CHAPTER 3

BANK RECONCILIATION
STATEMENT

LEARNING OUTCOMES

After studying this chapter, you will be able to:

 Learn the design of a Bank Pass Book.
 Understand the reasons for difference between Cash Book
balance and Pass Book balance and try to ascertain the
amount of such differences.
 Learn, how to resolve such difference in a systematic
manner.
 Understand the purpose for preparing the bank
reconciliation statement and its utility.

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 3.2 ACCOUNTING

UNIT OVERVIEW

Salient Features of Bank Reconciliation

Statement

The reconciliation will Any undue delay in

bring out any errors that A regular reconciliation
the clearance of
might have been discourages
cheques will be
committed either in the shown up by
cash book or in the pass the accountant of the
the
book bank from
reconciliation
embezzlement

Causes of difference in the balances of pass book and cash book

Differences arising due to errors in recording the entries

Timing differences

1. INTRODUCTION
Banks are essential institutions in a modern society. With the increase in volume of
trade, commerce and business, business entities faced difficulty in transacting in
cash for each business activity. They discovered that dealing through bank, on
regular basis, would be the better and safer option and finally large business
entities switched over to banking transactions instead of dealing in cash. Now-a-
days, most of the transactions of the business are done through bank whether it is
a receipt or a payment. Rather, it is legally necessary to operate the transactions
through bank after a certain limit.
A Bank accepts from people, in general, deposits in various forms, and lends funds
to those who need; it also invests some funds in profitable investments. Thus,
money which would have been otherwise idle is put to use and is made
available to those who need it. Those who deposit the money are able to
withdraw it according to the settled terms and conditions. Apart

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 BANK RECONCILIATION STATEMENT 3.3

from receiving deposits from and handling cash transactions on behalf of its
customers, the bank also renders some other useful services as indicated below:
(i) The bank discounts promissory notes or hundies, i.e., it enables a customer
to receive the cash before the due date in consideration of a small charge
called discount.
(ii) The bank allows overdraft to its good customers so that they can make
payments even when they do not have sufficient balance in the bank. Of
course, the overdraft facility is generally secured and must be cleared later.
(iii) The bank grants different types of loans (eg. Working capital, term loan) for a
specific period say a year or so, to its customers for smooth functioning of
their operations in case of lack of self-funding available with customers’.
Such financial assistance is of great help for business.
(iv) The bank on behalf of the customer collects the amount of dividend
warrants or interest on securities etc.
(v) On instruction of the customer, the bank makes payments of insurance
premium, rent etc. on the due dates.
(vi) The bank sells and purchases shares, debentures or government
securities on behalf of its customers.
(vii) Money can be remitted to another place or persons through the bank at a
low cost.
(viii) The bank in return, for a consideration, furnishes security or guarantee for
its customers whose credit is good.
(ix) The bank also issues letter of credit or travellers’ cheque to facilitate
commerce or travel.
(x) The bank also provides international banking services such as currency
exchange, remittance from abroad, cross country payments, foreign letters of
credit, export and import credit, etc.

2. BACKGROUND
In the past, many corporate frauds have incurred by the companies through
manipulating entries either in bank statements or in cash book. For e.g. –A
company’s financial statement may present incorrect bank balance to mislead the
stakeholders. Such kind of instances has made reconciliation of bank and cash
balances an integral part of internal control maintained by management.
Over the period, reconciling the accounts became an important activity for
businesses because it gives an opportunity to check for fraudulent activity
happening in the organization and

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 3.4 ACCOUNTING

helps to prevent the financial statement errors. Reconciliation is typically done at

regular intervals, such as monthly or quarterly, as part of normal accounting
procedures, however, frequency is largely dependent on the size of organization
and the number of transactions that occur.

