Department of Humanities

Bank Reconciliation Statement

Module 2

Samitesh Brahma
Assistant Professor
Department of Humanities
Jorhat Engineering College
Bank Reconciliation Statement
Bank reconciliation Statement is a statement prepared by the account
holder on a particular date to reconcile the difference between the Bank
Balance as per the Cash Book with the balance as per Bank Pass Book
showing entries because of which differences between the two balance
exist.

To compare
Bank Statement or Bank Pass Book

1. Debit balance means that much amount is payable by the account

holder to the bank.

2. Credit balance means that much amount is lying deposited in the

bank being receivable by the account holder.
Causes of differences in the Cash Book and Pass Book Balance

1. Differences caused by Time Gap in Recording transactions

2. Differences caused by errors committed in recording transactions.
Causes of differences in the Cash Book and Pass Book Balance
1. Differences caused by Time Gap in Recording transactions
i. Cheques issued but not yet presented for payment in the bank.
ii. Cheques paid into the bank for collection but not yet credited by the bank.
iii. Cheques paid into the bank for collection but dishonored by the bank.
iv. Interest allowed by the bank.
v. Interest charged by the bank on overdraft.
vi. Bank charges and commission charged by the bank.
vii. Direct deposit by customers into the bank.
viii. Interest and dividend collected by the bank
ix. Direct payment made by the bank on behalf of customers.
Causes of differences in the Cash Book and Pass Book Balance

2. Differences caused by errors committed in recording transactions.

i. Errors committed in recording transactions by the firm.
ii. Errors committed in recording transactions by the bank.
Need and importance of Bank Reconciliation Statement
1. It locates the errors or omissions that may have been committed either on the
part of the customer or the bank.

2. The customers becomes sure of the correctness of the bank balance show by the
cash book.

3. A reconciliation statement facilitates the preparation of a revised cash book.

4. It helps in revealing the unnecessary delay in the collection of cheques by the

bank.

5. It also helps in keeping a track of cheques which have been sent to the bank for
collection.
Preparation of a bank reconciliation statement
We may have four different situations while preparing the bank reconciliation
statement. These are :
1. When debit balance (favourable balance) as per cash book is given and the
balance as per cash book is to be ascertained.
2. When credit balance (favourable balance) as per passbook is given and the
balance as per cash book is to be ascertained.
3. When credit balance as per cash book (unfavourable balance/overdraft balance) is
given and the balance as per passbook is to be ascertained.
4. When debit balance as per passbook (unfavourable balance/overdraft balance) is
given and the cash book balance as per is to be ascertained.
Format of Bank Reconciliation Statement when Dr. balance as per Cash Book is taken as starting point:
BANK RECONCILIATION STATEMENT
As on …………………
Particulars Plus Items (₹) Minus Items (₹)
Balance (favourable balance) as per cash book XX

Add: 1 Cheques issued or drawn but not yet presented for payment upto this date xx

2 Interest allowed by bank not recorded in Cash Book xx

3 Amount directly deposited by the customers in our bank account xx

4 Interest and dividends collected by bank on trader’s investments xx

5 Cheques paid into bank but omitted to be entered in the cash book xx

6 Any wrong credit given by bank in the pass book xx

Less: 1 Cheques deposited into the bank for collection but not yet credited by bank upto this date xx

2 Cheques deposited into bank for collection but dishonoured by the bank xx

3 Direct payments made by the bank according to the standing instruction of customers xx

4 Bank Charges and commission charged by bank xx

5 Cheques issued by omitted to be recorded in the cash book xx

6 Any wrong debit given by bank in the pass book xx

xx xx
Balance ( Favourable balance) as per pass book XX
A. Method of preparing Bank Reconciliation Statement by Debit balance of
Bank column of Cash Book

Items to be added (Plus Items)

1. Cheques issued but not yet presented for payment
2. Credit made by the bank for interest
3. Amount directly deposited by the customers in our bank account.
4. Interest and dividend collected by the bank
5. Cheques paid into the bank but omitted to be recorded in the cash book.
Items to be deducted (Minus Items)
6. Cheques sent to the bank for collection but not yet credited by the bank.
7. Cheques sent to the bank for collection but dishonoured by the bank.
8. Direct Payment made by the bank on behalf of customers.
9. Debits made by the bank for commission , bank charges , etc.
10. Cheques issued but omitted to be recorded in the cash book.
Illustration 1
On 30th June, 2020, the bank Column of Anil’s Cash Book showed a balance of
₹ 8,250. on examination of the Cash Book and bank statement you find that:
1. Out of Total cheques amounting to 8,000 issued, cheques amounting to ₹
5,800 have been presented for payment upto 30th June, 2020.
2. Out of total cheques amounting to 6,000 sent to bank for collection,
cheques of ₹ 4,100 were credited in pass book upto 30th June, 2020.
3. On 28th June a customer deposited ₹ 3,500 direct in the bank account but
it was entered only in the pass book.
4. Debit side of Anil’s cash book has been overcast by ₹100.
5. No entry has been made in the cash book for the rent of ₹800 paid by
banks according to Anil’s standing instructions.
6. The pass book showed a credit of ₹320 for interest and a debit of ₹ 40 for
bank charges, but these have not been entered in the cash book.

