Bank Reconciliation Statement
Bank Reconciliation Statement
Bank Reconciliation Statement
w Understand the reasons for difference between Cash Book balance and Pass Book balance and try to
ascertain the amount of such differences.
w Understand the purpose for preparing the bank reconciliation statement and its utility.
Timing Differences
differences arising due
to errors in
recording the
entries
1. INTRODUCTION
Banks are essential institutions in a modern society. With the increase in volume of trade, commerce and
business, business entities faced difficulty in transacting in cash for each business activity. They discovered
that dealing through bank, on regular basis, would be the better and safer option and finally large
business entities switched over to banking transactions instead of dealing in cash. Now-a-days, most of the
transactions of the business are done through bank whether it is a receipt or a payment. Rather, it is legally
necessary to operate the transactions through bank after a certain limit.
A Bank accepts from people, in general, deposits in various forms, and lends funds to those who need; it
also invests some funds in profitable investments. Thus, money which would have been otherwise idle is
put to use and is made available to those who need it. Those who deposit the money are able to withdraw
it according to the settled terms and conditions. Apart from receiving deposits from and handling cash
transactions on behalf of its customers, the bank also renders some other useful services as indicated below:
(i) The bank discounts promissory notes or hundies, i.e., it enables a customer to receive the cash before
the due date in consideration of a small charge called discount.
(ii) The bank allows overdraft to its good customers so that they can make payments even when they
do not have sufficient balance at the bank. Of course, the overdraft is generally secured and must be
cleared later.
(iii) The bank gives loans for a year or so, to its customers so that they can continue their operations. Such
financial assistance is of great help for business.
(iv) The bank on behalf of the customer collects the amount of dividend warrants or interest on securities
etc.
(v) On instruction of the customer, the bank makes payments of insurance premium, rent etc. on the due
dates.
(vi) The bank sells and purchases shares, debentures or government securities on behalf of its customers.
(vii) Money can be remitted to another place or persons through the bank at a low cost.
(viii) The bank in return, for a consideration, furnishes security or guarantee for its customers whose credit is
good.
(ix) The bank also issues letter of credit or travellers’ cheque to facilitate commerce or travel.
PASS BOOK
Messers.........................................
in account with
Punjab National Bank
Daryaganj, New Delhi-110002
Date Particulars Cheque No. Withdrawals Deposits Balance
Dr. Cr. Dr. or Cr.
` ` `
The bank statement of account also has a similar form except that it is on loose sheets or can be in an online
format. The bank itself sends the statements to customers but if the customer wants to maintain a passbook
then its is their duty to send the pass book to the bank periodically so that it is updated by the bank. These
days, many bank ATMs have the automated machines where one can get the passbook updated without
any manual intervention.
Business houses should also obtain at the end of the year a certificate from the bank duly stamped and
signed, showing the balance which the firm carries with the bank as of date. The bank balance shown in the
passbook is known as pass book balance for reconciliation purpose. The credit balance as per pass book at
a particular point of time is the deposit made by the customer while debit balance as per pass book is the
overdraft balance for the customer (i.e. customer owes to bank).
Students may note here that the nature of balance shown by pass book (in the books of bank) and cash
book (in the books of customer) is quite different. The debit balance in the pass book represents the credit
balance as per the cash book and vice-versa because the business enterprise treats the bank as a debtor/
Trade receivable and bank treats the business enterprise as a creditor/Trade payable.
10,000 10,000
Bank statement (pass book)
Date Particulars Dr. (withdrawn) Cr. (deposited) Balance
Balance b/f 10,000(cr.)
On the issue of aforesaid cheque, the bank account in Cash Book is credited by `2,000 and so balance is
reduced to `8,000. Whereas balance in the Pass Book remains `10,000 until the cheque is presented for
payment.
(ii) Cheques deposited with the bank but not cleared: As soon as cheques are sent to the bank (i.e.
deposited with bank), entries are made on the debit side of the bank column of the cash book. But
usually banks credit the customer’s account only when they have received the payment from the bank
concerned- in other words, when the cheques have been cleared. Again there will be some gap between
the depositing of the cheques and the credit given by the bank.
Example : The balance as per Cash book and Pass Book are ` 12,000. Cheque of ` 3,000 is deposited but
not cleared.
Cash book
Particulars ` Particulars `
To balance b/f 12,000 By balance c/f 15,000
To Vendor A/c 3,000
15,000 15,000
Cash book
Particulars ` Particulars `
To balance b/f 10,000 By balance c/f 10,000
10,000 10,000
Bank statement (pass book)
Date Particulars Dr. (withdrawn) Cr. (deposited) Balance
Balance b/f 10,000(cr.)
Interest 1,000 11,000(cr.)
Because of such interest balance of Pass Book is increased to `11,000. Whereas balance in the Cash Book
remains `10,000 until information reaches customer and he records such transaction.
(iv) Interest and expenses charged by the bank: Like (iii) above, the interest charged by the bank and
the amount of the bank charges are entered in the customer account and later in the pass book. The
customer makes the required entries only after he sees the pass book or bank statement. These are
debited to customer account by bank therefore till such entry is passed in cash book, bank balance as
per pass book is less than bank balance as per cash book.
