Chapter 16 – Bank Reconciliation Statement
Bank Reconciliation Statement (BRS)
Definition: A Bank Reconciliation Statement (BRS) is a statement prepared by a firm to reconcile the bank balance shown in its Cash Book with the balance shown in the Pass Book (or bank statement) issued by the bank, on a specific date.
Purpose: In practice, the bank balance as per the cash book and the bank balance as per the pass book often differ. The BRS helps to identify and explain these differences, ensuring the accuracy of financial records.
Need and Importance of BRS
Identifies Errors: Helps in detecting errors or omissions made by either the firm in its cash book or by the bank in the pass book.
Prevents Fraud: Minimizes the chances of fraud by employees of the firm or the bank, as regular reconciliation promotes scrutiny of transactions.
Tracks Transactions: Provides a clear picture of the status of cheques issued (not yet presented) and cheques deposited (not yet cleared).
Accurate Bank Balance: Ensures that the bank balance presented in the financial statements is accurate.
Better Financial Management: A firm regularly preparing BRS is in a better financial position as it has a clear understanding of its true bank balance.
Not Mandatory: While highly beneficial, preparation of a BRS is generally not legally mandatory.
Causes of Differences in the Cash Book and Pass Book Balances
Differences typically arise due to:
- Timing Differences: When transactions are recorded at different times by the firm and the bank.
- Cheques Issued but Not Yet Presented for Payment:
Effect: Debited in the cash book immediately, but the bank debits the account only when the cheque is presented for payment.
Impact: Cash Book balance is lower than Pass Book balance.
- Cheques Deposited/Paid into Bank but Not Yet Collected/Credited by Bank:
Effect: Debited (increased) in the cash book immediately, but the bank credits the account only after the cheque is cleared.
Impact: Cash Book balance is higher than Pass Book balance.
- Direct Payments Made by Bank (Standing Instructions):
Effect: Bank debits the customer’s account based on standing instructions (e.g., insurance premium, loan instalments), but the firm records it only upon receiving the bank statement.
Impact: Pass Book balance is lower than Cash Book balance.
- Amounts Directly Deposited by Customers into Bank Account:
Effect: Bank credits the account immediately, but the firm records it only upon receiving intimation or the bank statement.
Impact: Pass Book balance is higher than Cash Book balance.
- Interest and Dividends Collected by Bank:
Effect: Bank credits the account, but the firm records it only upon receiving the bank statement.
Impact: Pass Book balance is higher than Cash Book balance.
- Bank Charges, Commission, Interest on Overdraft Debited by Bank:
Effect: Bank debits the account, but the firm records it only upon receiving the bank statement.
Impact: Pass Book balance is lower than Cash Book balance.
- Bills Discounted/Deposited for Collection Dishonoured:
Effect: When a bill is dishonoured, the bank debits the customer’s account. The firm records this only upon receiving intimation.
Impact: Pass Book balance is lower than Cash Book balance.
- Errors: Mistakes made by either the firm or the bank.
- Errors in Cash Book:
Wrong amount recorded (debited/credited).
Omission of transactions (e.g., cheque issued not recorded).
Double recording of transactions.
Errors in totaling or balancing the bank column.
- Errors in Pass Book/Bank Statement:
Wrong amount debited or credited by the bank.
Omission of transactions by the bank.
Wrong entries posted to the wrong account.
Preparation of Bank Reconciliation Statement
A BRS can be prepared by taking either the balance as per the cash book or the balance as per the pass book as a starting point. The goal is to arrive at the balance of the other book.
Starting with Debit Balance as per Cash Book (Favourable Balance):
Add: Items that have increased the passbook balance but not yet recorded in the cash book.
e.g., direct deposits by customers, interest/dividend collected by bank, cheques issued but not yet presented for payment.
Less: Items that have decreased the passbook balance but not yet recorded in the cash book.
e.g., bank charges, direct payments by bank AND items that have increased the cash book balance but not yet cleared/credited by the bank.
Starting with Credit Balance as per Pass Book (Favourable Balance):
This is the reverse of starting with the Cash Book.
Add: Items that have decreased the cash book balance but not yet recorded in the passbook.
e.g., bank charges, direct payments by bank AND items that have increased the passbook balance but not yet recorded in the cash book.