3. BANK PASS BOOK

Bank pass book is merely a copy of the customer’s account in the books of a bank .
The bank either sends periodical statements of account or gives a pass book to
its customer in which all deposits and withdrawals made by the customer during
the particular period is recorded. Both represent almost a copy of the ledger
account of the customer in the books of the bank. Thus, it is the bank’s way of
keeping the customers informed of the entries made in his account. It is the
customer’s duty to check the entries and immediately inform the bank of any error
that he may notice. These days, customers can easily access their bank statement
online any time as facilitated by Net Banking. The form of the pass book is given
below:

PASS BOOK
Messers.........................................
in account with
Punjab National
Bank
Daryaganj, New Delhi-
110002 Account number
– Transaction Period -
Date Particulars Cheque Withdraw Deposits Balance
/ No. als
Cr.
Transactio
Dr.
n
Dr. or Cr.

` ` `

The bank statement of account also has a similar form except that it is on loose
sheets or can be in an online format. The bank itself sends the statements to
customers but if the customer wants to maintain a pass book then it is their duty to
send the pass book to the bank periodically so that it is updated by the bank.
These days, many banks’ ATMs have the automated machines where one can get
the passbook updated without any manual intervention and without visiting the
branch of the bank.
Business houses should also obtain at the end of the year a certificate from the
bank duly stamped and signed, showing the balance which, the firm carries with
the bank as of date. The

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 BANK RECONCILIATION STATEMENT 3.5

bank balance shown in the passbook is known as pass book balance for
reconciliation purpose. The credit balance as per pass book at a particular point of
time is the deposit made by the customer while debit balance as per pass book is
the overdraft balance for the customer (i.e. customer owes to bank).
Students may note here that the nature of balance shown by passbook (in the
books of bank) and cash book (in the books of customer) is quite different. The
debit balance in the pass book represents the credit balance as per the
cash book and vice-versa because the business enterprise treats the bank as a
debtor/Trade receivable and bank treats the business enterprise as a
creditor/Trade payable.

4. BANK RECONCILIATION STATEMENT

To reconcile means to identify or find out the difference between two different
sources and eliminating that difference. Whenever we deposit or withdraws money
from banks, it is always recorded at two places:-

1. Bank column of the cash book (in customer books);

2. Bank statement (pass book, i.e. in the
banks books)

The cash book is maintained by the person having the bank account whereas the
bank statement is prepared by the bank. Therefore, the balance in both the books
should be equal and opposite in nature. For eg:- if Mr. A deposited ` 1,00,000 in his
bank account it will be recorded on the Dr. side of his cash book, but for the bank
it’s a receipt so it will be recorded as a Cr. Entry in the bank statement or the pass
book.
But most of the times these two balances do not match. The reasons for difference
in balances can be many and are explained later in this chapter. It is possible to
eliminate this difference by matching all the facts and figures of the two
statements. The process of eliminating this difference and bringing the two
statements in line with each other is known as “Reconciliation”, and the
statement which reconciles the bank balance as per cash book with the balance
as per the pass book by showing all the causes of difference is known as “BANK
RECONCILIATION STATEMENT”.

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 3.6 ACCOUNTING

5. IMPORTANCE OF BANK RECONCILIATION

STATEMENT
Bank reconciliation statement is a very important tool for internal control of cash
flows. It helps in detecting errors, frauds and irregularities occurred, if any, at the
time of passing entries in the cash book or in the pass book, whether intentionally
or unintentionally. Since frauds can be detected on the preparation of bank
reconciliation statement therefore accountants are careful while preparing and
maintaining the records of the business enterprise. Hence it works as an
important mechanism of internal control. Following are the salient features of bank
reconciliation statement:
(i) The reconciliation will bring out any errors that may have been committed
either in the cash book or in the pass book;
(ii) Any undue delay in the clearance of cheques will be shown up by the
reconciliation;
(iii) A regular reconciliation discourages the accountant of the bank from
embezzlement of funds. There have been many cases when the cashiers
merely made entries in the cash book but never deposited the cash in the
bank; they were able to get away with it only because of lack of
reconciliation.
(iv) It helps in finding out the actual or true position of the bank balance by
incorporating the effect of any uncleared funds as well.
(v) It will ensure accounting of all the financial transactions incurred by the
company during a particular financial year.