(v) Interest and dividends collected by the bank: Sometimes investments are left with the bank in the
safe custody; the bank itself sees to it that the interest or the dividend is collected on the due dates.
Entries are made as indicated in (iii) above.
Example: The balance as per Cash Book and Pass Book are `15,000. The bank has collected dividend of
`2,000.
Cash book
Particulars ` Particulars `
To balance b/f 15,000 By balance c/f 15,000
15,000 15,000
Bank statement (pass book)
Date Particulars Dr. (withdrawn) Cr. (deposited) Balance
Balance b/f 15,000(cr.)
Dividend 2,000(Cr.) 17,000(cr.)
On collection of dividend bank credits the amount to customer’s account, so balance in Pass Book is
increased to `17,000. Whereas balance in the Cash Book remains `15,000 until the information of such
dividend collection reaches the customer and he records such transaction.
(vi) Direct payments by the bank: The bank may be given standing instructions for certain payments such
as for insurance premium. In this case also, the customer may come to know of the payment only on
seeing the pass book. The entries in the pass book and in the cash book may thus be on different dates.
Example: The balance as per Cash Book and Pass Book of Mr. X are `20,000. The bank has instruction to
pay insurance premium of `1,500 directly to insurance company at the end of each month
Cash book
Particulars ` Particulars `
To balance b/f 20,000 By balance c/f 20,000
20,000 20,000
Bank statement (pass book)
Date Particulars Dr. (withdrawn) Cr. (deposited) Balance
Balance b/f 20,000 (cr.)
Insurance premium 1,500 18,500 (cr.)
On payment of insurance premium bank debits the customer’s account by `1,500 so balance in Pass
Book is decreased to `18,500. Whereas balance in the Cash Book remains `20,000 until the information
of such payment reaches the customer and he records such transaction.
(vii) Direct payment into the bank by a customer: If such a payment is received by the bank, it will be
entered in the customer’s account and also in the pass book; the account holder may come to know of
the amount only when he sees the pass book.
(viii) Dishonour of a bill discounted with the bank: If the bank is not able to receive payment on promissory
notes discounted by it, it will debit the customer’s account together with the charges it may have
incurred. The customer will naturally make the entry only when he sees the pass book.
Example : The balances as per Cash Book and Pass Book of Mr. X are `20,000. Mr. X deposited a cheque
of `3,000 and debited to his bank account `3,000 immediately. But bank will credit X’s account on
realization of amount. Now the cheque is dishonoured for non-payment. Bank charges `100 in this
connection.
Cash book
Particulars ` Particulars `
To balance b/f 20,000 By balance c/f 23,000
To bank a/c 3,000
23,000 23,000
Bank statement (pass book)
Date Particulars Dr. (withdrawn) Cr. (deposited) Balance
Balance b/f 20,000 (cr.)
Bank charges 100 19,900 (cr.)
Thus, balance of Mr. X’s account in Pass Book stands `19,900 after this transaction while balance as per
Cash Book stand `23,000. So Mr. X should deduct `3,000 the amount of dishonoured cheque, plus `100
the amount of bank charges for reconciliation.
(ix) Bills collected by the bank on behalf of the customer: If goods are sold, the documents may be sent
through the bank. If the bank is able to collect the amount, it will credit the customer’s account. The
customer may make the entry only on receiving the pass book.
All these timing differences will lead to difference in balances as shown by the cash book and the pass
book.
? ILLUSTRATION 1
Step: 2 Compare the credit side of the cash book with the withdrawal column of the pass book
We find that the following cheques are not recorded. Therefore, if we enter these two cheques on the
withdrawal side of the pass book the balance becomes: -
Existing balance 3,82,000
Less:- K Nagpal & Co. (73,000)
B Babu & Co. (78,000)
Total 2,31,000
There is an item Interest on Government Securities which appears on the deposit side of the pass book but
not in the debit side of the cash book, so this item should be deducted from pass book balance:-
Existing balance 2,31,000
Less:- Interest on govt. securities (20,000)
Total 2,11,000
Further, there are two items which appear on the withdrawal side of the pass book i.e. they have been
deducted from the bank balance but not on the credit side of the cash book, so these items should be
added in order to reconcile the balance:-
Existing balance:- 2,11,000
Add: Insurance premium 25,000
Add: Bank charges 1,000
Total 2,37,000
Therefore , we have arrived at the balance as per the cash book from the pass book.
This process shows that the difference between the two balance arise only because there are some entries made
in the cash-book but not in the pass book and some entries which are made in the pass book but not in the cash
book. A comparison of the two shows up such entries and then, on that basis, the reconciliation is prepared. To
illustrate it again, let us proceed from the cash book balance of `2,37,000. Since cheques totalling `1,39,000
have not been entered in the pass book, let us assume that they are also omitted from the cash book, this will
reduce the cash book balance to `98,000. Cheques totalling `1,51,000 have been entered on the credit side of
the cash book but not in the pass book their omission from the cash book will increase the cash book balance
to `2,49,000. Amounts totalling `26,000 have been entered in the withdrawals column of the pass book but
not in the cash book; an entry on the credit side of the cash book for these amounts will reduce the balance to
`2,23,000. The deposits column shows an entry of `20,000 not found on the debit side of the cash book; the
entry made in the cash book will increase balance to `2,43,000 as shown in the pass book.