Less: Items that have increased the cash book balance but not yet recorded in the passbook.
e.g., direct deposits by customers, interest/dividend collected by bank AND items that have decreased the passbook balance but not yet presented.
Overdraft Balances:
Debit Balance as per Pass Book / Credit Balance as per Cash Book: These represent an overdraft (unfavourable balance). The treatment of additions and subtractions will be opposite to that of a favourable balance.
Proforma of Bank Reconciliation Statement:
| Particulars | Add (₹) | Less (₹) |
| Balance as per Cash Book (Debit) / Pass Book (Credit) | XXXX | |
| Add: | ||
| Cheques Issued but not yet Presented | XXX | |
| Direct Deposits by Customers | XXX | |
| Interest/Dividend Credited by Bank | XXX | |
| (Other items that increase the other book’s balance) | ||
| Less: | ||
| Cheques Deposited but not yet Cleared | XXX | |
| Bank Charges / Interest on Overdraft Debited by Bank | XXX | |
| Direct Payments by Bank | XXX | |
| Bills Discounted Dishonoured | XXX | |
| (Other items that decrease the other book’s balance) | ||
| Errors (Adjusted as per their effect) | ||
| Balance as per Pass Book (Credit) / Cash Book (Debit) | XXXX |
Question: Prepare a Bank Reconciliation Statement as on March 31, 2025.
On March 31, 2025, the Bank Column of Mr. Sharma’s Cash Book showed a debit balance of ₹ 48,000. However, on comparing it with his Bank Pass Book, the following discrepancies were found:
- Cheques amounting to ₹ 18,500 were issued on March 28, 2025, but out of these, cheques worth ₹ 5,500 were presented for payment in April 2025.
- Cheques deposited into the bank on March 29, 2025, amounted to ₹ 25,000. Out of these, a cheque of ₹ 7,000 was cleared and credited by the bank on April 02, 2025, and another cheque of ₹ 4,000 was dishonoured by the bank on March 30, 2025, but no intimation was received by Mr. Sharma until April 05, 2025. The remaining cheques were cleared in March itself.
- Bank charges amounting to ₹ 350 were debited by the bank, but no entry was made in the Cash Book.
- A customer directly deposited ₹ 6,000 into Mr. Sharma’s bank account on March 27, 2025, which was known to Mr. Sharma only on April 01, 2025.
- The bank had directly paid an insurance premium of ₹ 2,500 as per standing instructions, but it was not recorded in the Cash Book.
- Interest on investment, ₹ 1,200, was collected by the bank and credited to Mr. Sharma’s account on March 31, 2025. No information was received by Mr. Sharma.
- A cheque of ₹ 1,500 deposited by Mr. Sharma was wrongly credited by the bank to Mr. Verma’s account.
- A credit entry of ₹ 2,000 in the Cash Book for a payment received from a debtor was wrongly posted as a debit entry of ₹ 2,000 in the bank column of the Cash Book.
- The balance as per Cash Book on March 31, 2025, was incorrectly carried forward by ₹ 1,000 (i.e., it should have been ₹ 47,000 instead of ₹ 48,000).
Solution:
Bank Reconciliation Statement as on March 31, 2025
| Particulars | Amount (₹) | Amount (₹) |
| Balance as per Cash Book (Debit) | 48,000 | |
| Add: | ||
| 1. Cheques Issued but not yet Presented for Payment | 5,500 | |
| (Total issued ₹18,500 – Presented in March ₹13,000) | ||
| 4. Direct Deposit by Customer | 6,000 | |
| 6. Interest on Investment Collected by Bank | 1,200 | |
| 7. Cheque wrongly credited by bank to Mr. Verma’s account | 1,500 | |
| Less: | ||
| 2. Cheques Deposited but not yet Cleared | 7,000 | |
| 2. Cheque Dishonoured (not yet recorded in Cash Book) | 4,000 | |
| 3. Bank Charges Debited by Bank | 350 | |
| 5. Insurance Premium Paid by Bank (Standing Instruction) | 2,500 | |
| 8. Error in Cash Book (Wrong Debit for Credit Entry: 2000 + 2000) | 4,000 | |
| 9. Error in Cash Book (Overcasting of balance carried forward) | 1,000 | |
| Balance as per Pass Book (Credit) | 44,350 |
Question: Prepare a Bank Reconciliation Statement for M/s. Global Traders as on December 31, 2024.
