Unit – IV

BANK RECONCILIATION STATEMENT

Introduction
At present days every business is required to maintain a bank account to avoid risk of
theft and misappropriation of cash, to ensure proper evidence of payments and also receipts and
payments through bank account is more convenient and safer. Transactions made with bank are
recorded in Bank column of Three column cash book by the business and the same transactions
are recorded in Pass book by the bank.
Bank Pass Book
Pass book is a copy of the customer’s account in the bank’s ledger. Bank issues pass
book to its clients. The money deposited by the customer is credited to his account and the
money withdrawn from the bank is debited to his account. The balance as per bank ledger
indicated in the bank pass book is called the bank balance as per pass book.
Bank Overdraft
Overdraft is a bank facility provided to the business to withdraw an excess amount from
the bank account over and above the actual balance in bank account. Overdraft facility will be
given on the current accounts with the bank. It is the liability to the business or amount due to
bank by the business. It shows Debit balance as per Pass Book or Credit balance as per Cash
book, it is also known as unfavorable balance.
Bank Reconciliation Statement
At any point of time the bank balance as per Pass book and balance as per Pass book
must be the same. But sometimes balance as per Pass book and Balance as per Cash book may
not be equal due some reasons. A statement which is prepared to reconcile the causes of
difference between Bank Balance as per Cash Book and Bank Balance as per Pass Book/ Bank
Statement is known as a Bank Reconciliation Statement.
1. It is a statement.
2. It is not a part of the process of Accounting.
3. It is prepared to reconcile the causes of difference between the Bank balance as per Cash
Book and the Bank balance as per Pass Book.
4. It can be prepared at any time during the financial year, as and when it is required.

Need for Bank Reconciliation Statement

1. It helps to understand the actual Bank balance.
2. It helps to identify the mistakes in the Cash Book and the Pass Book.
3. It helps to detect and prevent frauds and errors in recording the Banking transactions.
4. It helps to incorporate certain expenditures/income debited/credited by Bank in the books of
accounts.
Reasons for Difference between Cash Book and Pass Book Balances
The following are the reasons for the difference between the balances shown by the cash
book and the pass book.
(i) Cheques issued but not presented for payment: When a cheque is drawn or issued
in favour of a third party, it is immediately recorded in the cash book by debiting the
party and crediting the bank and this has the effect of reducing the bank balance in the
cash book. But the bank will not debit customers’s account until that cheque is
presented for payment, and honoured. So long as it is not presented, the balance
 shown in the pass book is more than the balance
shown by the cash book.
(ii) Cheques deposited for collection but not yet collected: The client debits bank
column of cash book as soon as he deposits cheques for collection, but the bank
credits client’s account only when it has collected cash on the cheque so deposited. It
results in bank balance as per cash book being higher than the balance as per pass
book.
(iii) Bank charges not entered in the cash book: The bank charges some amount from
each customer by way of incidental charges, collection charges, etc. and debits the
customer’s account in its own books and this reduces the bank balance. But the
customer will know such charges only when he receives a statement of account from
the bank, until then, bank balance as per pass book will be less than bank balance as
per cash book.
(iv) Interest credited or debited by bank not entered in the cash book: When bank
allows interest to a customer for deposits, it will credit customer’s account and his
bank balance as per pass book will increase. But the customer will not pass the entry
in cash book simultaneously till he knows the fact, thus the balances will differ.
Likewise, interest on overdraft is debited to the customers’ account and till the same
is not entered in the cash book, it will result in a difference in the balances.
(v) Direct collections on behalf of customers: A banker may receive amounts of the
customer by way of dividends, rent, interests etc. directly from the persons concerned.
Similarly, debtors may also deposit the amounts directly to the bank. The bank credits
the account of the customer for such collections as soon as it gets such payments. But
same will be entered in the cash book only when customer receives the statement
from the bank. Thus the balances differ.
(vi) Direct payment by bank: Usually, the bank is given standing instructions for certain
payments to be made, such as payment of insurance premium, interest on loan,
electricity bill etc. Bank, while making payments, debits pass book but the customer
has no information of the same till he is informed. It results in a difference in
balances.
(vii) Dishonour of cheques / bills: When cheque or bill of exchange discounted with the
bank is dishonoured, the same is debited in the pass book but not given effect in the
cash book until the intimation is received. It will cause a difference in the two
balances.
(viii) Cheques received and entered in the cash book but omitted to be deposited into
the bank: When cheque is received, the same is entered in the cash book but it may
not be deposited into the bank immediately. This will cause a difference in the two
balances.
(ix) Errors: There may be errors in the accounts maintained by the customer or/ and by
the bank. A wrong debit or credit given by the customer or the bank leads to a
difference in the balances.
 SPECIMEN OF BANK RECONCILIATION STATEMENT
(Started with Balance as per Cash Book)
Bank Reconciliation Statement as on....
Particulars Rs Rs
Balance as per Cash Book XXXX