(x) Errors: While recording the entries errors can occur both in the cash book and in the pass book. A bank
rarely makes and error but if does, the balance in the pass book will naturally differ from cash book.
Similarly if any error is committed in the cash book then it’s balance will be different from that of the
pass book.
Some of the errors include commission of entry, recording of an incorrect amount, recording of entry
on the wrong side of the book, wrong totalling of the account or wrong balancing of the book and
recording of transactions of other party.
TYPES OF PROBLEMS
When causes of differences are known then students can start reconciliation by taking any of the balance
stated above and proceed further with the causes. Given the causes of disagreement, the balance of the
other book can be either more or less on account of the said causes. If the balance of the other book is more
on account of the said causes then add the amount. If the balance of the other book is less on account of the
said causes then subtract the amount.
For example, if the reconciliation is initiated with Dr. balance as per the cash book and there is a cheque
deposited in the bank but not yet cleared, then on account of non-clearance of the cheque, the Cr. balance
of the pass book would be less. In this case, the amount of cheque should be subtracted from the cash book
balance to arrive at the balance as per the pass book. Similarly, after making all the adjustments the balance
as per the other book is obtained. It is necessary to note here that if a student starts from debit balance of
cash book and after all adjustments the balance arrived is positive then it is known as Cr. balance as per the
pass book and if the balance is negative then it is said to be Dr. balance as per the pass book and vice-versa.
But if causes of differences are not known then one has to compare the debit entries of cash book with the
credit entries of the pass-book and vice-versa. The entries, which do not tally in the course, are the causes of
difference in the balances of both the books. Once the causes are located their effects on both the books are
analysed and then reconciliation statement is prepared to arrive at the actual bank balance.
In this procedure students, should also take into care that whether opening balance of both the books at
particular point of time from where the books are compared, tallies or not. If opening balances are not same
then unticked items are divided into two categories i.e., one relating to reconciliation of opening balance
and other relating to reconciliation of closing balance.
Example: Jolly Ltd has following entries in its cash book and pass book:
CASH-BOOK (Bank column only)
Date Particulars Amount Date Particulars Amount
2019 ` 2019 `
May 1 To Balance b/d 70,000 May 15 By Richa Ltd. 20,000
May 9 To Avengers Ltd. 50,000
May13 To Cash A/c 80,000
May 30 By Balance c/d 1,80,000
2,00,000 2,00,000
PASS-BOOK
? ILLUSTRATION 2
From the following particulars, prepare a Bank Reconciliation Statement for Jindal offset Ltd.
(1) Balance as per cash book is ` 2,40,000
(2) Cheques issued but not presented in the bank amounts to ` 1,36,000.
(3) Cheques deposited in bank but not yet cleared amounts to ` 90,000.
(4) Bank charges amounts to ` 300.
(5) Interest credited by bank amounts to ` 1,250.
(6) The balance as per pass book is ` 2,86,950.
SOLUTION
Bank Reconciliation Statement
Particulars Amount
`
Balance as per cash book 2,40,000
Add : Cheque issued but not presented 1,36,000
Interest credited by bank 1,250
3,77,250
Less : Cheque deposited but not yet cleared (90,000)
Bank charges debited by bank (300)
Balance as per pass book 2,86,950
? ILLUSTRATION 3
On 31st March 2019, the Bank Pass Book of Namrata showed a balance of ` 1,50,000 to her credit while balance
as per cash book was ` 1,12,050. On scrutiny of the two books, she ascertained the following causes of difference:
i) She has issued cheques amounting to ` 80,000 out of which only ` 32,000 were presented for payment.
ii) She received a cheque of ` 5,000 which she recorded in her cash book but forgot to deposit in the bank.
iii) A cheque of ` 22,000 deposited by her has not been cleared yet.
iv) Mr. Gupta deposited an amount of ` 15,700 in her bank which has not been recorded by her in Cash Book yet.
v) Bank has credited an interest of ` 1,500 while charging ` 250 as bank charges.
Prepare a bank reconciliation statement.
SOLUTION
Bank Reconciliation Statement as on 31st March 2019
? ILLUSTRATION 4
From the following particulars ascertain the balance that would appear in the Bank Pass Book of A on
31st December, 2019.
(1) The bank overdraft as per Cash Book on 31st December, 2019 `6,340.
(2) Interest on overdraft for 6 months ending 31st December, 2019 `160 is entered in Pass Book.
(3) Bank charges of ` 400 are debited in the Pass Book only.
(4) Cheques issued but not cashed prior to 31st December, 2019, amounted to `11,68,000.
(5) Cheques paid into bank but not cleared before 31st December, 2019 were for ` 22,17,000.
(6) Interest on investments collected by the bank and credited in the Pass Book `12,00,000.
SOLUTION
Bank Reconciliation Statement
As on 31st December, 2019
Particulars Amount
`
Overdraft as per Cash Book 6,340
Add: Interest debited in the Pass Book but not yet entered in the Cash Book 160
Add: Bank charges debited in the Pass Book but not entered in the Cash Book 400
Add : Cheques deposited but not yet credited in the Pass Book 22,17,000
22,23,900
Less: Cheques issued but not yet presented (11,68,000)
Less: Interest collected and credited by bank but not yet entered in Cash Book (12,00,000)
Balance as per Pass Book (Credit/Favourable balance) (1,44,100)
The above illustration can also be presented with the column for “Plus” and “Minus.”
preparing the bank reconciliation statement is completely optional, if reconciliation is done during different
months. But if reconciliation is done at the end of the accounting year or financial year, the cash-book must
be adjusted so as to reflect the correct bank balance in the balance sheet.
