CA Darshan Jain

CA , CS , DISA , DIRM , LLB (P) , B.COM

A Chartered Accountant & A Company Secretary By

Profession & A Educator By Passion.

Teaching Financial Accounting & Financial

Management to CA Students Since Last 9 years.
BANK RECONCILIATION
STATEMENT
 BIRDS EYE VIEW
❑ Role of Banking & Banking Transactions

❑ Meaning of Bank Pass Book

❑ Bank Reconciliation Statement : Meaning & Need

❑ Causes of Difference Between Balance shown by Cash Book & Pass
Book 1. Timing Differences 2. Errors in Cash Book or Pass Book
❑ Summary of Timings of Recording Banking Transactions

❑ Illustrative Examples of Timing Differences

❑ Types of Error in Cash Book & Pass Book
❑ Adjusted Cash Book
 ROLE OF BANKING

With the increase in volume of trade, commerce and business, almost every
business enterprise regularly operates bank accounts. Most accounting
business transactions (Receipts & Payments) are effected through bank.
Under the Income Tax Act payments exceeding Rs 10,000 are also required
to be effected by crossed account payee cheque or draft.
 TYPES OF BANKING TRANSACTIONS
1. Cash deposits
2. Deposits of Cheque/draft/Pay-order etc
3. Cash withdrawals
4. Withdrawals by Cheque/Order etc
5. Charges levied by bank
6. Transfer of funds (RTGS , NEFT)
7. Interest Credited by bank
8. Payments as per standing instructions given to bank
9. Discounting of bills of exchange
10. Collection of interest /dividend warrants
11. Issuance of guarantees
12. Credit /Debit Cards Payments
 BANK PASS BOOK

Bank Pass Book (also known Bank statement) is merely a copy of customer’s
Account in the books of Bank. The bank usually supplies this statement on
demand. Thus , a Bank Pass Book is a way of keeping customers informed of
the entries made by the bank. Customer is supposed to check the entries in
the statement of account or Pass Book and inform the bank of any error found
therein. The format of the Pass Book is specified in Illustration 1.
 BANK RECONCILIATION STATEMENT - MEANING
When the customer receives the Bank pass Book or Bank Statement, he compares Pass
Book entries with those in the Cash Book. Normally, entries in the Cash Book should
tally with those in the pass Book and the balances shown by both the books should also
be the same. But in practice, these generally differ. In case of disagreement in the
balances of the Cash Book and the Pass Book, the need for preparing Bank
Reconciliation Statement arises.

What is Bank Reconciliation Statement?

Bank Reconciliation Statement is a statement which reconciles the bank balance as per
Cash Book with the balance as per Bank Pass Book (or statement ), by showing all
causes of differences between the two.
 BANK RECONCILIATION STATEMENT - NEED
1. In order to find out the cause of difference in cash book & pass book balance.
2. To ensure that items directly debited or credited by the bank are entered in the cash
book.
3. It facilitates verification of arithmetical accuracy of balance in the cash book.
4. It helps to check undue delay in clearance of cheques.
5. It helps in detecting frauds in bank transactions.
6. It serves third party confirmation for balance arrived as per Cash Book.
7. It serves purpose of audit compliance.
8. It helps in finding out actual balances positions for effective operations of bank
account.
 CAUSES OF DIFFERENCE BETWEEN BALANCE AS PER
CASH BOOK AND BALANCE AS PER PASS BOOK
Basically the differences between the Bank Balance as per Cash Book and
Bank Balance as per Pass Book are caused by :

1. Timing difference of recording banking transactions

2. Errors in Cash Book committed by the account holder

3. Errors in pass Book committed by the Bank.

 SUMMARY OF TIMING DIFFERENCES IN BANKING
TRANSACTIONS
Transactions Timings of Recordings in Cash Book Timings of Recordings in Pass Book
Cash deposits When Cash is deposited When Cash is deposited
Cash withdrawn When Cash is withdrawn When the cash is withdrawn