On December 31, 2024, the Pass Book of M/s. Global Traders showed a credit balance of ₹ 95,500. Upon comparing it with the Cash Book, the following differences were noted:
- A cheque for ₹ 7,500 deposited on December 29, 2024, was cleared by the bank on January 2, 2025.
- Cheques totaling ₹ 12,000 were issued to suppliers in December 2024, out of which cheques worth ₹ 3,200 were presented for payment in January 2025.
- The bank had credited ₹ 1,500 for interest on fixed deposit, but this was not recorded in the Cash Book.
- Bank charges of ₹ 450 appeared in the Pass Book but were not yet entered in the Cash Book.
- A payment of ₹ 5,000 made by a customer directly into the bank account was not entered in the Cash Book.
- A cheque of ₹ 2,000 issued by M/s. Universal Traders was wrongly debited by the bank to M/s. Global Traders’ account.
- A cheque for ₹ 800 received from a debtor and deposited into the bank was dishonoured on December 28, 2024. The bank debited the amount, but no entry was made in the Cash Book.
- The debit side of the Cash Book (bank column) was undercast by ₹ 1,000.
- A cheque of ₹ 1,800 entered in the Cash Book as received but was not sent to the bank for collection.
Solution:
Bank Reconciliation Statement of M/s. Global Traders as on December 31, 2024
| Particulars | Amount (₹) | Amount (₹) |
| Balance as per Pass Book (Credit) | 95,500 | |
| Add: | ||
| 2. Cheques Issued but not yet Presented for Payment | 3,200 | |
| 4. Bank Charges (not yet recorded in Cash Book) | 450 | |
| 8. Undercasting of Debit Side of Cash Book (Bank Column) | 1,000 | |
| 9. Cheque entered in Cash Book but not sent to Bank for Collection | 1,800 | |
| Less: | ||
| 1. Cheque Deposited but not yet Cleared | 7,500 | |
| 3. Interest on Fixed Deposit Credited by Bank (not yet recorded in Cash Book) | 1,500 | |
| 5. Direct Deposit by Customer (not yet recorded in Cash Book) | 5,000 | |
| 6. Cheque of M/s. Universal Traders wrongly Debited by Bank | 2,000 | |
| 7. Cheque Dishonoured (not yet recorded in Cash Book) | 800 | |
| Balance as per Cash Book (Debit) | 85,150 |
Question: Prepare a Bank Reconciliation Statement of M/s. Gupta & Sons as on April 30, 2025.
The Bank Pass Book of M/s. Gupta & Sons showed a Debit Balance (Overdraft) of ₹ 35,000 on April 30, 2025. On checking with the Cash Book, the following information was revealed:
- Cheques amounting to ₹ 15,000 were deposited into the bank on April 28, 2025, but out of these, cheques worth ₹ 4,500 were credited by the bank in May 2025.
- Cheques worth ₹ 22,000 were issued to creditors during April 2025, but only cheques for ₹ 18,000 were presented for payment till April 30, 2025.
- A bill for ₹ 8,000 discounted with the bank in March 2025 was dishonoured on April 25, 2025. The bank debited the account along with a noting charge of ₹ No intimation was received by the firm.
- The bank had directly collected interest on debentures amounting to ₹ 3,500 and credited the account, but this was not entered in the Cash Book.
- A cheque of ₹ 1,200 deposited by M/s. Gupta & Sons was wrongly entered in the Pass Book as a deposit of ₹ 2,100.
- Bank charges for the quarter ending March 31, 2025, amounting to ₹ 500, were debited by the bank but were recorded in the Cash Book only on April 15, 2025.
- The credit side of the Bank column of the Cash Book was overcast by ₹ 1,000.
- A cheque of ₹ 700 received from a customer was entered in the Cash Book but was omitted to be sent to the bank for collection.
- A cheque for ₹ 6,000 issued to Mr. Ram was entered in the Cash Book twice.