While adjusting the cash-book the following adjustments are considered:-
1. All the errors (like incorrect amount recorded in the cash-book, entry posted twice in the cash-book,
over/undercasting of the balance etc.) and
2. Omissions (like bank charges recorded in the pass-book only, interest debited by the bank, direct receipt
or payment by the bank, dishonour of cheques/bills etc.) by the cash-book are taken into care
Only above transactions are considered for adjusting cash book. Apart from this, any delay in recording
in the pass-book due to difference in timing (like cheque issued but not presented for payment, cheque
deposited but not cleared) is taken to bank reconciliation statement. This adjusted cash-book balance
is taken to bank reconciliation statement.
Errors occurring in the pass-book are not to be adjusted in the cash book. All the adjustments
considered in the adjusted cash-book are not carried again to the bank reconciliation statement.
? ILLUSTRATION 5
On 30th September, 2019, the bank account of X, according to the bank column of the Cash- Book, was overdrawn
to the extent of `4,062. On the same date the bank statement showed a credit balance of `20,758 in favour of X.
An examination of the Cash Book and Bank Statement reveals the following:
1. A cheque for `13,14,000 deposited on 29th September, 2019 was credited by the bank only on 3rd October,
2019.
2. A payment by cheque for `16,000 has been entered twice in the Cash Book.
3. On 29th September, 2019, the bank credited an amount of `1,17,400 received from a customer of X, but the
advice was not received by X until 1st October, 2019.
4. Bank charges amounting to `580 had not been entered in the Cash Book.
5. On 6th September, 2019, the bank credited `20,000 to X in error.
6. A bill of exchange for `1,40,000 was discounted by X with his bank. This bill was dishonoured on 28th
September, 2019 but no entry had been made in the books of X.
7. Cheques issued upto 30th September, 2019 but not presented for payment upto that date totalled ` 13,26,000.
You are required :
(a) to show the appropriate rectifications required in the Cash Book of X, to arrive at the correct balance on 30th
September, 2019 and
(b) to prepare a bank reconciliation statement as on that date.
SOLUTION
Particulars Amount
`
Overdraft as per Cash Book 11,242
Add: Cheque deposited but not collected upto 30th September, 2019 13,14,000
13,25,242
Less: Cheques issued but not presented for payment upto 30th September, 2019 (13,26,000)
Credit by Bank erroneously on 6th September (20,000)
Credit balance as per bank statement 20,758
Note: Bank has credited X by 20,000 in error on 6th September, 2019. If this mistake is rectified in the bank
statement, then this will not be deducted in the above statement along with ` 13,26,000 resulting in credit
balance of ` 758 as per pass-book.
? ILLUSTRATION 6
On 30th December, 2019 the bank column of A. Philip’s cash book showed a debit balance of ` 4,610. On
examination of the cash book and bank statement you find that:
1. Cheques amounting to ` 6,30,000 which were issued to trade payables and entered in the cash book before
30th December, 2019 were not presented for payment until that date.
2. Cheques amounting to ` 2,50,000 had been recorded in the cash book as having been paid into the bank on
30th December, 2019, but were entered in the bank statement on1st January, 2020.
3. A cheque for ` 73,000 had been dishonoured prior to 30th December, 2019, but no record of this fact
appeared in the cash book.
4. A dividend of ` 3,80,000, paid direct to the bank had not been recorded in the cash book.
5. Bank interest and charges amounting to ` 4,200 had been charged in the bank statement but not entered in
the cash book.
6. No entry had been made in the cash book for a trade subscription of ` 10,000 paid vide banker’s order in
November, 2019.
7. A cheque for ` 27,000 drawn by B. Philip had been charged to A. Philip’s bank account by mistake in December,
2019.
You are required:
(a) to make appropriate adjustments in the cash book bringing down the correct balance, and
(b) to prepare a statement reconciling the adjusted balance in the cash book with the balance shown in the
bank statement.
SOLUTION
(a) A. Philip
Dr. Cash Book (Bank column) Cr.
Particulars Amount
`
Balance per cash book 2,97,410
Add: Cheques not yet presented 6,30,000
9,27,410
Deduct: Lodgement not yet recorded by bank (2,50,000)
6,77,410
Deduct: Cheque wrongly charged (27,000)
Balance as per the bank statement 6,50,410
? ILLUSTRATION 7
From the following information, prepare a Bank reconciliation statement as at 31st December, 2019 for Messrs
New Steel Limited :
`
(1) Bank overdraft as per Cash Book on 31st December, 2019 22,45,900
(2) Interest debited by Bank on 26th December, 2019 but no advice received 2,78,700
(3) Cheque issued before 31st December, 2019 but not yet presented to Bank 6,60,000
(4) Transport subsidy received from the State Government directly by the Bank but not
advised to the company 14,25,000
(5) Draft deposited in the Bank, but not credited till 31st December, 2019 13,50,000
(6) Bills for collection credited by the Bank till 31st December, 2019 but no advice received by
the company 8,36,000
(7) Amount wrongly debited to company account by the Bank, for which no details are
available 7,40,000
SOLUTION
M/s. New Steel Ltd.