Cheque issued When Cheque is issued When a cheque is presented for payment
Cheque deposited When Cheque is deposited When cheque is collected
Bank charges When Information from Bank is received When charges are levied by bank

Interest charged by Bank When information from Bank is received When interest is charged by bank

Interest allowed by Bank When Information from Bank is received. When interest is allowed by bank

Direct payment on behalf
Direct collection on behalf of customer
Dishonor of cheque/bills
Receivable
When Information from Bank is received. When payment is made by bank
When the amount is collected by the
When Information from Bank is received.
bank
When Information from Bank is received. When cheque / B/R is dishonored
 CHEQUES ISSUED BUT NOT PRESENTED
Due to the time lag between the issue of cheques and their presentment for payment at bank, the
bank balance as per Pass Book will be higher than the Bank balance as per Cash Book since the
customer credits the bank`s account as soon as a cheque is issued but the bank debits the
customer’s account only when the cheque is actually presented for payment.
Example : X Ltd. issued a cheque in favour of a creditor on 28th March, 2011 for a sum of Rs.5000.
The cheque is presented for payment at bank on 4th April 2011. In case, the bank sends a statement
of account upto 31st March, 2011, there will be a difference of Rs 5,000 between the balance as
shown by the Cash Book and the balance as shown by the Pass Book. If the bank balance as per
Cash Book as on 31st March, 2011 is Rs 50,000. The Bank Reconciliation Statement may be
Prepared as under :-
Bank Reconciliation Statement as on 31/03/2011
Sr.No Particulars Rs
1 Balance as per cash Book 50,000
2 Add : Cheques issued but not presented for payment till 31.3.2011 5,000
3 Balance as per pass Book (1+2) 55,000
 CHEQUES DEPOSITED BUT NOT YET COLLECTED
Due to the time lag between the deposits of cheques and their collection, the Bank Balance as
per Pass Book will be lower than the Bank balance as per Cash Book since the customer debits
the Bank`s account as soon as a cheque is deposited but the Bank credits the customer account
only when the cheque is actually collected.
Example : X ltd. deposited a cheque on 28th March, 2011 for a sum of Rs 5,000. The cheque is
collected On 4th April,2011. In case the bank sends a statement of account upto 31st March, 2011
there will be a difference of Rs 5,000 between the balance as shown by the cash book and the
balance as shown by the Pass Book. If the Bank Balance as per Cash Book as on 31st March 2011 is
Rs 50,000. The Bank Reconciliation Statement may be prepared as under : -

Bank Reconciliation Statement as on 31/03/2011

Sr.No Particulars Rs
1 Balance as per cash Book 50,000
2 Less : cheques deposited but not yet collected till 31.3.2011 5,000
3 Balance as per pass Book (1-2) 45,000
 BANK CHARGES AND INTEREST CHARGES
Bank Charges includes the Draft Commission, charges for collecting the outstation cheques or
B/R, Half years charges. Due to the charges levied by the Bank for its services, the Bank balance
as per Pass Book will be lower than the Bank balance as per Cash Book, since the Bank debits the
customer’s account as soon as the service is rendered but the customer credits the bank’s
account only when he comes to know of such charges on the receipt of the statement of account.
Example : A bank debited X Ltd’s account for its charges amounting to Rs 500 on 31.3.2011. In case
the bank sends a statement of account up to 31st march 2011 there will be a difference of Rs 500
between the balance as shown by the Cash Book and the balance as shown by Pass Book. If the
Bank Balance as per Cash Book as on 31st March, 2011 is Rs 50,000. The Bank Reconciliation
Statement may be prepared as follows.
Bank Reconciliation Statement as on 31/03/2011
Sr.No Particulars Rs
1 Balance as per cash Book 50,000
2 Less : Bank Charges levied by the bank but not yet recorded in cash Book 500
3 Balance as per pass Book (1-2) 49,500
 INTEREST ALLOWED BY BANK
Due to Interest (if any) allowed by the bank, the bank balance as per Pass Book will be higher than
the bank balance as per cash book, since the bank credits the customer`s account when interest
is allowed but the customer debits the bank`s account only when it comes to know of such
interest on the receipt of Bank Pass Book.
Example : A bank credited X Ltd`s account for interest amounting to Rs 500 on 31.3.2011. In case
the bank sends a statement of account upto 31st march 2011, there will be a difference of Rs 500
between the balance as shown by the Cash Book and the balance as shown by the Pass Book. If
the Bank Balance as per Cash Book as on 31st March, 2011 is Rs 50,000. The Bank Reconciliation
Statement may be prepared as under
Bank Reconciliation Statement as on 31/03/2011