Add :
Cheques issued but not yet presented for payment
Interest allowed by the bank
Direct payment by customers into bank
Interest on investment received by the bank
Dividend on shares collected by the bank XXX
Any wrong credit in the pass book

Less :
Cheques deposited with the bank but not yet collected
Bank charges, Insurance premium paid by the bank
Interest on overdraft charged by the bank
Dishonoured cheques / bills
Drawings made but not entered in the cash book
Cheques received entered in the cash book but not yet deposited
Any wrong debit in the pass book
XXX

Balance as per Pass Book

XXXX

SPECIMEN OF BANK RECONCILIATION STATEMENT

(Started with Overdraft as per Pass Book)
Bank Reconciliation Statement as on....
Particulars Rs Rs
Overdraft balance as per Cash Book XXXX

Add :
Cheques deposited with the bank but not yet collected
Bank charges
Insurance premium paid by the bank
Interest on overdraft charged by the bank
Dishonoured cheques / bills
Drawings made but not entered in the cash book
Cheques received entered in the cash book but not yet
XXX
deposited
Any wrong debit in the pass book
 Less :
Cheques issued but not yet presented for payment
Interest allowed by the bank
Direct payment by customers into bank
Interest on investment received by the bank
Dividend on shares collected by the bank
Any wrong credit in the pass book XXX

XXXX
Overdraft balance as per Pass
Book

Problems
1. Prepare Bank Reconciliation Statement as on 31st March 2017 from the following
Cash book and Pass book extracts.
Cash Book ( Bank Column )
Date Particulars Rs Date Particulars Rs
2017 2017
Mar 1 To Balance B/d 12000 Mar 2 By Smith 1600
4 To David 1000 6 By Ravi 2000
10 To Rajesh 1400 8 By Varma 4000
20 To Cash 1200 15 By Anil 2400
22 To Ashok 1800 20 By Cash 1000
25 To Govind 800 25 By Prasanth 600
30 To Pradeep 1100 31 By Balance C/d 7700

19300 19300
Apr 1 To Balance B/d 7700

Bank Pass Book

Date Particulars Withdrawals Deposits Dr or Cr Balance
2017
Mar 1 By Balance B/d Cr 12000
2 To Smith 1600 Dr 10400
7 To Ravi 2000 Dr 8400
10 By David 1000 Cr 9400
15 To Varma 4000 Dr 5400
19 By Rajesh 1400 Cr 6800
20 By Cash 1200 Cr 8000
20 To Cash 1000 Dr 7000
24 By Prakash 1800 Cr 8800
31 To Insurance Premium 400 Dr 8400
31 To Bank Charges 40 Dr 8360
 2. From the following information prepare Bank Reconciliation Statement as on
31/3/2019

Cash Book ( Bank Column )

Date Particulars Rs Date Particulars Rs
2019 2019
Mar 1 To Balance B/d 4450 Mar 1 By Salaries 2800
4 To Patel 700 5 By Cash 1000
8 To Kumar 400 11 By Smith 600
10 To Rajesh 800 15 By Chatarjee 750
15 To Ashok 1000 21 By Sohan 250
20 To Sunil 900 25 By Cash 1000
26 To Prasanth 1500 28 By Pradeep 3800
28 To Santhosh 450 31 By Rent 650
31 To Balance C/d 1450 31 By Prabhath 500
31 By Sunanda 300