Bank Reconciliation Statement as on 31st Dec. 2019
Overdraft as per Cash Book 22,45,900
Add : Interest charged by the bank 2,78,700
Draft deposited in bank but not yet credited 13,50,000
Wrong debit by the bank, under verification 7,40,000 23,68,700
46,14,600
Less: Cheque issued but not yet presented (6,60,000)
Transport subsidy not yet recorded in the Cash Book (14,25,000)
Bills for collection credited in the bank not yet entered in the cash book (8,36,000) (29,21,000)
Overdraft as per bank statement 16,93,600
? ILLUSTRATION 8
The Cash Book of Mr. Gadbadwala shows ` 8,36,400 as the balance at Bank as on 31st December, 2019, but
you find that it does not agree with the balance as per the Bank Pass Book. On scrutiny, you find the following
discrepancies:
(1) On 15th December, 2019 the payment side of the Cash Book was undercast by `10,000.
(2) A cheque for `1,31,000 issued on 25th December, 2019 was not taken in the bank column.
(3) One deposit of `1,50,000 was recorded in the Cash Book as if there is no bank column therein.
(4) On 18th December, 2019 the debit balance of `15,260 as on the previous day, was brought forward as credit
balance.
(5) Of the total cheques amounting to `11,514 drawn in the last week of December, 2019, cheques aggregating
`7,815 were encashed in December.
(6) Dividends of `25,000 collected by the Bank and subscription of `1,000 paid by it were not recorded in the
Cash Book.
(7) One out-going Cheque of `3,50,000 was recorded twice in the Cash Book. Prepare a Reconciliation Statement.
SOLUTION
(If the books are not closed on 31st December, 2019)
Bank Reconciliation Statement of Mr. Gadbadwala as on 31st Dec., 2019
Particulars Details Amount
` `
Balance as per the Cash Book 8,36,400
Add : Mistake in bringing forward `15,260 debit balance as credit 30,520
balance on 18th Dec., 2019
Cheques issued but not presented : `
Issued 11,514
Cashed 7,815 3,699
Dividends directly collected by bank but not yet
entered in the Cash Book 25,000
Cheque recorded twice in the Cash Book 3,50,000
Deposit not recorded in the Bank column 1,50,000 5,59,219
13,95,619
Less : Wrong casting in the Cash Book on 15th Dec. 10,000
Cheques issued but not entered in the Bank column 1,31,000
Subscription paid by the bank directly not yet recorded in
the Cash Book 1,000 (1,42,000)
Balance as per the Pass Book 12,53,619
If the books are to be closed on 31st December, then adjusted cash book will be prepared as given below:
ADJUSTED CASH BOOK
Particulars Amount (`) Particulars Amount (`)
To Balance b/d 8,36,400 By wrong casting 10,000
To error for wrong posting 30,520 By cheques not entered 1,31,000
To dividends collected by bank 25,000 By subscription 1,000
To cheques recorded twice 3,50,000 By balance c/d 12,49,920
To deposit not recorded 1,50,000
13,91,920 13,91,920
Bank Reconciliation Statement
Particulars `
Balance as per the Cash Book (corrected) 12,49,920
Add: Cheques issued but not yet presented 3,699
Balance as per the Pass Book 12,53,619
? ILLUSTRATION 9
The following are the Cash Book (bank column) and Pass Book of Jain for the months of March, 2019 and April,
2019:
SOLUTION
1. On scrutiny of the debit side of the Cash Book of March 2019 and receipt side of the Pass Book of April,
2019 reveals that two cheques deposited in Bank (Goyal ` 33,000 and Patel ` 65,000) in March were not
credited by the Bank till 31/3/2019.
2. On scrutiny of the credit side of the cash book and payment side of the Pass Book reveals that a
cheque issued to Ramesh for `1,50,000 in March 2019, had not been presented for payment in Bank till
31/3/2019. Therefore the Bank Reconciliation statement on 31/3/2019 will appear as follows :
Bank Reconciliation Statement as on 31/3/2019
Particulars Amount
`
Balance as per the Cash Book 3,13,000
Add : Cheque issued but not presented for payment 1,50,000
4,63,000
Less : Cheque deposited but not credited by Bank (98,000)
Balance as per the Pass Book 3,65,000
© The Institute of Chartered Accountants of India
BANK RECONCILIATION STATEMENT 3.25
? ILLUSTRATION 10
When Nikki & Co. received a Bank Statement showing a favourable balance of `10,39,200 for the period ended on
30th June, 2019, this did not agree with the balance in the cash book.
An examination of the Cash Book and Bank Statement disclosed the following :
1. A deposit of `3,09,200 paid on 29th June, 2019 had not been credited by the Bank until 1st July, 2019.
2. On 30th March, 2019 the company had entered into hire purchase agreement to pay by bank order a sum
of `3,00,000 on the 10th of each month, commencing from April, 2019. No entries had been made in Cash
Book.
3. A customer of the firm, who received a cash discount of 4% on his account of `4,00,000 paid the firm a cheque
on 12th June. The cashier erroneously entered the gross amount in the bank column of the Cash Book.
