Reconciliation

Statement
Bank Reconciliation
statement is a statement
prepared by organizations to
reconcile the balance of cash
at bank in company’s own
records with the bank
statement on a particular
date.
 BANK PASS BOOK
A Bank pass book or Bank
statement is a copy of
customer’s account in bank’s
ledger.
 It shows the balance standing
to the debit (credit) of the
customer at the end of the
month.
 Thebalance of Bank account
or Bank column of cash book
should be equal to the
balance shown by Pass book
or Bank statement.
Attimes, these
balances do not agree.
Reasons for the difference
between two balances
 Cheques issued but not
presented for payment:
When cheques are issued, the
entry in the cash book is made
immediately. In the books of the
bank, the entry is made only
when the cheque is presented
for payment. This causes a
disagreement between the two
balances.
Reasons for the difference
between two balances
 Cheques paid into the bank but
not yet cleared:
As and when the cheques are
deposited into bank, the entry is
passed on the debit side of the
bank column of the cash book.
The customer account is credited
by the bank only when the
cheques are cleared.
 Interestallowed by the Bank:
Bank might have credited the
account of the customer with
interest and may have made
the entry in the Pass book.
The customer might not have
made entry for the same in
the bank column of the cash
book.
 Interest & Bank charges
debited by the bank:
The bank debits the accounts
of the customer by way of
interest on overdraft or
certain collection charges.
But no entry for that made in
the cash book.
 Interest,
dividend etc. collected
by the bank:
Sometimes, bank collects interest
on government securities and
dividend on shares and give a
credit to the account of the
customer for the same.
Direct payment by the Bank:
Sometimes under standing
instructions from the client,
certain payments like insurance
premium, club fees etc. are made
by the bank. The entry in the bank
column of the cash book is made
only when the necessary
intimation is received by the
client.
 Directpayment into the bank by
a customer:
Sometimes our customers
deposit money direct into the
account in the bank, the
corresponding entry for which
may not appear in the cash book.
Dishonour of the bill discounted with
the bank:
Sometimes customers get their bills
disocunted with the bank. If the bank
is unable to get payment of these bills
on the due date it will debit the
customer’s account with the amount of
the bill and noting charges.
Any error committed by the
bank:
If any error is committed
either by the bank or by the
customer himself, it will
cause disagreement between
the two balances.
 Reconciliation
Statement
Bank Reconciliation
statement is a statement
prepared by organizations to
reconcile the balance of cash
at bank in company’s own
records with the bank
statement on a particular
date.
 Advantages of Bank
Reconciliation statement
 Theerrors committed in the
Cash book or Pass book are
revealed.

 Thechances of
embezzlement can be
reduced.
Procedure of preparing the
Bank Reconciliation
statement
1. Compare the items appearing
on the debit side of cash book
with those appearing on the
credit side of the Pass book
(deposit column) and place a tick
mark against items appearing in
both the books and note down
the entries which are causes of
differences.
2. Compare the items appearing
on the credit side of the cash
book with those appearing on
the debit side of the pass book
(Withdrawal column) and place a
tick mark against items
appearing in both the books.
3. Take the balance as per cash book as
the starting point and add items which
are having the effect of higher balance in
the Pass book and deduct those which
are having the effect of lower balance in
the Pass book.
or
Take the balance as per Pass book as the
starting point and add items which are
having the effect of higher balance in
cash book and deduct those which are
having the effect of lower balance in the
Cash book.
 IMPORTANT POINTS
 An Overdraft appears as “Minus
Item’.
 In case the total “Plus Items”
column exceeds the total of
“Minus Items”, the difference is
called as “Balance”.
 In case the total of “Minus
Items” column exceeds the total
of “Plus Items” , the difference
is called as an overdraft.
 The Cash Book of Mr. B shows Rs.
8,464 as Bank balance on 31st of
December, 1986. But you find that
this does not agree with the
balance as shown by Pass Book.