11650 11650
Apr By Balance B/d 1450
1
Bank Pass Book
Date Withdrawals Rs Date Deposits Rs
2019 2019
Apr 1 To Cash 2000 Apr 1 By Balance B/d 300
3 To Pradeep 3800 2 By Sunil 900
5 To Prabhath 500 3 By Khan 400
7 To Sunanda 300 5 By Amjad 650
8 To Laxman 250 6 By Prashanth 1500
7 By Smith 600
8 By Santhosh 450

3. Prepare Bank Reconciliation Statement as on 31-12-2017

a) Bank balance as per Cash Book Rs. 25000
b) Cheques deposited into bank, but not collected Rs.3200
c) Cheques issued, but not presented for payment Rs.4000
d) Interest on deposits credited in Pass book Rs.80
e) Bank charges debited in Pass book Rs.20
f) Interest on investments shown in pass book only Rs.250
g) Insurance premium debited in pass book only Rs. 350
h) Bank has credited for rent received Rs. 2000 but no information from bank
i) The bank collected a bill for Rs. 4200, intimation received from bank on 15/1/2018
j) A customer directly deposited into bank Rs. 1500
 k) Telephone charges paid by bank Rs. 500
l) A bill discounted for Rs.950 ( Discount Rs.50 ) was dishonored and debited in Pass
book only
4. Prepare Bank Reconciliation Statement as on 31/12/2018
a) Favorable balance as per Cash book Rs. 29500
b) Two cheques deposited into bank Rs. 650 and Rs. 1250, only first cheque was
collected by the bank before 31st December
c) A cheque received from a debtor Rs. 1400 recorded in cash book, forgotten to sent to
bank
d) A cheque issued Rs. 1350 to a creditor, forgotten to record in cash book
e) No entries found in cash book for 1. Bank charges debited in Pass book Rs.120, 2.
interest received credited in pass book Rs. 550
f) Cheques worth of Rs. 850, Rs.1100 and Rs. 500 issued but not cashed up to
31/12/2018
g) Wrong debit in Cash book Rs. 200
h) Wrong debit in Pass book Rs. 350
i) A discounted bill Rs. 1000 has been dishonored but no entry made in cash book
j) A customer directly transferred to our account Rs. 500, but no intimation received
k) Credit side of cash book is overcast by Rs. 180
5. From the following prepare Bank Reconciliation Statement on 31-3-2019
a) Balance as per Pass Book Rs. 10000
b) A cheque received from Sathish for Rs. 200 has been deposited and dishonored, no
entry was found in cash book for dishonor
c) A cheque Rs. 575 has been sent to bank for collection on 21/3/2019 but forgotten to
make necessary entry in the cash book
d) Wrong debit given in the cash book Rs. 400
e) A cheque issued for Rs. 120 has been debited in the pass book as Rs. 220
f) A cheque received from as debtor Rs. 600 and entered in the cash book but omitted
to sent to bank for collection
g) Subscription to news paper Rs. 300 paid by the bank as per standing instructions, not
recorded in the cash book
h) Bank Charges Rs. 50, interest on investment Rs. 870 shown in pass book only
i) Cheques issued Rs. 3500, but presented for payment only Rs. 2800
j) A bill which was discounted for Rs. 1250 discount charges 50, dishonored and no
entry in cash book.

6. On 31st March, 2017 the pass book of Manish showed a credit balance of 2,16,000.
Bank balance as per cash book as on 31st March, 2017 is Rs. 362475. A comparison
of pass book and cash book revealed the following. Prepare a Bank Reconciliation
Statement as on 31st March, 2017.
(i) Cheques deposited but not cleared by 31st March Rs.1,08,150
(ii) Cheques issued by Manish but not presented for payment before 1st April, 2017 Rs.
26,000
 (iii) Insurance premium paid by bank on behalf of
Manish but not yet recorded in cash book Rs. 52,075
(iv) Commission charged by bank not yet recorded in cash book Rs. 750
(v) Interest on bonds collected by bank on behalf of Manish not yet recorded in cash book
Rs. 25,000
(vi) A cheque received for Rs. 10000 has been posted twice in Cash book
(vii) Demand draft received from Raja Ltd Rs. 25000, debited in Cash book but not sent
to bank for collection
(vii) Interest on bank loan appeared in Pass book only Rs. 1500
7. From the following information supplied by Mehta, prepare his bank reconciliation
statement as on 31st March, 2013.