4. Bank charges amounting to `3,000 had not been entered in Cash-Book.
5. On 28th June, a customer of the company directly deposited the amount in the bank ` 4,00,000, but no entry
had been made in the Cash Book.
6. `11,200 paid into the bank had been entered twice in the Cash Book.
7. A debit of ` 11,00,000 appeared in the Bank Statement for an unpaid cheque, which had been returned
marked ‘out of date’. The cheque had been re-dated by the customer and paid into Bank again on 5th July,
2019.
Prepare Bank Reconciliation Statement on 30 June, 2019.
SOLUTION
Bank Reconciliation Statement on 30 June, 2019
? ILLUSTRATION 11
The bank column of cash book of Mukesh was balanced on 31st March, 2019. It showed an overdraft of ` 5,000.
This did not agree with the balance shown by bank statement of Mukesh. You are required to prepare a bank
reconciliation statement taking the following into account :
(1) Cheques issued but not presented for payment till 31.3.2019 `12,00,000.
(2) Cheques deposited but not collected by bank till 31.3.2019 ` 20,00,000.
(3) Interest on term-loan ` 10,00,000 debited by bank on 31.3.2019 but not accounted in Mukesh’s book.
(4) Bank charges ` 2,500 was debited by bank during March, 2019 but accounted in the books of Mukesh on
4.4.2019.
(5) An amount of ` 30,68,000 representing collection of Remesh’s cheque was wrongly credited to the account
of Mukesh by the bank in their bank statement.
SOLUTION
In the books of Mukesh
Bank Reconciliation Statement as on 31.3.2019
Particulars Details Amount
`
Overdraft as per the cash book 5,000
Add: Cheques deposited in bank but not collected and credited by bank 20,00,000
till 31.3.2019
Interest on term loan not accounted in books 10,00,000
Bank charges not accounted in books 2,500 30,02,500
30,07,500
Less: Cheques issued but not presented for payment till 31.3.2019 (12,00,000)
18,07,500
Less: Erroneous credit by bank to Mukesh’s account (30,68,000)
Balance as per the bank statement (12,60,500)
SUMMARY
w Bank pass book is merely a copy of the customer’s account in the book of a bank.
w Bank reconciliation statement is a statement which reconciles the bank balance as per cash book with
the balance as per bank pass book by showing all causes of difference between the two.
w The salient features of bank reconciliation statement:
ª The reconciliation will bring out any errors that may have been committed either in the cash book
or in the pass book;
ª Any undue delay in the clearance of cheques will be shown up by the reconciliation;
ª A regular reconciliation discourages the accountant of the bank from embezzlement. There have
been many cases when the cashiers merely made entries in the cash book but never deposited the
cash in the bank; they were able to get away with it only because of lack of reconciliation.
ª It helps in finding out the actual position of the bank balance.
w The difference in the balances of both the books can be because of the following reasons:
1. Timing differences,
2. Transactions;
3. Errors.
w Bank reconciliation can be start from any of the following four balances given in the question:
1. Dr. balance as per cash book
2. Cr. balance as per cash book
3. Dr. balance as per pass book
4. Cr. balance as per pass book
w There are two methods of reconciling the bank balances :
1. Bank reconciliation statement without preparation of adjusted cash-book.
2. Bank reconciliation statement after the preparation of adjusted cash-book.
12. Overcasting of credit side of the cash book shall result in a higher bank balance in cash book when
compared with pass book balance.
13. A cheque for ₹ 25,000 that was issued and was also presented for payment in same month but
erroneously recorded on debit side of the cash book would cause a difference of ₹ 50,000 from the
balance in pass book.
14. A direct debit by bank on account of any payment as may be instructed by customer should be recorded
on credit side of cash book.
15. Bank Reconciliation Statement can be prepared in two formats – “Balance” presentation and “Plus &
Minus” presentation.
16. The difference between cash book & pass book that relates to errors are those mostly made by Bank.
17. A cheque for ₹ 80,000 that was discounted from bank was dishonoured and the bank charged ₹ 1,600
as the charges on account of same. While starting with debit balance in cash book for preparing bank
reconciliation statement, we need to deduct ₹ 78,400 to reconcile with pass book.
18. Interest on savings bank that is allowed or credited by bank is generally recorded in cash book prior to
it being recorded by bank.
19. A regular bank reconciliation discourages the accountants to be involved in any kind of funds
embezzlement.
20. Timing difference relates the transactions that are recorded in the same period in both cash book and
also the bank pass book.
Multiple Choice Questions
1. When the balance as per Cash Book is the starting point, direct deposits by customers are:
(a) Added (b) Subtracted (c) Not required to be adjusted.
2. A debit balance in the depositor’s Cash Book will be shown as:
(a) A debit balance in the Bank Statement.
(b) A credit balance in the Bank Statement.
(c) An overdrawn balance in the Bank Statement.
3. When balance as per Pass Book is the starting point, interest allowed by Bank is
(a) Added (b) Subtracted (c) Not required to be adjusted.
4. A Bank Reconciliation Statement is prepared with the help of:
(a) Bank statement and bank column of the Cash Book.
(b) Bank statement and cash column of the Cash Book
(c) Bank column of the Cash Book and cash column of the Cash Book.
