Reporting cash in the balance sheet
Definition of BRS
The purpose of the BRS
Nature of the cash book and the bank statement
Reasons for difference between the CB and the BS
Rules of debit and credit in BRS
Steps in preparing BRS
Reporting cash in the balance sheet
• Cash is listed first in balance sheet
• The term Liquid Assets.
• Current asset section of balance sheet.
•Purpose of balance sheet.
• Short term investments.
• Similar items in the balance sheet.
• First asset shown in balance sheet.
Non considered Cash
Cash equivalent investment in stocks, bonds.
Study of Balance Sheet.
Users of a company financial statement.
Creditors need to know the amount of liquid
Line of Credit
Arrangements of the Line of Credit.
The meanings of Line of Credit.
Liability to the Bank.
11..TTHHEE DDEEFFIINNIITTIIOONN OOFF TTHHEE BBAANNKK
A bank reconciliation is a schedule
explaining any differences between the
balance shown in bank statement and
the balance shown in Cash book.
22..TTHHEE PPUURRPPOOSSEE OOFF TTHHEE BBAANNKK
It reflects actual bank balance position
Detect mistake in cash book or Pass book
Prevent frauds in recording banking
Explain any delay collection of checks
It identifies valid transaction recorded by
one party but not by other
A book in which record all the transaction relating to cash receipt
and payments in detail is called cash book
Prepared or maintain by company
1. Simple : maintained by small enterprise
2. Cash book with discount
3. Cash book with discount and cash column
4. Petty cash book
Report released (on a fixed date every month)
by banks that lists deposits, withdrawals, checks
paid, interest earned, and service
charges or penalties incurred on an account. It
shows the cumulative effect of
these transactions the account's balance, up to the
date the report was prepared
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TTHHEE BBAANNKK SSTTAATTEEMMEENNTT..
The balance in the cash book is an asset to the
The balance as per the bank statement is a
liability to the bank, therefore:
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BBEETTWWEEEENN TTHHEE CCAASSHH BBOOOOKK AANNDD TTHHEE
The bank balances as shown in the cash book and
the bank statement seldom agree. There are
various reasons for this. A statement is used to
reconcile the two balances.
There are some transactions recorded by the depositor but
missed by the bank.
Similarly, there are transactions appearing on the bank
statement and not recorded by the company.
o Unpresented cheques
• They are cheques issued by the firm that have
not yet been presented to its bank for payment.
o Deposit transit/uncredited cheques
• Cash receipts recorded by the depositor but not
included in bank statement.
o Service charges
They are charges made by the bank to the
company for banking services used.
o Dishonored cheques/NSF cheques
They are cheques deposited but subsequently
returned by the bank due to the failure of the
drawer to pay.
o Interest allowed by the bank
They are interest received for deposits or fixed
o Miscellaneous bank charges and credits
banks charge for services – such as printing
cheques, handling collection of notes receivable
and processing NSF cheques.
Some important rules for debit and
credit in bank reconciliation statement
1. Unpresented cheques
•Cheques issued but not yet presented
•Cheques drawn but not enchased
•Cheques paid for payment but not cleared
•Cheques issued returned by bank on technical
DR/Cr D C
2. Uncredited cheques
• Cheques deposit but not credited by the bank
• Cheques paid into the bank but not cleared by bank
• Cheques sent to bank but not collected by bank
Dr + -
Cr - +
3. All types of income/credit memo/memorandum
• Income given by bank
• Income collected by bank
Dr + _
4. Dishonored cheques
• Cheques received and deposited but dishonor
• Cheque issued but dishonor
5. If anything C. in the bank statement only
6. If anything Dr. in the bank statement only
CR (-) (+)
DR (+) (-)
• Payment side of cashbook overstated
• Receipts side of cashbook overstated
8. Expenses paid by bank Cr. (-) (+) 9. expenses charged by
• Bills directly paid bank charges
• Insurance premium service
• Interest charged by bank interest on
In BANK STAEMENT.
•Deposit in Transit.
• Outstanding cheques
• Unpresented cheques
• Unpaid cheques.
IN CASH BOOK :-
• Interest Earned
• Interest Received
• Notes Receivable
• Recording Error
• NSF cheques
• Interest Allowed.
1. Check the bank statement and the cash book to see the
items which have been omitted.
2. Arrange the paid cheques in sequence by serial number
and compare each cheque with the corresponding entry
in the cheque register.
3. Add balance to the depositor’s accounting record(credit
memorannda) issued by the bank.
4. Deduct from the balance per the depositor record which
have not been recorded by the depositor.
5. Make appropriate additions or deductions to correct
6. Balance of B.S = Balance of cashbook
7. Prepare journal entries as adjustments
Particulars L/F Debit Credit
(To record interest earned, N/R and Recording error)
Edward Jones (NSF)
(to record service charges by the Bank and NSF check by
Prepare journal entries to adjust the accounts of July
What balance should be included in the balance sheet?
Bank Balance = 31142.3