This document defines and explains the bank reconciliation statement. [1] It reconciles the differences between the bank balance shown in a business's cash book and the balance in their bank statement or passbook. [2] Common causes of differences include outstanding checks and deposits, as well as bank charges and interest that have been applied. [3] Preparing the reconciliation statement regularly helps ensure accurate accounting records and identifies potential errors or fraud.

1. I.H.M , DEHRADUN
ACCOUNTANCY
TOPIC -: BANK
RECONCILIATION STATEMENT
Notes by-:
G.K Sawhney
7895190950

2. MEANING
A businessman generally opens a current
account with a bank. The bank column of a
cash book is used for making entries regarding
deposited and withdrawals in this account. On
the other hand, the bank also maintains the
customer’s account in its books. A copy of this
account, it submits to the customer from time
to time. The account so submitted by the bank
of the customer is known as the bank pass
book or bank statement. Cont..

3. When money or cheque is deposited by the
customer into the bank account, the customer
debits the bank account while the bank credits
the customer’s account. Similarly, when
money is withdrawn from the bank, the
customer credits the bank account while bank
debits the customer’s account.

4. DEFINITION OF BANK
RECONCILIATION STATEMENT
According to Patil, “ Bank reconciliation
statement is a statement prepared mainly to
reconcile the difference between the ‘Bank
Balance’ shown by the cash book and pass
book.”

5. According to William Pickles, “Generally a
statement is prepared to show the effect of
unpresented and uncredited cheques. Such
statement is known as bank reconciliation
statement.”

6. CAUSES OF DIFFERENCE
BETWEEN CASH BOOK AND
PASS BOOK
 The following are the causes of difference between the
balance as shown by the bank pass book and balance as shown
by the cash book.
1. Cheque issued but not yet presented for payment: When
cheque is issued to the creditor in payment of his dues, it is
immediately recorded in the cash book in the bank column. If
the cheque is not presented for payment in the bank, the bank
will not record in the firm’s account. Generally, there is a time
lag between the issue of a cheque and its presentation to the
bank. Thus, until the cheques are presented for payment, the
cash book will show lesser balance in comparison.

7. 2. Cheques paid into bank for collection but not
yet credited by the bank: A trader receives
from time to time cheques, drafts, etc. from its
customers and he sends them to its bankers for
collection. The trader debit bank column of
cash book as soon as he deposited cheques,
drafts etc. with the bank for collection but the
bank credit’s the trader’s account only after
these cheques have been collected. The
collection generally takes a few days. It results
in bank balance as per cash book higher than
the balance as per pass book.

8. 3. Cheques paid into bank for collection but
dishonoured by the bank: Sometimes, a
cheque deposited into bank is dishonoured. It
has the same effect as a cheque deposited but
not yet credited.

9. 4. Interest allowed by the bank: When bank
alow interest to a cutomer for deposits, it will
credit customer’s account and his bank balance
will increase. But the customer is not making
the entry in the cash book simultaneously till
he knows the fact, therefore, the balance differ.
Thus, the balance shown in cash book is less
than the balance shown in the cash book.

10. 5. Interest and dividend collected by the bank:
A banker may receive amounts due to te
customer by way of dividends, interest etc.
directly from the persons on account of
standing instructions of the customer to such
persons. The bank credits the account of the
customer for such collection as soon as it gets
such payments. But same will be entered in the
cash book only when customer receives the
statement fro the bank. So long, the balance
shown in the cash book is less than the balance
shown by the pass book.

11. 6. Bank charges and commission charged by
the bank: The bank charges by way of
incidental charges, commission, collection
charges etc. from its customers for the services
it renders to the customer from time to time.
The bank debits the customer’s account as
soon as it renders such a service and this
reduce the bank balance. But the customer will
know such charges only when he receives a
statement of account from the bank, until then,
bank balance as per pass book will be less than
bank balance as per cash book.

12. 7. Interest on bank overdraft: When a trader is
allowed by the bank to withdraw more than his
deposits in the account, the excess withdrawal
is known as “overdraft”. The bank charges
interest on overdrafts and debits the
customer’s account with these charges. But
the customer will record this in the cash book
either on receiving intimation from the bank in
his regard or when he receives the bank pass
book duly completed. Thus, the balances of
both books differ.

13. 8. Direct payment made by the bank on behalf
of customer: Usually an accountholder
instructs the bank to made certain payment on
his behalf such as payment for insurance
premium, interest on loan, electricity bill etc.
The bank will debit the party’s account on
making the payment and this reduces the bank
balance. But the party has no information of
the same till it is informed. Thus, the balance
shown in the cash book is more than the
balance shown by the pass book.

14. 9. Direct deposit into bank by the debtors:
Sometimes, debtors may directly deposit the
amount due in the firm’s bank account. The
bank credits the firm’s account immediately on
receipt of such payment but the firm will make
entry in the cash book only after receiving
intimation in this regard. Thus, pass book
shows more balance than the cash book.

15. 10. Other reasons: Sometimes, the firm commits
an error such as-:
(i) Cheque deposited into the bank omitted to be
recorded in the cash book.
(ii) Cheque issued to a creditor but omitted to be
recorded in the cash book.
(iii) Error in totalling or balancing the bank
column of the cash book.

16. NEEDS AND IMPORTANCE O
BANK RECONCILIATION
STATEMENT
The need and importance of bank reconciliation
statement can be judged on the basis of the
following facts:
1) It identifies the reasons for difference between
the bank balance as per cash book and the
bank balance as per pass book. Necessary
adjustments or corrections can, therefore, be
carried out at the earliest.

17. 2) By preparing bank reconciliation statement,
the customer becomes sure of the correctness
of the bank balance depicted by the cash book.
It helps him in making the further transactions
with bank.
3) Periodic preparation of the bank reconciliation
statement reduces the chances of fraud by the
cash staff. It may be possible that the cashier
may not deposit the money in the bank in time
though he might have passed the entry in the
bank column of the cash book. The bank
reconciliation statement will point out to such
discrepancies.

18. 4) There is a moral check on the staff of the
business organisation to keep the cash records
always up-to-date.

19. UTILITY OF BANK
RECONCILIATION STATEMENT
1) It gives an authentic proof of the accuracy of
the cash book and pass book balances.
2) Entries in both the books are automatically
checked.
3) The cash book may be made up-to-date by
recording some either unknown entries.
4) Error, if any, may be rectified.

20. MAIN POINTS REGARDING
BANK RECONCILIATION
STATEMENT
1) Bank reconciliation statement is prepared by
the customer.
2) Bank reconciliation statement may be
prepared at any time.
3) Bank reconciliation statement is prepared by
taking the balance of cash book or pass book
and at the end, the balance of pass bookmor
cash book is calculated.

21. Difference between Cash book &
Pass book
Cash book Pass book
(i) Given Balance Put, favourable Put, favourable
balance in plus balance in plus
column & column &
unfavourable bal. in unfavourable balance
minus column. in minus column.
(ii) See effects of i) Increase in i)Increase in cash
transaction on passbook bal. book bal. means
means amount of amount of difference
finding out balance difference put in put in plus column.
i.e. pass book or plus column.
cash book.

22. ii) Decrease in pass ii) Decrease in cash
book balance means book balance means
amount of difference amount of difference
put in minus put in minus
column. column.
iii) Finding out Pass book: Cash book:
balance. a) Plus bal. a) Plus bal.
shows favourable shows favourble
bal. i.e credit bal. bal. i.e debit bal.
b) Minus bal. b) Miuns bal.
shows shows
unfavourable bal. unfavourable bal.
i.e debit bal. or i.e credit bal. or
overdraft. overdraft.