CAUSES OF DIFFERENCE
The difference in the both balances (bank balance as per cash book and pass book)
may arise because of the following reasons:-
1. TIMING:- Sometimes a transaction is recorded at two different times in cash
book and the pass book. This may happen in the following cases:-

Mr. A has issued a cheque to PQR ltd., now it will be recorded in his
cash book immediately but the bank will recognize this transaction
only when the same cheque will be presented to it by PQR ltd.

Similarly for PQR Ltd , entry in the cash book will be made immediately
as the cheque is received from Mr. A but the bank account will be
credited when it collects money in respect of that cheque.
2. TRANSACTIONS:- There are various transactions which the bank carries out
by itself without intimating the customer. For e.g.:- interest received on a
savings bank account,

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 BANK RECONCILIATION STATEMENT 3.7

it will be credited by the bank immediately but the entry in the cash book will
be made only when the customer comes to know about it, which is usually
at a later stage. Similar is the case with Bank charges (which are debited
from the customer account by bank).
3. ERRORS:- Mistakes or errors made in preparing the accounts either by the
bank or the customer can also result in disagreement of the two statements.
For e.g. omission of cheques issued. For this reason rectification of errors
is required to be done in both the statements before preparing any Bank
Reconciliation Statement.

SOME OF THE ITEMS THAT FREQUENTLY CAUSE A

DIFFERENCE:-
When bank balance as per Cash Book
When bank balance as per Cash
< Pass Book
Book >
Pass Book
i) Cheques deposited with the bank i) Cheques issued but not presented for
but not cleared payment
ii) Interest and expenses charged ii) Interest allowed by bank
by the bank
iii) Direct payments by the bank iii) Interest and dividends collected by the
bank
iv) Dishonour of a bill discounted with iv) Direct payment into the bank by a
the bank customer
v) Bills collected by the bank on behalf
of the customer

Above each scenario is explained in detail below along with examples:

(i) Cheques issued but not presented for payment: The entry in the cash
book is made immediately on issue of cheque but naturally entry will be made by
the bank only when the cheque is presented for payment. Thus there will be a gap
of some days between the entry in the cash book and in the pass book.

Example 1: The balance as per Cash Book and Pass Book are `10,000. Cheque of ` 2,000 is issue
Cash book (bank column only)

Particulars ` Particulars `
To balance b/f 10,000 By Vendor A/c (to 2,000
whom cheque is
issued) 8,000
By balance c/f
10,000 10,000

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 3.8 ACCOUNTING

Bank statement (pass

book)
Dat Particula Dr. Cr. Balance
e rs (withdrawn) (deposited)
Balance 10,000(cr.
b/f )
On the issue of aforesaid cheque, the bank account in Cash Book is credited by
`2,000 and so balance is reduced to ` 8,000. Whereas balance in the Pass Book
remains `10,000 until the
cheque is presented for payment.
(ii) Cheques deposited with the bank but not cleared: As soon as
cheques are sent to the bank (i.e. deposited with bank), entries are made on the
debit side of the bank column of the cash book. But usually banks credit the
customer’s account only when they have received the payment from the bank
concerned- in other words, when the cheques have been cleared. Again, there will
be some time gap between the deposit of the cheques and the credit given by
the bank.
Example 2 : The balance as per Cash book and Pass Book are ` 12,000. Cheque of ` 3,000 i
Cash book

Particulars ` Particulars `
To balance 12,00 By balance c/f 15,000
b/f To 0
Vendor A/c 3,000
15,000 15,000

Bank statement (Pass Book)

Date Particula Dr. Cr. Balance
rs (withdrawn) (deposited)
Balance 12,000
b/f (cr.)
When cheque is deposited into bank, the bank account in Cash Book is increased to ` 15,000,

(iii) Interest allowed by bank : If the bank has allowed interest to the
customer, the entry will normally be made in the customer’s account and later
shown in the pass book. The customer usually comes to know the amount of the
interest by pursuing the pass book and only then he makes relevant entry in the
cash book.