1. Favorable balance as per bank statement 1,65,000

2. Cheques issued but not yet presented for payment 87,500
3. Cheques deposited with the bank but not yet collected 1,05,000
4. Cheque recorded in the bank column of the cash book but not sent to the bank for
collection Rs. 20,000
5. Payments received from customers direct by the bank Rs. 35,000
6. Bank charges debited in the statement Rs. 200
7. A bill for Rs. 30,000 (discounted with the bank in February at Rs. 29,780) dishonored
on 31st March and noting charges paid by the bank Rs. 100
8. Premium on life policy of Mehta paid by the bank on standing advice Rs. 1,800
8. From the following particulars of M/s Suresh enterprises, prepare a Bank
reconciliation statement:
(1) Bank overdraft as per Pass Book as on 31st March 2013 was Rs. 8,800
(2) Cheques deposited in Bank for Rs. 5,800 but only Rs. 2,000 were cleared till 31st March
= 5800 – 2000 = 3800
(3) Cheques issued were Rs. 2,500, Rs. 3,800 and Rs. 2,000 during the month. The
cheque of Rs. 3,800 is still with supplier.
(4) Dividend collected by Bank Rs. 1,250 was wrongly entered as Rs. 1,520 in Cash Book.
(5) Amount transferred from fixed deposit A/c into the current A/c Rs. 2,000 appeared
only in Pass Book
(6) Interest on overdraft Rs. 930 was debited by Bank in Pass Book and the information
was received only on 3rd April 2013.
(7) Direct deposit by M/s Rajesh Traders Rs. 400 not entered in Cash Book.
(8) Corporation tax Rs. 1,200 paid by Bank as per standing instruction appears in PB only.
9. From the following particulars, ascertain the balance would appear in the Cash
book of Mohan on 31st March, 2012. The Pass book showed a debit balance of Rs.
82,000 on that date
 Cheques issued, but not presented for payment by 31st March, 2012 Rs. 23,000
 Cheques paid into bank, but not cleared by 31st March, 2012 Rs. 30,000
 Interest charged on overdraft appeared in the pass book only Rs. 500
 Bank charges debited by bank, but not recorded in the cash book Rs. 200
 Interest on debentures collected by bank, but not recorded in the cash book Rs. 6,000
 Bank paid insurance premium as per standing instructions, not yet recorded in the
cash book Rs. 2,200
 A customer paid into the firm’s bank account directly Rs. 10,000
 Wrong debit in pass book Rs. 450
  Debit side of cash book is overcast by Rs. 250

10. The given particulars belong to Sowmya on 31.12.2016. Prepare a Bank

Reconciliation Statement.
1. The overdraft as shown by the Cash book is Rs.18,600.
2. Out of the total cheques issued for Rs.1,500 on 31/12/2016, only one cheque for
Rs.400 was cashed on the same day. (not presented 1500-400 = 1100) Less
3. Rs.200 cheque has been collected by the bank as against the total cheques deposited
for Rs.750 in December 2016. Deposited but not collected 750 – 200 = 550 Add
4. Telephone bill paid by the bank Rs.150 was not credited in the cash book. Add
5. Bank charges Rs.30 Less were posted twice in cash book but other charges of Rs.50
and bank expenses Rs.25 was not recorded. 50 + 25 Add
6. Interest received for Rs.30 has not been recorded in cash book. less
7. A bill discounted by us previously, but now dishonoured was debited in the pass book
was Rs.800. add
8. Wrong debit given in the pass book was Rs.300. add
9. Interest collected on securities for Rs.125 recorded in cash book only. add
10. Funds of Rs.1,000 were transferred from a customer account, but not recorded in cash
book. less
11. The bank Cash book has been showing a Crdit balance of Rs.13,000 as on
31.3.2017. Find out the balance of Pass book.
1. Out of 4 cheques worth Rs.5,000 each, only Rs.5,000 cheque has been collected
before 31.3.97. 4 X 5000 = 20000 deposited but not collected 3 X 5000 = 15000
Add
2. Out of the total cheques issued for Rs.13,000, Rs.4,000 cheques were not cashed
before 31.3.97. Less
3. A cheque issued for Rs.500 forgotten to enter in cash book Add
4. Though the Folio charges (bank charges) of Rs.80 and interest of Rs.250 were debited
in the pass book, they were not credited in the cash book before 31.3.2017 due to lack
of information. 330 Add
5. Annual subscription to Rotary Club Rs.130 has been paid by the bank on 30.3.2017.
Add
6. Amount collected by bank on promissory note Rs.300. Less
7. Over casting in the credit side of cash book Rs.150. Lses