On scrutiny, you find the following
discrepancies:
 On 15th Dec, 1986 the payment
side of cash book was undercast
by Rs. 200.
 A cheque of Rs. 231 issued on 25th
of December, 1986 was taken in
cash column.
 One deposit of Rs. 250 was
recorded in cash book as if there
is no bank column therein.
 On 18th of Dec. 1986 the debit
balance of Rs. 1,576 as on the
previous day was brought
forward as credit balance.
 Of the total cheques amounting
to Rs. 11,614 drawn in last week
of December, 1986, cheques
aggregating Rs. 7,815 encashed
in december.
 Dividends of Rs. 350
collected by Bank and
subscription of Rs. 200
paid by it were not
recorded in the cash book.

 One outgoing cheque of

Rs. 450 was recorded
twice in the cash book.
 On 1st of January, 2001 Ajay’s Cash
book showed a bank overdraft of Rs.
98,700. On comparison, we find the
following:
1. Of the total cheques of Rs. 8,900
issued on 27th of January, one cheque
of Rs. 7,400 was presented for
payment on 4th Feb. and the other
cheques of Rs. 1,500 handed over to
customers, were returned by them
and in lieu of those new cheques of
the same amount were issued to them
on 1st of Feb. No entry for the return
was made.
2.Out of the total cash and cheques
of Rs. 6,800 deposited in the bank
on 24th of Jan, one cheque of Rs.
2,600 was cleared in 1st of Feb and
the other cheque of Rs. 500 was
returned dishonoured on 2nd of
Feb.
3. Bank Charges Rs. 35 and interest
Rs. 2,860 appearing in the Pass
Book are not yet recorded in the
cash book.
4. Cheque deposited in his account
no. 2 wrongly credited to this
account Rs. 1550.
5. A Cheque of Rs. 800 drawn on
this account was wrongly
debited in account no. 2.
6. A Cheque of Rs. 160 issued from
this account by mistake recorded
in the cash book in bank column
for account no. 2, was presented
for payment on 2nd of Feb.
 PROBLEM 3
 On 31st of March, 1986 your Bank
Pass Book showed a balance of Rs.
6,000 to your credit.
 Before that date you had issued
cheques amounting to Rs. 1,500 of
which cheques worth Rs. 900 only
have been presented.
 You also deposited cheques worth
Rs. 2,000 of which cheque of Rs.
800 paid by you into bank on 29th
March is not yet credited in the
Pass Book.
 You had also received a cheque for Rs.
160 which although entered by you in
the bank column of cash book, was
omitted to be paid into the bank.
 On 31st of March, a cheque of Rs. 250
received by you was paid into the bank
but the same was omitted to be
entered in the cash book.
 There was a credit of Rs. 85 for
interest on current account and a debit
of Rs. 10 as Bank charges.
 Draw up a reconciliation statement.
 NUMERICAL 1
Tulsian Ltd. Provides you the
following information as at 31st
March, 2001:
1) Cheques deposited but not yet
collected by bank Rs. 1,500.
2) Cheques issued but not yet
presented for payment Rs. 2,500.
3) Bank charges debited in Pass Book
only Rs. 200.
4) Interest allowed in Pass Book only
Rs. 100.
5) Insurance premium paid directly
by Bank under standing advice
Rs. 500.
6) Bills receivable directly
collected by Bank Rs. 2,000.
7) A wrong debit given by Bank in
Pass Book Rs. 3,800.
8) A wrong credit given by Bank in
Pass Book Rs. 400.
9) Direct payment by a customer
into the bank but not recorded in
cash book Rs. 700.
 Prepare a Bank Reconciliation
statement as at 31st of March,
2001 in each of the following
alternative cases:
Case 1: If the balance as per cash
book was Rs. 200.
Case 2: If the balance as per Pass
Book was Rs. 200.
Case 3: If an overdraft as per cash
book was Rs. 200.
Case 4: If an overdraft as per Pass
Book was Rs. 200.
