Unit - 2

Bank Reconciliation Statement (BRS)

Meaning

Bank Reconciliation Statement is a record book of the transactions of a

bank account. This statement helps the account holders to check and keep track
of their funds and update the transaction record that they have made. Bank
Reconciliation statement is also known as bank passbook.

The balance mentioned in the bank passbook of the statement must tally
with the balance mentioned in the cash book.

In the statement, all the deposit will be shown in the credit column and
withdrawals will be shown in the debit column.

However, if the withdrawal exceeds deposit it will show a debit balance

(overdraft).

Importance of Bank Reconciliation Statement

Generally while making a comparison between the company’s cash book and
bank balance, the balance does not tally. Therefore, it is important to determine
the cause for the difference and display them in the bank reconciliation
statement and then tally the two balances. The bank reconciliation statement
helps in explaining the differences in the amount between the company’s cash
book and bank balance. The cash book and the bank passbook differences are
caused by:

 The difference in timing recording the transactions: The difference in

timing can be caused by many factors which are:

o Bank-issued cheque but not yet deposited for payment

o Paid cheque in the bank but yet not cleared
o Bank made direct debit from the customer’s side
o Cheque/ amount deposited directly to the bank account
o Dividends and Interest collected by the bank
 o Bank made direct payment from the customer’s side
o Cheques deposited/bills discounted dishonoured

 Errors made by the company or by the bank: In a few occasions, the error
in two balances can be made from the bank side or in the company’s cash
book. Few errors are as follows:

o Errors made while registering the transaction by the company

o Errors made while registering the transaction by the bank

Types of Bank Reconciliation Statement

The Bank Reconciliation Statement can be prepared in 2 ways:

 Documenting of bank reconciliation statement without adjusting the cash

book balance.
 Filing of bank reconciliation statement after adjusting the cash book
balance.
Steps to Prepare Bank Reconciliation Statement:


o First, the date on which the statement is recorded is mentioned.

o After which the balance displayed in the cash book is mentioned in
the statement. Sometimes, the balance mentioned in the passbook
can also be mentioned.
o The deposited cheques which are not collected are deducted.
o Then the cheques issued but the deposited for payment, but amount
directly deposited in the bank account are recorded
o All the transactions like overdraft interest, amount debited by the
bank but not recorded in the cash book, cheques and bills
dishonoured are deducted.
o All the credits and profit collected by the company and directly
deposited in the bank is added.
o Adjustments of errors are made
o Now the balance between the cash book and statement should be
equal or the same.

The main reasons for differences between balances as per cash book and
balance as per bank passbook
The main reasons for differences between balances as per cash book and balance as per
bank passbook.

Basis of differences 1. Differences due to timing.

2. Differences due to the recording of transactions by the bank.
3. Differences due to errors or omissions.

(A) Differences due to Following transactions are recorded in Cash Book or in Pass Book at a
timing. different date.

1. Cheques issued but not presented for payment. Balance as per

Cash Book reduces immediately upon issue but balance as per Bank
Pass Book remains unaffected unless it is presented for payment.
2. Cheques deposited but not yet collected. When we deposit a
cheque, balance as per Cash Book increases immediately but balance
as per Bank Pass Book remains the same until it is cleared and
actually collected by the bank.

(B) Differences due to  These differences may arise, when a transaction is recorded by the
the recording of bank in the passbook, but not recorded in the cash book.
transactions by bank  These types of transactions are unknown to the account holder.
 Some examples of this type are:

1. Interest allowed/credited by the bank.

2. Bank Charges and Interest charged/debited by bank.
3. Direct payment made by bank standing instruction of Account Holder.
4. Direct deposit made by the customer
5. Interest/Dividend collected by Bank
6. Bills Receivables Collected by Bank on our behalf.
7. Dishonour of a Bill Discounted.
8. Bills Payable met by Bank on our behalf.

(C) Differences due to  These differences may arise, due to an error committed in recording
error & omissions in transactions in the cash book by the account holder or in the passbook by the
recording bank.
(I) The error committed by the account holder in the recording of
transactions:

 Cheque issued but not recorded in the Cash Book.

 Cheques deposited into the bank but omitted to record in the cash
book.
 Error in totalling or balancing of the bank column of the cash book.
(II) The error committed by the bank in the recording of transactions:

 Wrong debit or credit in the account holder’s account.