Practice Problems

1. From the following information prepare Bank Reconciliation Statement

a) Balance as per Cash book Rs. 12000
b) Cheques issued but not presented for payment Rs. 2000
c) Bills collected directly by the bank Rs. 3000
d) Bank charges recorded in pass book only Rs. 150
e) Cheques deposited into bank but dishonored Rs. 1000
f) Cheques deposited into bank but not collected Rs. 2000
2. Prepare bank reconciliation statement
 a) Bank overdraft as per cash book Rs. 20000
b) Debit side of cash book cast short Rs. 100
c) Cheques deposited into bank Rs. 6000 but Rs. 3500 were only collected
d) Bills collected by bank Rs. 900
e) Bank charges recorded twice in cash book Rs. 300
f) Cheques deposited but not collected Rs. 1500
3. From the following prepare bank reconciliation statement
a) Bank OD as per pass book Rs. 11000
b) A cheque deposited as per pass book but no recorded in cash book Rs. 300
c) Bills collected directly by bank Rs. 2500
d) Debit side of cash book cast excess Rs. 50
e) Bank charges recorded twice in pass book Rs. 350
f) Cheque Rs. 5000 debited but not collected as per bank statement
4. Prepare bank reconciliation statement
a) Balance as per cash book Rs. 10000
b) Cheques deposited but not collected Rs. 500
c) Cheques issued but not presented Rs. 1000
d) Cheques deposited dishonored not entered in cash book Rs. 1500
e) Bank charges as per pass book Rs. 100
5. Prepare bank reconciliation statement
a) Bank OD as per Pass book Rs. 10600
b) Bills collected directly by Bank Rs. 3500
c) Debit side of cash book cast short Rs. 100
d) A cheque deposited as per pass book but not recorded by cash book Rs. 900
e) Bank charges recorded twice in the cash book Rs. 420
f) The cheques of Rs. 6000 deposited but not collected as per pass book
6. Prepare bank reconciliation statement
a) Balance as per Pass book Rs. 100000
b) Cheques deposited but not cleared by bank Rs. 40000
c) Cheques issued but not presented Rs. 20000
d) Cheques deposited dishonored not entered in cash book Rs. 20000
e) Bank charges as per pass book Rs. 500
7. From the following prepare bank reconciliation statement and find out pass book
balance
a) Bank balance as per cash book Rs. 15000
b) Cheques issued earlier Rs. 2800 but not presented for payment
c) Chques deposited in bank earlier but not credited in pass book Rs. 4200
d) Cheques received from customer Rs. 1200 enter in cash book but forgotten to sent to
bank
e) Interest on investment collected by the bank credited in pass book only Rs. 800
f) Bank charges Rs. 20 debited in pass book only

8. Prepare BRS as on 31/3/2015

a) OD balance as per Cash book Rs. 12600
b) On the standing instructions the banker paid news paper bill Rs. 1800 debited in pass
book only
c) Banker collected Dividend of Rs. 2600, credited in pass book
d) A cheque received and recorded in cash book but not sent to the bank for collection
Rs. 2800
e) Cheque issued but not presented for payment Rs. 1200
f) A Cheque dishonored appeared in Pass book only Rs. 1500