E-Content on

FINANCIAL ACCOUNTING - I (Sem. - I)

Dr. POPAT KRISHNA SHINDE

M.Com., NET, PhD
Assistant Professor,
Faculty of Commerce, S. P. College,
Tilak Road, Pune.
E-mail: sumit.pks@gmail.com
 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

UNIT
2
Bank
Reconciliation
Statement

Dr. Popat K. Shinde 2 sumit.pks@gmail.com

 Financial Accounting (Sem - I)

Dr. Popat K. Shinde 3 sumit.pks@gmail.com

 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )
INTRODUCTION:

• Bank Reconciliation Statement (BRS) involves the process of identifying the

transactions individually and match it with the Bank Statement such that the
closing balance of Bank in Books matches with the Bank Statement.

• Bank Reconciliation Statement is a report or statement prepared by the business to

match the Bank transactions recorded in the Books of Accounts with the Bank
Statement.

• The Bank Reconciliation Statement helps to check the correctness of the entries
recorded in the Books of Accounts and thereby, ensures the accuracy of Bank
Balances.
Dr. Popat K. Shinde 4 sumit.pks@gmail.com
 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Why Bank Reconciliation Statements Are Prepared:

With the definition of a Bank Reconciliation Statement, you might be wondering why
bank transactions recorded in the Books of Accounts do not match with the Bank
Statement? There are plenty of reasons and some the common ones are listed below:

✓ Cheques Issued but not cleared in the Bank

✓ Difference in cheque Deposited and cheque Credited date

✓ Date of cheque issued towards payment and date on which it is Debited is different

✓ Cheque issued or received is not presented to the bank for clearing.

Dr. Popat K. Shinde 5 sumit.pks@gmail.com

 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Why Bank Reconciliation Statements Are Prepared: Cont…

✓ Bank Interests, Charges etc. are not accounted for. Reason being it is not known till
you reconcile.
✓ Banks can also do mistake in Debiting or Crediting the transactions
✓ Just like Banks, you too can make mistake in accounting the bank transactions in
books of accounts and so on….

• Due to the reasons listed above, the closing bank balance in your books of accounts
and actual bank balance as per bank will not match.

• This means, the bank balance what you think you have it your bank is not the one
available in the bank.
Dr. Popat K. Shinde 6 sumit.pks@gmail.com
 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Why Bank Reconciliation Statements Are Prepared: Cont…

• At periodic intervals, the Customer / Business Entity (i.e. Account Holder in the

Bank), should compare the balance in Bank as shown by the Cash Book, with the

Pass Book.

• In case of any differences between the two, they should be analyzed by listing out

the various reasons for such difference.

• Such a statement is called Bank Reconciliation Statement.

Dr. Popat K. Shinde 7 sumit.pks@gmail.com

 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Activities of a Bank:

•Acceptance of Deposits: •Letter of Credit:

•Loans: •Standing Instructions:

•Discounting: •Demand Draft:

•Overdraft: •Travellers’ Cheque:

•Guarantee:
Dr. Popat K. Shinde 8 sumit.pks@gmail.com
 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Bank Pass Book or Statement:

• Bank Pass Book (also known as Bank Statement), is an extract of the Ledger

Account of the customer as per the Bank’s Books of Accounts.

• It is a periodical statement of account in which all transactions, i.e. deposits and

withdrawals made by the customer during the particular period is recorded.

• A comparative analysis of the Bank Pass Book and Cash Book (Bank Column)

is as follows:

Dr. Popat K. Shinde 9 sumit.pks@gmail.com

 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Bank Pass Book or Statement: Cont…

In Cash Book of the Customer /
Point In Bank Pass Book
Business Entity
• Withdrawal of Cash • These are recorded as
Debit • Payment of Cheques to Creditors, Expenses ‘Payments’ in the Cash Book,
Entries in etc. i.e. on the Credit Side of the
Bank Pass • Bank Interest, Commission and Charges for Cash Book (Bank Column)
Book various services rendered by the Bank
• Payment by Bank under Standing Instructions

• Deposit of Cash into Bank • These are recorded as ‘Receipts’

Credit • Receipt / Collection of cheques from Debtors in the Cash Book, i.e. on the
Entries in • Other Incomes / Receipts, e.g. Interest, Debit Side of the Cash Book
Bank Pass Dividend, Capital introduced, Loans taken etc. (Bank Column)
Book • Direct collection of Bills Receivables. Income
on Investments etc by the Bank

Dr. Popat K. Shinde 10 sumit.pks@gmail.com

 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Bank Pass Book or Statement: Cont…

In Cash Book of the Customer / Business
Point In Bank Pass Book
Entity
• Credit Balance in the Bank Pass Book • Such favorable balance will normally
Favorable
represents a favorable balance, i.e. Normal appear in the Debit Side of Cash Book
Bank
Balance. (Bank Column)
Balance

• Debit Balance in the Pass Book represents • Such Overdraft Balance will normally
Overdraft an unfavorable balance, i.e. Overdraft appear in the Credit Side of Cash Book
Balance Balance (Bank Column)

Note: For each entry in the Pass Book, there should be a corresponding opposite entry in the Cash Book.
This is because the business enterprise treats the Bank as Debtors A/c (i.e. Receivable / Asset) and
Bank treats the business enterprises as Creditors (i.e. Payable / Liability).