Prepare a Bank Reconciliation Statement as on 30th June, 2020

Solution
BANK RECONCILIATION STATEMENT
As on 30th June 2020
Particulars Plus items Minus Items
₹ ₹
Balance as per cash book (DR) 8,250
1 Cheques issued into bank but not presented for payment upto 30th June, 2,200
2020 (₹8,000 - ₹5,800)
2 Direct deposit by a customer in a bank 3,500
3 Interest credited by bank 320
4 Cheques sent for collection but not yet credited by the bank upto 30th 2,000
June, 2020 (₹6,000 - ₹4,000)
5 Debit side of Cash book Overcast 100
6 Rent paid by bank according to standing instructions 800
7 Bank Charges 40
14,270 2,840
Balance as per pass book (Cr) 11,430
Illustration 2
On 30th June, 2020, the cash book of M/s Ram showed a balance of ₹ 4000 at bank. He
sent cheques amounting ₹20,000 to the bank before 30th June, but it appears from the pass
book that cheques worth only ₹8,000 had been credited before the date. Similarly, out of the
cheques of ₹10,000 issued during the month of June, cheques for ₹ 500 were presented and
paid in July.
Also a bill for ₹ 700 retired by bank on our behalf under a rebate of ₹20, the full amount
of the bill was credited in the Cash Book.
The Pass Book also showed the following payments:-
i. ₹640 as premium on the life policy according to standing instructions; and
ii. ₹4000 as club fess.

The Pass Book showed that the bank had collected ₹ 1,200 as interest. The Bank had
charged bank charges of ₹140. there as no entry in the cash book for payments, interest, etc.
Prepare Bank Reconciliation Statement as on 30th June, 2020
Solution
BANK RECONCILIATION STATEMENT
As on 30th June 2020
Particulars Plus items Minus Items
₹ ₹
Balance as per cash book (Favourable) 4,000
1 Cheques issued into bank but not presented for payment in June, 2020 500
2 Interest collected by bank 1,200
3 Cheques deposited into bank but not yet credited 12,000
(₹20000-₹8000)
4 Rebate on payment of bill by bank not recorded in cash book 20
5 Amount paid by bank on standing instructions
i. Life Insurance Premium 640
ii. Club fees 4,000
6 Interest charged by bank 140
5,720 16,780
Balance as per pass book (Overdraft) 11,060
B. Method of preparing Bank Reconciliation Statement by Credit
balance of Cash Book

If the cash book shows a credit balance(overdraft) at the start,

the overdraft balance will be written in minus column and
there will be no change in the column of all other items.
 Illustration 3
On 31st March, 2020, the bank column of the cash book of Mr. Dinesh disclosed an
overdraft balance of ₹16,600. On examination the cash book and bank statement, you find that:

i. Cheques were deposited into the bank for ₹ 32,000 but of there cheques for ₹9,200
were collected and credited in April.
ii. Cheques were issued for ₹ 15,000, out of which cheques for ₹ 12,000 had been
presented for payment in March.
iii. In March, Mr. Dinesh had discounted a bill of exchange of ₹ 20,000 at a discount of ₹
800 but ₹20,000 were entered in the cash book.
iv. No entry is made in the cash book of an amount of ₹12,200 directly deposited by a
customer in the bank.
v. Payment of insurance premium of ₹4,000 and receipt of insurance claim of ₹ 16,000
appear in the pass book but not entered in the cash book.
vi. A cheque of ₹7,000 issued to Mr. Naresh was omitted to be recorded in the cash book.
vii. Bank column of the payment side of the cash book was undercast by ₹ 2,000.
viii. A cheque of ₹ 5,600 issued of Mr. Rajesh was entered in the cash column of the cash
book.
Prepare a Bank Reconciliation Statement as on 31st March, 2020.
Solution
BANK RECONCILIATION STATEMENT
As on 31st March 2020
Particulars Plus items Minus Items
₹ ₹
Overdraft Balance as per cash book (Cr.) 16,600
1 Cheques deposited into bank but credited in April 9,200
2 Cheques issued but not presented in March 3,000
3 Discount on bill not recorded in cash book 800
4 Directly deposited by customer 12,200
5 Payment of insurance premium 4,000
And Receipt of insurance claim 16,000
6 Cheque issued omitted to be recorded in cash book 7,000
7 Bank column of payment side of cash book undercast 2,000
8 Cheque issued to Rajesh entered in the cash column of cash book 5,600
31,200 45,200
Balance as per pass book (Overdraft) 14,000
 Illustration 4 (Previous year Q)

From the following particulars prepare a Bank Reconciliation Statement, showing the balance
as per Pass Book on 31st March, 2020

i. Bank Balances as per cash book ₹ 78,400 on 31st March, 2020.

ii. Cheques of ₹ 8,100 were deposited into the bank in the month of march but the
bank collected and credited in the month of April, 2020.
iii. Cheques of ₹ 6,800 were issued to different parties before 31st march, 2020 but
the cheques were presented for payment into the bank in the month of April,
2020.
iv. Insurance premium of ₹ 1,200 debited by the bank in the month march, 2020
but it was not recorded in the cash book up to 31st march, 2020
v. Bank interest credited by the bank ₹ 1,420 in the month of march, 2020 but
same was not recorded in the cash book up to 31st march, 2020
Solution

BANK RECONCILIATION STATEMENT

As on 31st March 2020
Particulars Plus items Minus Items
₹ ₹
Balance as per cash book (Dr.) 78,400
1 Cheques issued but not presented for payment upto 31st 6,800
March, 2020
2 Bank interest credited but not recorded 1,420
3 Cheques deposited into bank but not collected by bank 8,100
upto 31st March 2020
4 Insurance premium 1,200
86,620 9,300
Balance as per pass book (Cr.) 77,320