know the Importance and Need of Bank Reconciliation Statement. Understand the Causes for Disagreement between Cash Book and Pass Book Balances. Prepare Bank Reconciliation Statement.

1. BANK RECONCILIATION
STATEMENT (BRS)
Lecture by: Srinivas M.

2. Learning Objectives
After studying this Chapter, you will be able to:
 know the Importance and Need of Bank
Reconciliation Statement.
 Understand the Causes for Disagreement
between Cash Book and Pass Book Balances.
 Prepare Bank Reconciliation Statement.

3. What do you about Bank
Reconciliation Statement

4. On the debit side of the cash book,
the bank column represents:
1. Cheques deposited into bank for collection.
2. Cash paid into bank and
3. Some entries that are made only after receiving the
information from the bank viz.,
a) Amounts collected by the bank on our behalf as per the
standing instructions, for example, Interest collected on
investment.
b) Interest given by the banker for the balance kept by us in
our bank account.
c) The amount paid by our customers directly into our bank
account.

5. On the other hand, on the credit
side of the cash book, represents
1. Cheques issued for payment.
2. Cash withdrawn from bank for office use and
personal use.
3. In addition, some entries are made after receiving
information from the bank viz.,
a) Amounts paid by the bank on our behalf as per the
standing instructions, for example, payment of insurance
premium.
b) Interest charged by the bank for the amount drawn over
and above the actual balance kept in the bank account.
c) Bank charges payable for the agency and utility services
rendered by the bank.

6. 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..

7. 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money is withdrawn from the bank, the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.

8. 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.”

9. 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.”

10. 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.

11. 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.

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

13. 4. Interest allowed by the bank: When bank
allow interest to a customer 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.

14. 5. Interest and dividend collected by the bank:
A banker may receive amounts due to the
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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

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

23. 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.

24. 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 book or
cash book is calculated.

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

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

27. Format: when bank balance as per cash book is taken as the
starting point
Particulars Amount Amount
Balance as per Cash Book (A)
Add (B):
Cheques issued but not presented for payment
Interest credited by bank but not recorded in cash book
Debtors directly paid into bank but not recorded in cash book
Wrong credit by banker
Collections by banker as per customer standing instructions
Total B:
Total (A+B = C)
Less (C):
Cheques deposited but not credited by the bank
Dishonoured cheques appeared in the pass book but not entered
in the cash book
Bank charges as per pass book
Wrong debit by banker
Payments as per standing instructions
Total D:
Total C-D:

28. Points to be noted
 For easy reference the table given below will
be useful
Book Favourable Balance Unfavourable Balance
(overdraft)
Cash Debit Credit
Pass Book Credit Debit

29.  Make a bank reconciliation statement of
Mr.Udayakumar from the following
particulars.
a) Balance as per cash book Rs.1,500.
b) Cheques deposited but not cleared Rs.100.
c) Cheques issued but not presented for payment
Rs.150.
d) Interest allowed by bank Rs.20.
 [Answer : Balance as per pass book Rs.1,570]

30. Prepare a bank reconciliation statement of Mr.
Goutham from the following data as on 31.12.2013.
 Balance as per cash book 12,500
 Cheques issued but not presented for payment 900
 Cheques deposited in bank but not collected 1,200
 Bank paid insurance premium 500
 Direct deposit by a customer 800
 Interest on investment collected by bank 200
 Bank charges 100
 [Answer : Balance as per pass book Rs. 12,600]

31. From the following particulars, ascertain the bank
balance as per cash book of Mr. Mithun as at 31st
March 2013.
A. Credit balance as per pass book as on 31.3.2013 Rs. 2,500.
B. Bank charges of Rs.60 had not been entered in the cash book.
C. Out of the cheques of Rs.3,500 paid into the bank, a cheque
of Rs.1,000 was not yet credited by the banker.
D. Out of the cheques issued for Rs.4,500, cheques of Rs.3,800
only were presented for payment.
E. A dividend of Rs.400 was collected by the banker directly but
not entered in the cash book.
F. A cheque of Rs.600 had been dishonoured prior to 31.3.2013,
but no entry was made in the cash book.
G. [Answer : Balance as per cash book Rs. 3,060]

32.  On 31st December 2013 the pass book of Ms. Rosy shows a
credit balance of Rs.3,357.
 The cheques sent to the bank but not collected and credited
amounted to Rs.790 and three cheques drawn for Rs.300,
Rs.150 and Rs.200 respectively were not presented for
payment till 31st January 2014.
 Bank has paid a bill payable amounting to Rs.1,000 but it has
not been entered in the Cash Book and a bill receivable of
Rs.500 which was discounted with the bank was dishonoured
by the drawee on due date.
 The bank has charged Rs.12 as its commission for collecting
outstation cheques and has allowed interest Rs.10 on the
trader’s balance.
 Prepare a Bank Reconciliation Statement and show the balance
as per cash book.
 [Answer : Balance as per cash book Rs.4,999]

33.  From the following particulars of Mr. Manikandan, prepare a
Bank Reconciliation Statement as on March 31, 2013:
 a) The following cheques were paid into the firm’s current A/c
in March but were credited by the bank in April: Anbu Rs.
250, Balu Rs.350 and Chandru Rs.190.
 b) The following cheques were issued by the firm in March
and were cashed in April: Prince Rs. 250, Queen Rs. 450 and
Raja Rs.400.
 c) A cheque for Rs.100 which was received from a customer
was entered in the bank column of the cash book in March but
the same was paid into the bank in April.
 d) The pass book shows a credit of Rs. 250 for interest and a
debit of Rs. 100 for bank charges.
 e) The balance as per Cash Book was Rs. 18,000 as on
31.3.2013.
 [Answer : Balance as per pass book Rs. 18,360]

34. From the following particulars, ascertain the balance that
would appear in the Bank Pass Book of Cotton World Ltd. at
31st December, 2013.
a) The bank overdraft as per Cash Book on 31st December, Rs.
1,26,800.
b) Interest on overdraft for 6 months ending 31st December,
Rs.3,200 is entered in the Pass Book.
c) Bank charges of Rs.600 for the above period are debited in
the Pass Book.
d) Cheques issued but not cashed prior to 31st December,
amounted to Rs.23,360.
e) Cheques paid into bank but not cleared before 31st December,
were for Rs. 43,400.
f) Interest on investments collected by the bank and credited in
the Pass Book, Rs. 24,000.
[Answer : Overdraft as per pass book Rs. 1,26,640]

35. Have wonderful day !!!