1) A bank reconciliation statement reconciles the difference between the bank balance in a company's cash book and the bank balance in its bank statement. 2) Differences can arise due to timing delays in transactions being recorded or errors made by the business or bank. Timing differences include cheques that have not cleared and deposits not yet processed. 3) The bank reconciliation statement lists transactions that increase or decrease the cash book balance to reconcile it with the bank statement balance. Preparing this statement verifies the accuracy of both records.

1. Banking Reconciliation
Statement
Santhosh V
Assistant Professor
Kristu Jayanti College
Bengaluru, Karnataka
Pin Code : 560077.

2. Banking ReconciliationStatement
MEANING
Bank reconciliation statement is a statement which is prepared to
reconcile the difference between the bank balance as per the cash
book and the bank balance as per the pass book.
DEFINITION
According to J.R. Batliboi, “A Bank Reconciliation Statement is
prepared at periodical intervals with a view to indicate the items
which cause disagreement between the balance as per the bank
column of the cash book and the pass book balance on any given
date”.

3. FEATURE
S
• The important features of bank reconciliation statement are:
• It is a statement and not a ledger account.
• It is prepared periodically; say weekly, fortnightly, monthly,
quarterly, half-yearly or yearly depending upon the volume of
banking transactions. Generally, it is prepared at the end of every
month.
• It is prepared by the bank customer (businessman) and not by the
banker.
• It is not a part of books of accounts. It is prepared on a sheet of paper
outside the books of accounts.
• It is prepared only when there is difference between the cash book
balance and the pass book balance.
• It is prepared to verify the accuracy of entries made in the cash book
and in the pass book.

4. NEED OF
BRS
Both the cash book and the pass book contain the same
banking transactions. So, the bank balance as per cash book
and the bank balance as per pass book should agree on any
particular date. However, in actual practice, the cash book
balance and the pass book balance do not tally. Hence
ascertain the causes of difference first and then reflect them
in a statement called Bank Reconciliation Statement to
reconcile (tally) the two balances.

5. ReasonsfortheDifferencebetweentheCashBookBalanceandPassBook
Balance
The difference between the cash book balance and bank pass book
balance is caused by:
• Timing differences on recording of the transactions
• Errors made by the business or by the bank
1. Timing differences:
When a business compares the bank balance of its cash book with the
balance shown by the bank pass book, there is often a difference, whichis
caused by the time gap in recording the transaction relating either to
payments or receipts.
The factors affecting time gap includes:
• Cheques issued but not yet presented for payment
• Cheques deposited into the bank for collection but not yetcollected
• Direct debits made by the bank
• Amounts directly deposited into the bank account by thirdparties
• Interest and dividends collected by the bank
• Direct payments made by the bank on behalf of the businessman
• Cheques deposited/bills discounted dishonored

6. Continued.
.
2. Differences caused by errors:
Sometimes the difference between the cash book balance and the
pass book balance may arise due to an error made by the bank or
the business in its books. Examples of such errors are wrong
debit, wrong credit, under-casting, over-casting, etc.
• Errors made by the business in the cash book
• Errors made by the bank in the pass book
RECTIFICATION OF ERRORS
Meaning of Errors inAccounting:
Errors in accounting mean unintentional mistakes committed by
the book keepers in the books of account.

7. Types of
Errors
Errors in accounting can be classified on two bases, namely,
1. On the basis of the nature of the errors
2. On the basis of their effect on the agreement of the trial balance
1. ON THE BASIS OF THE NATURE OF THE ERRORS
(a) Errors of Principle
Accounting entries are recorded as per the generally accepted accounting principles. If
any of these principles are violated or ignored, errors resulting from such violation or
ignorance are known as errors of principle. An error of principle may occur due to
incorrect classification of expenditure or receipt between capital and revenue.
Example: Old Furniture sold for Rs.10,000.
Correct entry will be – Cash A/cDr.
To Furniture A/c -------- which means it is capital receipt
Wrong entry will be - Cash A/c Dr.
To Sales A/c --------- which means it is revenue receipt
Here, the principle itself goes wrong so it will be termed as error of principle.
(b) Errors of Omission
If the transaction is completely not recorded either at the time of recording the
transaction in the book of original entry nor while posting to the ledger, such errors are
termed as errors of omission.
Example: A credit purchase of goods from Madan Rs.15000 has not all been recordedin
the books of account.

