail and Account Ledger tables. Un-reconciled Items Report: This report shows all un-reconciled items in the Bank Statement Detail table. The report contains the following abbreviated column headings: Cleared - Represents information in the Bank Statement Issued - Represents information in the Account Ledger When run in final mode, the system creates a batch for the entries in the General Ledger for the records with Transaction type of TT and JE. After running the report in final mode, the user may run the report again so as to get a concise report listing the open items only. 6. Reconcile self-balancing items (Bank Statement side): After the Bank Reconciliation is run in final mode for the various iterations required, run the selfbalancing programs to eliminate self-balancing items. For example, wrong entries reversed by bank in the bank statement, rectification entries passed in the General Ledger. The report will list amounts with records with the same amounts but opposite signs having the same Reference number. For Main Bank Account: This will result in a report listing the transactions eligible to be marked as self-reconciling. If user wishes to drop any transaction from the list as self-reconciling, he will mark the change by changing the transaction code to OTH. In Final mode, the application will update the transaction type as BK for unchanged listed transactions. For Operating Bank Account: After Bank Statement upload, the application is to be run in proof mode. This will result in a report listing the transactions eligible to be marked as self-reconciling. 52
  • 53. The user will review the same and in final mode, the application will update the transaction type as BK. After running this application in final mode, run the Bank Reconciliation program again in proof and final modes. As a result of this, the Bank Reconciliation program will mark these transactions as reconciled. 7. Reconcile self-balancing items (General Ledger side): The application devised for this purpose is to be run separately. This report is to be used for transactions with Batch Type G i.e. Journal Entries which are entered for reversal transactions. In proof mode, this program lists the transactions in the General Ledger with similar amounts of opposite signs. Run this with a data selection of the account ID of your Bank Account for a particular date range to be provided in the processing options. Using this report mark / update the reversal transactions with the same Reference number as that of the original transaction. The Reference number needs to be populated in Reference 1. The Reference 1 field can be populated using the “Features” form exit of the Journal Entry Screen. The application is then to be run in final mode. On finding records with matching Reference 1 values and similar amounts with opposite signs, the application will mark these as reconciled in the Account Ledger (F0911) file. It is necessary to run the Refresh Reconciliation program after this to update the Reconciliation Work file. Run the Bank Reconciliation application again in final mode to get the final list of unreconciled transactions. 53
  • 54. Reconciliation of Operating / Main Bank Accounts:       Upload / Review Bank Statement Auto Reconcile Void Payments/ Receipts Refresh Reconciliation Bank Reconciliation Reconcile self-balancing items (Bank Statement side) Reconcile self-balancing items (General Ledger side) 54
  • 55. CONCLUSION  After undergoing an in-depth study of the report. One can easily recognize that HPCL ensures proper accounting for each and every rupee transacted through bank.  Utmost care is taken while implementing all the control measures and there is no deviation from the laid down procedures. Various checklist of control have been made as exhaustive as possible in dealing with the banking transactions  The functions, activities, roles and responsibilities of the concerned work groups are also being performed very smoothly. 55
  • 56. BIBLIOGRAPHY  www.hindustan  .com   56