Sr.No Particulars Rs
1 Balance as per cash Book 50,000
2 Add : Interest allowed by bank but not yet recorded in cash Book 500
3 Balance as per pass Book (1+2) 50,500
 DIRECT PAYMENT ON BEHALF OF CUSTOMERS
Due to the direct payments on behalf of customers under standing instructions of the customers
( e.g. payment of insurance premium , payment of bills payable ) the bank balance as per pass
book will be lower than the bank balance as per cash book, since the bank debits the customer’s
account as soon as it makes the payments but the customer credits the bank’s account only
when it comes to know of such payments on the receipt of Bank Pass Book or statement of
account .
Example : The bank made a payment of an insurance premium under the standing instructions of
X ltd amounting to Rs 5,000 on 28th march 2011. In case, the bank sends a statement of account
upto 31st march , 2011, there will be a difference of Rs 5,000 between the balance as shown by the
cash book and the balance as shown by the pass book. If the bank balance as per cash book as
on 31st march, 2011 is Rs 50,000, The bank Reconciliation statement may be prepared as under
Bank Reconciliation Statement as on 31/03/2011
Sr.No Particulars Rs
1 Balance as per cash Book 50,000
2 Less : Direct Payment by bank but not yet recorded in cash Book 5,000
3 Balance as per pass Book (1-2) 45,000
 DIRECT COLLECTIONS ON BEHALF OF CUSTOMERS
Due to direct collections on behalf of customers under the standing instruction of the customers
( e.g. collection of B/R, Rent, Interest, Dividend etc.) the bank balance as per pass book will be
higher than the bank balance as per cash book, since the bank credits the customers account as
soon as it gets the payment but the customer debits the bank’s account only when it comes to
know of such collections on the receipt of bank pass book or statement of account .
Example : The bank collected a bill Receivable of Rs 5,000 under standing instructions of X ltd on
28th march ,2011. In case the bank sends a statement of account upto 31st march , 2011 there will
be a difference of Rs 5,000 between the balance as shown by the cash book and the balance
shown by the pass book . If the balance as per cash book as on 31.3.2011 is Rs 50,000, The bank
Reconciliation statement may be prepared as under :
Bank Reconciliation Statement as on 31/03/2011
Sr.No Particulars Rs
1 Balance as per cash Book 50,000
2 Add : Direct Payments collected by bank but not yet recorded in cash Book 5,000
3 Balance as per pass Book (1+2) 55,000
 DISHONOR OF CHEQUE DEPOSITED AND DISCOUNTED B/R
Due to dishonor of a cheque ( already credited in the customer’s Account ) and Discounted bills
Receivable, the bank balance as per pass book will be lower than the bank balance as per cash
book since the bank debits the customers account as soon the cheque or B/R is dishonored but
the customer credits the bank’s account only when it comes to know of such dishonor on the
receipt of pass book or statement of account .
Example : A discounted bill dishonoured for Rs 5,000 on 28th march 2011.In case the bank sends a
statement of Account upto 31th march, 2011 there will be a difference of Rs 5,000 between the
balance as shown by the cash book and the balance as shown by the pass book .If the bank
balance as per cash book on 31st march , 2011 is Rs 50,000. The bank Reconciliation statement may
be prepared as under :
Bank Reconciliation Statement as on 31/03/2011