 IMPORTANT POINTS
A credit balance as per Cash
Book is an OVERDRAFT.
 NUMERICAL 2
On comparing the cash book of Ajay
Ltd with the Bank Pass Book, the
following discrepancies were noted:
a) Out of Rs. 20,500 paid in cash and
by cheques into the bank on 27th of
March, cheque amounting to Rs.
7,500 were collected on 7th of April.
b) Cheque and cash amounting to Rs.
4,800 were deposited in bank on 26th
of March but credit was given for Rs.
3,800 only.
C) Out of the cheques amounting
to Rs. 7,800 drawn on 26th of
March a cheque of Rs. 2,500 was
encashed on 3rd April.
d) Cheques issued to creditor
amounting to Rs. 20,000 on 25th
of March of which cheques worth
Rs. 3,000 were presented to
bank upto 31st of March.
e) A Cheque for Rs. 1,000 entered
in cash book but omitted to be
banked on 31st of March.
f) A cheque for Rs. 600 deposited
into bank but omitted to be
recorded in cash book.
g) A bill receivable for Rs. 520
previously discounted (Discount
Rs. 20) with the bank had been
dishonoured but advice was
received on 1st of April.
h) A bill for Rs. 10,000 was retired
by the bank under a rebate of
Rs. 150 but the full amount of
the bill was credited in the bank
column of the cash book.
h) A Cheque of Rs. 1,080 credited in
the Pass Book on March 28 being
dishonoured is debited again in the
pass book on 1st of April. There was
no entry in the cash book about
the dishonour of the cheque until
15th of April.
Prepare a Bank Reconciliation
statement as at 31st March, 2001 if
the balance as per cash book on
31st March, 2001 was Rs. 39,770.
 NUMERICAL 3
 On 30th June, 1994, the Pass Book of
Messrs Thin and short showed a
balance of Rs. 2,000 at the Bank. They
had sent cheques amounting to Rs.
10,000 to the bank before 30th of June,
but it appears from the pass book that
cheques worth Rs. 9,000 had been
credited before date. Similarly, out of
cheques for Rs. 5,000 issued during
the month of June, cheques for Rs.
4,000 were presented and paid in July.
The Pass book also showed the
a) Rs. 320 as premium according to
standing instructions, and
b) Rs. 2,000 against a promissory note
as per instructions. The pass book
showed that the bank had collected
Rs. 1,800 as interest on govt.
securities. The bank had charged as
interest Rs. 50 and incidental
expenses Rs. 20. There was no entry
in the cash book for the payment of
interest, etc. A bill sent for collection
was returned dishonoured on 28th of
june amounting to Rs. 600.
Prepare a Bank Reconciliation
statement as on 30th of June, 1994.
 NUMERICAL 4
On checking R’s cash book with the
bank statement of his account for the
month of March, 1995 you find the
following:
1) Cash book showed an overdraft of Rs.
4,500
2) The payment side of the cash book
has been undercast by Rs. 150.
3) A Cheque for Rs. 750 drawn on his
saving deposits above has been
shown as drawn on current account.
4) Under instructions from R the
bank has transferred interest Rs.
900 from his deposit account to
his current account on 3rd April,
1995. This amount had, however,
been taken in the cash book
before 31st March, 1995.
5)Cheques amounting to Rs. 7,500
drawn and entered in the cash
book has not been presented.
6) Cheques amounting to Rs. 6,000 sent
to the bank for collection, though
entered in cash book had not been
entered by the bank.
7) Bank charges of Rs. 75 as per Bank
statement of account had not been
taken in the cash book.
8) Dividends of the amount of Rs.
3,000had been paid direct to the bank
but not entered in the cash book.
9) A Cheque issued to Arun for Rs. 200
was replaced when out of date. But it
was entered in the cash book again, no
other entry having been recorded. Both
cheques issued but not presented as
shown above. You are required to arrive
at the balance as it would appear in the
bank starement as on 31st of March,
1995.