Dr. Popat K. Shinde 11 sumit.pks@gmail.com

 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Difference between Bank Statemetn and Cash Book:

Timing Differences Error Differences

i.e. Differences due i.e. Differences due
to delay in to Errors in
recording an Entry recording the
in either of the Entries in either of
Books the Books

Dr. Popat K. Shinde 12 sumit.pks@gmail.com

 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Difference between Bank Statemetn and Cash Book: Cont…

Timing Differences
i.e. differences due to delay in recording an
entry in either of the books

First Entry in the Cash First Entry in the Pass Book

Book and subsequently in and subsequently in Cash
Pass Book Book

Dr. Popat K. Shinde 13 sumit.pks@gmail.com

 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Difference between Bank Statemetn and Cash Book: Cont…

Error Differences
i.e. differences due to Errors in recording
the entries in either of the Books

Error in Cash Book or in

Pass Book, relating to a
Debit items or a Credit items
Dr. Popat K. Shinde 14 sumit.pks@gmail.com
 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Difference between Bank Statemetn and Cash Book: Cont…

Timing Differences:
A) First Entry in the Cash Book and subsequently in Pass Book
1. Cheques issued but not yet presented for Payment
2. Cheques deposited into Bank but not yet Credited / cleared

B) First Entry in the Pass Book and subsequently in Cash Book

1. Interest Allowed / Credited by Bank
2. Interest & Dividends collected by Bank
3. Direct Payment into Bank by a Customer
4. Bills Receivable collected by Bank on behalf of the Customer
5. Interest & Expenses charged by Bank
6. Direct Payment by Bank
7. Dishonor of a Bill Discounted with the Bank

Dr. Popat K. Shinde 15 sumit.pks@gmail.com

 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Advantages of Bank Reconciliaiton Statement:

A) To record entries which have been missed out in the Cash Book, e.g. interest
charged/ allowed by the Bank, Bank Charges and Direct collection by Bank
etc.

B) To Identify any errors that may have been committed either in Cash Book or
in Bank Statement.

C) To identify any undue delay in the clearance of cheques.

D) To act as a preventive against misappropriation / frauds.

Dr. Popat K. Shinde 16 sumit.pks@gmail.com

 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Preparation of Bank Reconciliation Statement:

Starting Point Cash Book Balance Pass Book Balance
Dr. Balance Cr. Balance Cr. Balance Dr. Balance
(Balance as per Starting Point) (Favorable) (Overdraft) (Favorable) (Overdraft)
Cheques issued but not yet
Add Subtract Subtract Add
presented for Payment
Cheques deposited into Bank but
Subtract Add Add Subtract
not yet Credited / Cleared
Interest allowed by Bank Add Subtract Subtract Add
Interest & Dividends collected by
Add Subtract Subtract Add
Bank
Direct Payments into Bank by
Add Subtract Subtract Add
Customer
Dr. Popat K. Shinde 17 sumit.pks@gmail.com
 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Preparation of Bank Reconciliation Statement:

Starting Point Cash Book Balance Pass Book Balance
Dr. Balance Cr. Balance Cr. Balance Dr. Balance
(Balance as per Starting Point)
(Favorable) (Overdraft) (Favorable) (Overdraft)

Bills Receivable collected by

Add Subtract Subtract Add
Bank on behalf of Customer

Interest & Expenses charged by

Subtract Add Add Subtract
Bank

Direct Payments by Bank Subtract Add Add Subtract

Dishonor of a Bill Discounted

Subtract Add Add Subtract
with the Bank

Dr. Popat K. Shinde 18 sumit.pks@gmail.com

 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Preparation of Bank Reconciliation Statement:

Starting Point Cash Book Balance Pass Book Balance
Dr. Balance Cr. Balance Cr. Balance Dr. Balance
(Balance as per Starting Point) (Favorable) (Overdraft) (Favorable) (Overdraft)
For Wrong Entries Done
- Wrongly Debit in Cash Book or
in Pass Book, under casting of Cr.
Subtract Add Add Subtract
Side of Cash Book, overcasting of
Dr. side of Cash Book etc.
- Wrongly Credit in Cash Book or
Pass Book, over casting of Dr.
Add Subtract Subtract Add
side of Cash Book, under casting
of Cr. Side of Cash Book

Dr. Popat K. Shinde 19 sumit.pks@gmail.com

 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

Preparation of Bank Reconciliation Statement:

Balance as per End Point Pass Book Balance Cash Book Balance

Favorable Overdraft Favorable Overdraft

Positive (+) End Point
i.e. Cr. i.e. Dr. i.e. Dr. i.e. Cr.
Balance Indicates
Balance Balance Balance Balance

Overdraft Favorable Overdraft Favorable

Negative (-) End Point
i.e. Dr. i.e. Cr. i.e. Cr. i.e. Dr.
Balance
Balance Balance Balance Balance

Dr. Popat K. Shinde 20 sumit.pks@gmail.com

 S . P. C o l l e g e , P u n e - F i n a n c i a l A c c o u n t i n g ( S e m - I )

https://www.linkedin.com/in/dr-popat-shinde-0b723519

sumit.pks@gmail.com

https://twitter.com/DrPopatKShinde1

Dr. Popat K. Shinde 21 sumit.pks@gmail.com