Sr.No Particulars Rs
1 Balance as per cash Book 50,000
2 Less : Discounted B/R dishonoured but not yet recorded in cash Book 5,000
3 Balance as per pass Book (1-2) 45,000
 ERRORS IN CASH BOOK THAT LEADS TO DIFFERENCE BETWEEN BALANCE AS PER
CB AND BALANCE AS PER PB
Due to errors in cash book , there may be difference between the bank balance as shown by the
pass book and the bank balance as shown by the cash book .
The examples of the errors in cash book may include the following :

1. Errors of Omission : Cheque/cash deposited but not recorded in the cash book , Cheques issued but not
recorded in the cash Book, cash withdrawn from the Bank but not recorded in the cash book .
2. Errors of Recording : Cheque deposited into the bank but recorded in the Cash Column/Discount Column ,
cheque deposited into the bank but recorded in the bank Column on the payment side of the Cash Book , a
cheque of Rs 1,552 deposited into the bank but recorded as Rs 1,525, a discount allowed Rs 100 recorded in
Bank Column, cash received Rs 1,000 recorded in the Bank column .
3. Errors of Casting : Under/Over casting of bank Column of the Cash Book
4. Errors of Carrying Forward : The debit balance on the previous day brought forward as a credit balance,.
The bank balance carried forward as Rs 15,889 instead of Rs 15,898.
5. Other Errors : Cheque received from a debtor recorded in the Cash Book but not deposited into the Bank for
collection .
 EXAMPLE
A cash deposit of Rs 1,589 was recorded as Rs 1,598 in Cash Book on 28th march 2011. In case the
bank sends a statement of account upto 31st march 2011 there will be difference of Rs 9 between
both the balances. If the Bank balance as per Cash Book on 31st march 2011 is Rs 50,000. The Bank
Reconciliation statement may be prepared as under :

Bank Reconciliation Statement as on 31/03/2011

Sr.No Particulars Rs

1 Balance as per cash Book 50,000

2 Less : Excess debit for cash deposit in cash Book 9

3 Balance as per pass Book (1-2) 49,991

ERRORS IN PASS BOOK THAT LEADS TO DIFFERENCE BETWEEN BALANCE AS PER
CB AND BALANCE AS PER PB

Due to error in Pass Book, there may be difference between the balance as shown by the Bank
Pass Book and the balance as shown by the Cash book .

The examples of errors in Pass Book include the following :

a) Errors of omission : Cheque collected by bank but not recorded in pass book due to wrong
posting in another customers account.
b) Errors of Recording : Deposit recorded on withdrawal side and vice versa , deposit of Rs 1,589
recorded as Rs 1,598.
c) Errors of Casting : Deposit Column/withdrawal columns under/over casted.
d) Errors of Carrying forward : Debit balance on previous page brought forward as credit
balance on the next page, the balance of Rs 15,889 carried forward as Rs 15,898.
 EXAMPLE
A Cash deposit of Rs 1,589 was recorded as Rs 1,598 in Pass Book on 31st march 2011, in case the
bank sends statement of account upto 31st march 2011, there will be difference of Rs 9 between
both the balances. If the Bank Balance as per Cash Book as on 31st march 2011 is Rs 50,000. The
Bank Reconciliation statement may be prepared as under:

Bank Reconciliation Statement as on 31/03/2011

Sr.No Particulars Rs

1 Balance as per cash Book 50,000

2 Add : Excess Credit for Cash Deposited in Pass Book 9

3 Balance as per pass Book (1+2) 50,009

 ADJUSTED/AMENDED CASH BOOK
In case the bank reconciliation statement is required to be prepared at the end of an accounting period , it is
recommended that first, the Cash Book (with amended bank column) should be prepared in order to ascertain
the correct bank balance as per Cash book and then the bank reconciliation statement should be prepared to
reconcile this correct bank balance as per cash book with the balance as per bank pass book. It may be noted
that it is the adjusted Cash book balance which is taken to the balance sheet.

How to calculate the adjusted bank balance as per cash book?