5. The cash book showed an overdraft of `1,50,000, but the pass book made up to the same date showed
that cheques of ` 10,000, ` 5,000 and ` 12,500 respectively had not been presented for payments; and
the cheque of ` 4,000 paid into account had not been cleared. The balance as per the pass book will be:
(a) ` 1,10,000 (b) ` 2,17,500 (c) ` 1,26,500
6. When drawing up a Bank Reconciliation Statement, if you start with a debit balance as per the Bank
Statement, the unpresented cheques should be:
(a) Added; (b) Deducted; (c) Not required to be adjusted.
7. When drawing up a BRS if you start with a Dr. Balance as per Bank Statement, the following are added:
1. Cheque issued but not presented to bank
2. B/R collected directly by bank
3. Overcasting of the Dr. Side of bank A/c in the cash book.
(a) only 1
(b) only 1& 2
(c) all of the above
(d) only 3.
Theory Questions
1. Write short note on Bank reconciliation statement.
2. State the causes of difference between the balance shown by the pass book and the cash book.
Practical Questions
Q1. From the following particulars prepare a bank reconciliation statement as on 31st December 2019:
(i) On 31st December, 2019 the cash-book of a firm showed a bank balance of ` 60,000 (debit balance).
(ii) Cheques had been issued for ` 15,00,000, out of which cheques worth ` 4,00,000 only were
presented for payment.
(iii) Cheques worth ` 11,40,000 were deposited in the bank on 28th December, 2019 but had not been
credited by the bank. In addition to this, one cheque for ` 5,00,000 was entered in the cash book on
30th December, 2019 but was banked on 3rd January, 2020.
(iv) A cheque from Susan for ` 4,00,000 was deposited in the bank on 26th December 2019 but was
dishonoured and the advice was received on 2nd January, 2020.
(v) Pass-book showed bank charges of ` 2000 debited by the bank.
(vi) One of the debtors deposited a sum of ` 5,00,000 in the bank account of the firm on 20th December,
2019 but the intimation in this respect was received from the bank on 2nd January, 2020.
(vii) Bank pass-book showed a credit balance of ` 3,82,000 on 31st December, 2019.
Q2. According to the cash-book of Gopi, there was a balance of ` 44,50,000 in his bank on 30th June, 2019.
On investigation you find that :
(i) Cheques amounting to ` 6,00,000 issued to creditors have not been presented for payment till the
date.
(ii) Cheques paid into bank amounting to ` 11,05,000 out of which cheques amounting to ` 5,50,000
only collected by the bank up to 30th June 2019.
(iii) A dividend of ` 40,000 and rent amounting to ` 6,00,000 received by the bank and entered in the
pass-book but not recorded in the cash book.
(iv) Insurance premium (up to 31st December, 2019) paid by the bank ` 27,000 not entered in the cash
book.
(v) The payment side of the cash book had been under casted by ` 5,000.
(vi) Bank charges ` 1,500 shown in the pass book had not been entered in the cash book.
(vii) A bill payable of ` 2,00,000 had been paid by the bank but was not entered in the cash book and
bill receivable for ` 60,000 had been discounted with the bank at a cost of ` 1,000 which had also
not been recorded in cash book.
Required:
(a) to make the appropriate adjustments in the cash book, and
(b) to prepare a statement reconciling it with the bank pass book.
Q3. Prepare a bank reconciliation statement as on 30th September, 2019 from the following particulars:
Particulars `
Bank balance as per pass-book 10,00,000
Cheque deposited into the bank, but no entry was passed in the cash-book 5,00,000
Cheque received, but not sent to bank 11,20,000
Credit side of the bank column cast short 2,000
Insurance premium paid directly by the bank under the standing advice 60,000
Bank charges entered twice in the cash book 2,000
Cheque issued, but not presented to the bank for payment 5,00,000
Cheque received entered twice in the cash book 10,000
Bills discounted dishonoured not recorded in the cash book. 5,00,000
Q4. Prepare a bank reconciliation statement from the following particulars on 31st March, 2019:
Particulars `
Debit balance as per bank column of the cash book 37,20,000
Cheque issued to creditors but not yet presented to the bank for payment 7,20,000
Dividend received by the bank but not yet entered in the cash book 5,00,000
Interest allowed by the bank 12,500
Cheques deposited into bank for collection but not collected by bank up to this 15,40,000
date.
Bank charges 2,000
A cheque deposited into bank was dishonoured, but no intimation received 3,20,000
Bank paid house tax on our behalf, but no information received from bank in this 3,50,000
connection.
ANSWERS/HINTS
True and False
1. False : Bank Reconciliation Statement reconciles bank column of cash book with the balance in the pass
book i.e. customer account in the books of bank.
2. True : These are the three broad categories.
3. False : Adjusting the cash book is mandatory when bank reconciliation is done at the end of the financial
year.
4. False : Debit balance as per cash book should be represented by credit or favourable balance in pass
book.
5. False : Bank charges are example of the transactions that bank carries out by itself and the same has not
been recorded in the cashbook until statement is obtained from the bank.
6. True : Overcasting is an example of an error.
7. True : Since the cheques issued would have been recorded as payments and bank balance was credited
in cash book, we need to add it back as the same is not yet deducted from our bank balance.
