CHAPTER 5
BANK RECONCILIATION STATEMENT
Meaning
It refers to the statement that is prepared for a particular period to reconcile bank balance as per the
Cash Book with (bank) balance as per the Pass Book or vice versa. It reveals the causes of difference
between the two.
Example:
Suppose on March 31, 2011, both the Cash Book and the Pass Book is showing a balance of Rs 12,000.
On the same date, the account holder issued a cheque of Rs 2,000. This amount was immediately
deducted from the Cash Book but not deducted from the Pass Book, as it was not presented for
payment on the same date. Consequently, the balance as per the Cash Book falls short of the balance of
the Pass Book. There may be numerous other reasons because of which the difference between the
Cash Book and the Pass Book arises. In order to reconcile the balances of both the books, we need to
prepare BRS.
Need and Importance of Bank Reconciliation Statement To determine the actual bank
balances of the Cash Book and of the Pass Book.
To check the accuracy of entries.
To detect embezzlement of amount
To detect errors committed in the both the booksTo identify unrecorded or omitted entries
both in the Cash Book and in the Pass Book
Reasons/Causes of differences
Besides cheque issued but not presented for payment, there are many other reasons that may lead to
differences between the two books.
Cheques deposited but not yet cleared.
Amount directly received by the bank on behalf of the account holder (i.e. amount directly
deposited by the costumer not recorded in the Cash Book, interest on investment received by
the bank but not recorded in the Cash Book )
Interest allowed by the bank (interest credited by the bank in the Pass Book but not debited in
the Cash Book)
Bank charges not recorded in the Cash Book (i.e. bank charges debited in the Pass Book but not
credited in the Cash Book)
Amount paid by the bank as per the instruction but no intimation made to the account holder
(like, insurance premium/installment of loan paid by the bank but no intimation made to the
account holder)
Bills of exchange dishonoured but not recorded (debited)in the Cash Book
Bills of exchange discounted with the bank but recorded without adjusting (debiting)
discounting charges
Bills of exchange retired under rebate and the amount of rebate not recorded (credited) in the
Cash Book
Errors like, cheques deposited debited in the Cash Book but credited in the Pass Book with
wrong amount (like, cheque deposited for Rs 2,000 debited in the Cash Book (with Rs 2,000)
but was wrongly credited in the Pass Book as Rs 200, etc.)
General Instructions:
While preparing Bank Reconciliation Statement the following important things must be considered-
Explanation of the figure
Debit in the Cash Book means added in the Cash Book. For example, cheque/cash deposited is
added (debited) in the Cash Book.
Credit in the Cash Book means deducted from the Cash Book. For example, cheques issued or
cash withdrawn from bank is deducted or credited in the Cash Book.
NOTE: As overdraft as per the Cash Book has credit balance, so in the Bank Reconciliation
Statement, it is shown in the minus item column.
Explanation of the figure
Credit in the Pass Book means added to the Pass Book. For example, cash/cheque deposited in
the bank increases the balance of the Pass Book
Debit in the Pass Book means deducted from the Pass Book. For example, cash withdrawn or
payment of cheque issued decreases the balance of the Pass Book
NOTE: As overdraft in the Pass Book has debit balance, so in the Bank Reconciliation Statement,
it is shown in the minus item column.
Performa of Bank Reconciliation Statement in the following situation:Balance as per the
Cash Book (Favourable)
Overdraft as per the Cash Book (Unfavourable) is given
Bank Reconciliation Statement of …….. as on …….
Favourable Unfavourable
(Balance) (Overdraft)
Particulars (+) (–) (+) (–)
items items items items
Balance as per the Cash Book (Debit)
Overdraft as per the Cash Book (Credit)
Add: Cheques issued/drawn but not yet presented for
payment
Add: Interest allowed/credited by the bank
Add: Interest on investment directly received by the bank
Add: Rebate not recorded/credited in Cash Book
Add: Amount directly received from costumer/debtors
Add: Amount omitted to be debited/recorded in the bank
column of the Cash Book but credited in the Pass
Book
Less: Cheques deposited/paid but not cleared or credited
Or Cheques debited in the Cash Book but not cleared
or credited in the Cash Book
Less: Bank charges
Less: Interest on overdraft or interest debited in the Pass
Book
Less: Bills or cheques dishonoured
Less: Discounting charges of bill not recorded in the Cash
Book
Less: Amount directly paid by the bank (insurance
premium, installment, etc.)
Balance as per the Pass Book (Credit) (balancing figure)
Overdraft as per the Pass Book (Debit) (balancing figure)
NOTE : The above Performa shows that irrespective of the fact that whether balance as per the
Cash Book or overdraft as per the Cash Book is given in the question, the treatment for the
differences will be the same in both the situations.
Balancing Figure
Starting Point
(+) items > (–) items (+) items < (–) items
Balance as per the Cash Book Balance as per the Pass Book Overdraft as per the Pass Book
(Debit) (Credit) (Debit)
Overdraft as per the Cash Balance as per the Pass Book Overdraft as per the Pass Book
Book (Credit) (Credit) (Debit)
Performa of Bank Reconciliation Statement when:Balance as per the Pass Book (Favourable)
Overdraft as per the Pass Book (Unfavourable) is given
Bank Reconciliation Statement of …….. as on …….
Favourable Unfavourable
Particulars (Balance) (Overdraft)
(+) (–) (+) (–)
items items items items
Balance as per the Pass Book (Credit)
Overdraft as per the Pass Book (Debit)
Add: Cheques deposited/paid but not yet cleared or
credited
Or
Cheques debited in the Cash Book but not yet
credited or cleared
Add: Bank charges
Add: Interest on overdraft or interest charged or interest
debited in the Pass Book
Add: Bills or cheques dishonoured
Add: Discounting charges of bill not recorded/credited in
the Cash Book
Add: Amount directly paid by the bank (i.e. insurance
premium, installment, etc.)
Less: Cheques issued/drawn but not presented for
payment
Less: Interest allowed/credited by the bank
Less: Interest on investment directly received by the bank
Less: Rebate not recorded/credited in the Cash Book
Less: Amount directly received from customers/debtors
Less: Amount omitted to be recorded/debited in the bank
column of the Cash Book but credited in the Pass
Book)
Balance as per the Cash Book (Debit) (balancing figure)
Overdraft as per the Cash Book (Credit) (balancing figure)
Note : The above Performa shows that either irrespective of the fact whether the balance as per
the Pass Book or overdraft as per the Pass Book is given in the question, the treatment for the
differences will remain the same in both the situations.
Balancing Figure
Starting Point
(+) items > (–) items (+) items < (–) items
Balance as per the Pass Book Balance as per the Cash Book Overdraft as per the Cash Book
(Credit) (Debit) (Credit)
Overdraft as per the Pass Book Balance as per the Cash Book Overdraft as per the Cash Book
(Debit) (Debit) (Credit)