The adjusted bank balance as per cash book is ascertained by passing :

A. Adjusting entries in respect of correct items which appear only in pass book
Example : Bank charges, interest charged on overdraft, interest allowed by bank, Dividend/interest/bills
receivable directly collected by bank, direct payment by bank under standing instructions of customers.

B. Rectifying entries in respect of errors committed in the cash book

Example : Cheque issued but recorded in cash column/discount column, cheques issued recorded in bank
column with wrong amount, over/under cast of bank column, error in balancing the bank column, error in
carry forward/brought forward of bank balance.
 WHEN TO PREPARE ADJUSTED/AMENDED CASH BOOK?
1. When asked in Question Specifically to Prepare BRS with Adjusted Cash Book.
2. Balance as Per Cash Book is Given (favorable or Overdraft) & BRS is Being
Prepared as on 31st Dec/31st March
In Second Case Give Below Note
Note – In The Absence of Information It is Assumed that Books of Accounts are
Being Closed on 31st Dec/31st March & Accordingly BRS is Being Prepared With
Adjusted Cash Book.

3. No ACB To Be Prepared if Both Cash Book & Pass Book balance Given in Question.

4. NO ACB To Be Prepared if Questions only Ask To Ascertain the Balance as per Pass
Book & Does Not Speak About Preparing BRS.
 TERMS USED
Sr.No Terms Meaning

1 Favourable Balance as per Cash Book It means Debit balance as per cash Book

2 unFavourable Balance as per Cash Book It means Credit balance as per cash Book

3 Favourable Balance as per Pass Book It means Credit balance as per Pass Book

4 unFavourable Balance as per Pass Book It means Debit balance as per Pass Book
 FORMAT OF BRS WHEN STARTING POINT IS CB
Sr.No Particulars Amt Amt

A Bank Balance as Per Cash Book XXX

B ADD : Transactions having the effect of higher balance in pass book

a) Cheques deposited into the bank but not recorded in cash book xxx
b) Cheques issued but not yet presented for payment xxx
c) Interest allowed in pass book only xxx
d) Bills recievable directly collected by bank xxx
e) Direct payment by a customer into bank but not recorded in cash book xxx
f) Cheques issued returned on technical grounds xxx
g) A wrong credit given by bank in pass book xxx XXX

C LESS : Transactions having the effect of lower balance in pass book

a) Cheques received and recorded in bank cloumn but bot yet sent to bank for collection xxx
b) Cheques deposited but not yet collected by bank xxx
c) Bank charges , Interest on overdraft debited in pass book only xxx
d) Insurance Premium paid directly by bank under standing advise xxx
e) Cheques deposited for collection , returned dishonoured and recorded in pass book only xxx
f) Discounted bills dishonoured but not recorded in cash book xxx
g) A wrong debit given by bank in pass book only xxx XXX

D Balance as per Pass Book (A+B-C) XXX

 FORMAT OF BRS WHEN STARTING POINT IS PB
Sr.No Particulars Amt Amt

A Bank Balance as Per Pass Book XXX

B ADD : Transactions having the effect of higher balance in cash book

a) Cheques received and recorded in bank cloumn but not yet sent to bank for collection xxx
b) Cheques deposited but not yet collected by bank xxx
c) Bank charges , Interest on overdraft debited in pass book only xxx
d) Insurance Premium paid directly by bank under standing advise xxx
e) Cheques deposited for collection , returned dishonoured and recorded in pass book only xxx
f) Discounted bills dishonoured but not recorded in cash book xxx
g) A wrong debit given by bank in pass book only xxx XXX

C LESS : Transactions having the effect of lower balance in cash book

a) Cheques deposited into the bank but not recorded in cash book xxx
b) Cheques issued but not yet presented for payment xxx
c) Interest allowed in pass book only xxx
d) Bills recievable directly collected by bank xxx
e) Direct payment by a customer into bank but not recorded in cash book xxx
f) Cheques issued returned on technical grounds xxx
g) A wrong credit given by bank in pass book xxx XXX

D Balance as per Cash Book (A+B-C) XXX

ILLUSTRATION 1
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