8. False : Bank charges should be added when we start with credit or favourable balance in pass book as
bank would have debited the charges.
9. True : Since, we don’t know the causes of difference, matching the two statements is only efficient way
to identify the difference.
10. False : Cheques deposited but not yet cleared should be subtracted from debit or unfavourable balance
in pass book.
11. True : Cheques issued but not yet presented should be added back to a debit balance in cash book to
arrive at pass book balance i.e. ₹ 50,000 + ₹ 60,000 = ₹ 1,10,000.
12. False : Overcasting of credit side means excessive payments are recorded and hence would lower the
bank balance.
13. True: ₹ 25,000 payment is recorded as a receipt and hence it will have to be adjusted twice (once to
nullify and then once to record actual payment) hence causing the difference of double amount.
14. True : It is an example of a payment instructed by customer to be directly debited by bank, and hence
credited in the cash book.
15. True : Reconciliation statement can be prepared in either of the two formats.
16. False : Bank rarely makes mistakes, and hence differences that relate to errors are generally made in cash
book.
17. False : We need to deduct 81,600 (i.e. both cheque returned & charges) from debit balance in cash
book to arrive at balance as per pass book.
18. False : Interest allowed by bank is mostly recorded in cash book after the entry has been made in the
pass book or bank statement.
19. True : In absence of any reconciliation, the accountants can mis-utilize the funds temporarily by
recording the entry without actual depositing the cash.
20. False : Timing differences relate to the transactions that are recorded in cash book and pass book in two
different periods.
MCQs
Theoretical Questions
1. Bank reconciliation statement is prepared as on a particular date to reconcile and explain the causes
of difference between the bank balance as per cash book and the same as per savings bank pass book
or current account statement. At the end of each month, the bank balance as per cash book and that
as per pass book /bank statement should be compared and, if there is disagreement, these balances
should be reconciled stating exact reasons of disagreement. The reconciliation is made in a statement
called the bank reconciliation statement.
2. The difference between the balance shown by the passbook and the cashbook may arise on account of
the following:
(i) Cheques issued but not yet presented for payment.
(ii) Cheques deposited into the bank but not yet cleared.
(iii) Interest allowed by the bank.
(iv) Interest and expenses charged by the bank.
(v) Interest and dividends collected by the bank.
(vi) Direct payments by the bank.
(vii) Direct deposits into the bank by a customer.
(viii) Dishonour of a bill discounted with the bank.
(ix) Bills collected by the bank on behalf of the customer.
(x) An error committed in cash book or by the bank etc.
(xi) Undercasting or Overcasting in cashbook.
Practical Questions
Answer 1
Bank Reconciliation Statement
as on 31st December, 2019
` `
Bank balance (Dr.) as per cash book 60,000
Add: Cheques issued but not yet presented for payment 11,00,000
Cheques directly deposited by a customer not yet recorded in cash 5,00,000 16,00,000
book
16,60,000
Less: Cheques deposited but not yet credited by bank 11,40,000
Cheque received and recorded in cash book but not yet banked 5,00,000
Cheque dishonoured by the bank; the dishonour entry not yet passed 4,00,000
in cash book
Bank charges not recorded in cash book 2,000 (20,42,000)
Bank balance (Dr.) as per pass book (3,82,000)
Answer 2
Cash Book (Bank Column)
Receipts ` Payments `
To Balance b/d 44,50,000 By Insurance premium A/c 27,000
To Dividend A/c 40,000 By Correction of errors 5,000
To Rent A/c 6,00,000 By Bank charges 1,500
To Bill receivable A/c 59,000 By Bill payable 2,00,000
By Balance c/d 49,15,500
51,49,000 51,49,000
Bank Reconciliation Statement
as on 30th June, 2019
`
Adjusted balance as per cash book (Dr.) 49,15,500
Add: Cheques issued but not presented for payment till 30th June, 2019 6,00,000
Less: Cheques paid into bank for collection but not collected till 30th June, 2019 (5,55,000)
Balance as per pass book 49,60,500
Answer 3
Bank Reconciliation Statement as on 30th September, 2019
` `
Bank balance as per pass book 10,00,000
Add: Cheque received but not sent to the bank 11,20,000
Credit side of the bank column cast short 2,000
Insurance premium paid directly not recorded in the cash book 60,000
Cheque received entered twice in the cash book 10,000
Bills dishonoured not recorded in the cash book 5,00,000 16,92,000
26,92,000
Less: Cheque deposited into the bank but no entry was passed in the cash 5,00,000
book
Bank charges recorded twice in the cash book 2,000
Cheque issued but not presented to the bank 5,00,000 (10,02,000)
Bank balance as per cash book 16,90,000
Answer 4
Bank Reconciliation Statement
as on 31st March, 2019
` `
Debit balance as per cash book 37,20,000
Add: Cheque issued but not yet presented to bank for payment 7,20,000
Dividend received by bank not entered in cash book 5,00,000
Interest allowed by bank 12,500 12,32,500
49,52,500
Less: Cheques deposited into bank but not yet collected 15,40,000
Bank charges 2,000
A cheque deposited into bank was dishonoured 3,20,000
House tax paid by bank 3,50,000 (22,12,000)
Credit balance as per pass book 27,40,500