  Recording bank charges and interest more than once.

Cash Book

Dr Cr

Receipts Amount Payments Amount

Pass Book

Dr Cr

Withdrawals Amount Deposits Amount

 Receipts and deposits side should match

 Payments and Withdrawals side should match
 If difference is there, then we will prepare BRS.
 The difference may be of the following reasons:

Reason 1:

Cheque deposited but not credited into Bank.

Cash Book

Dr Cr

Receipts Amount Payments Amount

Entered
(Increase)

Pass Book

Dr Cr

Withdrawals Amount Deposits Amount

No Entry
(Decrease)

Reason 2:

Cheque issued but not yet presented for payment.

 Cash Book

Dr Cr

Receipts Amount Payments Amount

Entry
(Decrease)

Pass Book

Dr Cr

Withdrawals Amount Deposits Amount

No Entry
(Increase)

Reason 3:

Interest, Dividend etc credited in Pass Book but not entered in Cash book

Cash Book

Dr Cr

Receipts Amount Payments Amount

No Entry
(Decrease)

Pass Book

Dr Cr

Withdrawals Amount Deposits Amount

Entry
(Increase)

Reason 4:

Bank charges, interest on Overdraft debited in the Pass Book.

Cash Book

Dr Cr
 Receipts Amount Payments Amount
No entry
(Increase)

Pass Book

Dr Cr

Withdrawals Amount Deposits Amount

Entry
(decrease)

Reason 5:

Amount directly deposited by customers into bank account

Cash Book

Dr Cr

Receipts Amount Payments Amount

No entry
(decrease)

Pass Book

Dr Cr

Withdrawals Amount Deposits Amount

Entry
(Increase)

Reason 6:

Cheque issued but not recorded in the Cash Book

Cash Book

Dr Cr

Receipts Amount Payments Amount

No entry
(Increase)

Pass Book

Dr Cr
 Withdrawals Amount Deposits Amount
Entry
(Decrease)

Reason 7:

Cheques deposited not recorded in cash book

Cash Book

Dr Cr

Receipts Amount Payments Amount

No Entry
(decrease)

Pass Book

Dr Cr

Withdrawals Amount Deposits Amount

Entry
(Increase)

Reason 8:

Dishonoured Cheque (Deposited cheque in the bank, but not accepted/rejected)

Cash Book

Dr Cr

Receipts Amount Payments Amount

Entry
(Increase)

Pass Book

Dr Cr

Withdrawals Amount Deposits Amount

No Entry
(Decrease)

Problem: No: 1
 Ascertain bank balance as per Pass Book.

(a) Bank Balance as per Pass Book is Rs.5555

(b) Cheques issued but not presented for payment Rs.444
(c) Cheques deposited but not credited in PB Rs.333
(d) Bank Charges debited only in PB is Rs.11
(e) Interest on Investment credited in PB Rs. 222

Solution:

BRS as on …………….

Particulars Amount Amount

Bank Balance as per Pass Book 5555
Add: Cheques deposited but not credited in PB 333
Bank Charges 11 344
-------- ----------
5899

Less: Cheques issued but not presented for 444

payment
Interest on Investment Credited in PB 222
--------- 666
-----------
Bank Balance as per Cash Book 5233
-----------

Rough work

Cheques issued but not presented for payment Rs.444

Cash Book

Dr Cr

Receipts Amount Payments Amount

Entry
(Decrease)

Pass Book

Dr Cr
 Withdrawals Amount Deposits Amount
No Entry
(Increase)

Cheques deposited but not credited in PB Rs.333

Cash Book

Dr Cr

Receipts Amount Payments Amount

Entry
(Increase)

Pass Book

Dr Cr

Withdrawals Amount Deposits Amount

No entry

Bank Charges debited only in PB is Rs.11

Cash Book

Dr Cr

Receipts Amount Payments Amount

NO Entry
(Increase)

Pass Book

Dr Cr

Withdrawals Amount Deposits Amount

Entry
(Decrease)

Interest on Investment credited in PB Rs. 222

Cash Book

Dr Cr
Receipts Amount Payments Amount
No Entry
(Decrease)

Pass Book

Dr Cr

Withdrawals Amount Deposits Amount

Entry
(Increase)