8. Continued.
.
(c) Errors of Commission
An error of commission refers to an error due to some clerical mistakes. Error of
commission take place when some transactions are incorrectly recorded in the
books of account.
Examples:
1. Recording a wrong amount in the subsidiary book
2. Posting twice or thrice to an account
3. Wrong totaling of a ledger
4. Wrong carry forward
(d) Compensating errors
Compensating errors are errors which compensate or neutralize the effect of each
other.
Examples:
1.If purchase book is under cast by Rs.2000 & sales book is under cast by
Rs.2000.
2. If rent account is overcast by Rs.500 & wages account is under cast by Rs.500.

9. Continued.
.2. ON THE BASIS OF THEIR EFFECT ON THE AGREEMENTOF
TRIALBALANCE
(a) One-sided errors or errors disclosed by the trial balance
One-sided error refers to an error, which affects only one aspect, viz., either
debit aspect or credit aspect of a transaction.
Examples:
1. Posting a wrong amount to the wrong side of the correct ledger account
i.e. wages paid Rs.720 are credited to the wages account as Rs.270.
2. Posting an item twice to the ledger account i.e. insurance premium paid
debited to insurance account twice.
(b) Two-sided errors or errors not disclosed by the trial balance
A two-sided error refers to an error which affects the aspects, viz., debit
aspect as well as credit aspect of a transaction.
Example:
Error of principle i.e. Furniture purchased from Arun was recorded in the
purchases book.
RECTIFICATION OF ERRORS
Rectification of errors means correction of mistakes found in the books of
accounts.

10. BANKRECONCILIATIONSTATEMENTANDRECTIFICATIONOFERRORS
BRSFORMAT
BRS as on………
Particulars Rs.
Bank balance as per pass book or Bank Overdraft as per
cash book
(+) Total of Transactions decreasing cash book balance
(-)Total of Transactions increasing cash book balance Bank
balance as
per cash book or Bank Overdraft as per pass book
XXX
XX
X
XX
X
XX
X
XX
X
Particulars Rs.
Bank balance as per cash book or Bank Overdraft as per pass book
(+) Total of Transactions increasing cash book balance
(-)Total of Transactions decreasing cash book balance
Bank balance as per pass book or Bank Overdraft as per cash book
(Or)
XXX
XX
X
XX
X
XX
X
XX
X

11. LISTOFTRANSACTIONSEFFECTINGCASHBOOKBALANCE
S.N
o.
Transactions increasing
cash book balance Rs. Transactions decreasing cash
book balance
Rs.
1 Cheque issued but not cashed XX Cheques deposited into bank for
collection but
not collected
XX
2 Direct payment into bank
account by a third party
entered in the pass book but
not entered in cash book
XX Cheque received from third person
entered in cash book but not
deposited into the bank
XX
3 Overcasting of credit side of
the cash book
XX Overcasting of debit side of the
cash book
XX
4
Wrong credit in the pass book XX Wrong debit in the pass book
XX
5 Interest on bank balance
credited in pass book only
XX Bank charges & interest on
overdraft debited in pass book
not entered in cash book.
XX

12. Continued..
6 Under casting of debit side of
cash book
XX Undercasting of credit side of cash
book
XX
7 Cheque/Bill issued & entered in
cash book but dishonored by bank
XX Cheques & bills deposited (discounted)
into the bank for collection & entered
in cash book but dishonoured
XX
8 Wrong debit in the cash book XX Wrong credit in the cash book XX
9
Wrong carry forward of debit
balance as credit balance in pass
book
XX
Wrong carry forward of credit balance
as debit balance in pass book XX
10 Interest & dividend collected by
bank & credited in pass book
XX Payment made by the bank on behalf of
customer & debited in pass book XX
11 Cheque deposited into bank for
collection & entered in pass book
but
not entered in cash book
XX Bill/Cheque discounted with the bank
dishonoured debited in pass bookbut
not
entered in cash book
XX
Total of Transactions increasing
cash book balance XX
Total of Transactions decreasingcash
book balance XX