Solution:
Bank Reconciliation Statement of M/s. Gupta & Sons as on April 30, 2025
| Particulars | Amount (₹) | Amount (₹) |
| Overdraft as per Pass Book (Debit) | 35,000 | |
| Add: | ||
| 1. Cheques Deposited but not yet Cleared | 4,500 | |
| 3. Dishonour of Bill Discounted (including noting charges: 8000 + 200) | 8,200 | |
| 5. Bank Error (Cheque wrongly entered higher in Pass Book: 2100 – 1200) | 900 | |
| 6. Bank Charges (already recorded in Cash Book in April, so no difference from Cash Book) | – | |
| 7. Overcasting of Credit Side of Cash Book | 1,000 | |
| 8. Cheque entered in Cash Book but not sent to Bank for Collection | 700 | |
| 9. Cheque entered twice in Cash Book | 6,000 | |
| Less: | ||
| 2. Cheques Issued but not yet Presented for Payment | 4,000 | |
| 4. Interest on Debentures Collected by Bank | 3,500 | |
| Overdraft as per Cash Book (Credit) | 48,900 |
Question: Prepare a Bank Reconciliation Statement of Mr. A. Kumar as on June 30, 2025.
On June 30, 2025, the Bank column of Mr. A. Kumar’s Cash Book showed a credit balance (overdraft) of ₹ 65,000. On examining the Pass Book and other records, the following information was found:
- Cheques amounting to ₹ 12,000 were deposited into the bank on June 29, 2025. Out of these, a cheque for ₹ 5,000 was cleared and credited by the bank on July 3, 2025, and another cheque of ₹ 2,000 was returned by the bank as dishonoured on July 1, 2025 (no information received by Mr. Kumar until July 5). The remaining cheques were cleared in June itself.
- Cheques issued to creditors in June 2025 totalled ₹ 25,000. Of these, cheques for ₹ 7,500 were presented for payment in July 2025.
- The bank had debited ₹ 700 for locker rent and ₹ 150 for SMS charges, which were not yet recorded in the Cash Book.
- A customer directly deposited ₹ 9,000 into Mr. Kumar’s bank account on June 25, 2025, but Mr. Kumar came to know about this only from the bank statement on July 2, 2025.
- An amount of ₹ 4,000 was wrongly credited by the bank to Mr. Kumar’s account. This payment belonged to another customer, Mr. B. Kumar.
- A cheque of ₹ 1,500 issued to a supplier was correctly recorded in the Cash Book, but the amount was omitted to be entered in the bank column.
- The bank paid an electricity bill of ₹ 3,000 on June 28, 2025, as per standing instructions. Mr. Kumar passed the entry in his Cash Book on July 4, 2025.
- Interest on overdraft, ₹ 1,200, was debited by the bank on June 30, 2025. Mr. Kumar recorded this in the Cash Book on July 1, 2025.
- The receipts side (Debit) of the Cash Book (Bank column) was overcast by ₹ 2,000.
- A cheque of ₹ 10,000 received from a debtor was entered twice in the bank column of the Cash Book (Debit side).
Solution:
Bank Reconciliation Statement of Mr. A. Kumar as on June 30, 2025
| Particulars | Amount (₹) | Amount (₹) |
| Overdraft as per Cash Book (Credit) | 65,000 | |
| Add: | ||
| 1. Cheques Deposited but not yet Cleared | 5,000 | |
| 1. Cheque Dishonoured (not yet recorded in Cash Book) | 2,000 | |
| 3. Bank Charges (Locker Rent ₹700 + SMS Charges ₹150) | 850 | |
| 7. Electricity Bill Paid by Bank (recorded in Cash Book in July) | 3,000 | |
| 8. Interest on Overdraft (recorded in Cash Book in July) | 1,200 | |
| 9. Overcasting of Receipts Side of Cash Book | 2,000 | |
| 10. Cheque Entered Twice in Cash Book (Debit Side) | 10,000 | |
| Less: | ||
| 2. Cheques Issued but not yet Presented for Payment | 7,500 | |
| 4. Direct Deposit by Customer | 9,000 | |
| 5. Bank Error (Wrong Credit to Mr. Kumar’s Account) | 4,000 | |
| 6. Cheque Issued, Correctly Recorded but Omitted from Bank Column of Cash Book | 1,500 | |
| Overdraft as per Pass Book (Debit) | 73,050 |