© The Institute of Chartered Accountants of India

 BANK RECONCILIATION STATEMENT 3.9
Example 3: The balance as per Cash Book and Pass Book are ` 10,000. The bank has allowe
` 1,000 interest on saving account to customer.
Cash book

Particulars ` Particulars `
To balance b/f 10,000 By balance c/f 10,000
10,000 10,000
Bank statement (Pass Book)

Dat Particulars Dr. Cr. Balance

e (withdrawn) (deposited)
Balance b/f 10,000 (cr.)
Interest 1,000 11,000(cr.)
Because of such interest, balance of Pass Book is increased to `11,000. Whereas balance in
the Cash Book remains `10,000 until information reaches to the customer and he records such

(iv) Interest and expenses charged by the bank: Like (iii) above, the
interest charged by the bank and the amount of the bank charges are entered in
the customer account and later in the pass book. The customer makes the
required entries only after he sees the pass book or bank statement. These are
debited to customer account by bank therefore till such entry is passed in cash
book, bank balance as per pass book is less than bank balance as per cash book.
(v) Interest and dividends collected by the bank: Sometimes investments
are left with the bank in the safe custody; the bank itself sees to it that the interest
or the dividend is collected on the due dates. Entries are made as indicated in (iii)
above.
Example 4: The balance as per Cash Book and Pass Book are `15,000. The bank has collecte
Cash book

Particulars ` Particulars `
To balance b/f 15,000 By balance c/f 15,000
15,000 15,000
Bank statement (Pass Book)
Date Particulars Dr. Cr. Balance
(withdrawn) (deposited)
Balance b/f 15,000(cr.
Dividend 2,000(Cr.) )
17,000(cr.
)

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 3.10 ACCOUNTING

On collection of dividend bank credits the amount to customer’s account, so

balance in Pass Book is increased to ` 17,000. Whereas balance in the Cash Book
remains ` 15,000 until the information of such dividend collection reaches to the
customer and he records such transaction.

(vi) Direct payments by the bank: The bank may be given standing
instructions for certain payments such as insurance premium, equated monthly
installments of loan (EMIs). In these cases also, the customer comes to know of the
payment only after viewing the pass book or bank statement. The entries in the
pass book and in the cash book may thus be on different dates.

Example 5: The balance as per Cash Book and Pass Book of Mr. X are ` 20,000. The bank has in
Cash book

Particulars ` Particulars `
To balance b/f 20,000 By balance c/f 20,000
20,000 20,000

Dat Particulars Dr.

Bank statement (pass Cr.
book) Balance
e (withdrawn) (deposited)
Balance b/f 20,000
Insurance 1,500 (cr.)
premium 18,500
(cr.)
On payment of insurance premium bank debits the customer’s account by ` 1,500 so balance

(vii) Direct payment into the bank by a customer: If such a payment is

received by the bank, it will be entered in the customer’s account and also in the
pass book; the account holder may come to know of the amount only when he
sees the pass book. (e.g. Customers’ these days prefers using banking facilities
like NEFT, RTGS to transfer funds online)
(viii) Dishonour of a bill discounted with the bank: If the bank is not able to
receive payment on promissory notes discounted by it, it will debit the
customer’s account together with the charges it may have incurred. The
customer will naturally make the entry only when he sees the pass book.

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 BANK RECONCILIATION STATEMENT 3.11

Example 6: The balances as per Cash Book and Pass Book of Mr. X are ` 20,000. Mr. X deposit
Cash book

Particulars ` Particulars `
To balance 20,00 By balance c/f 23,000
b/f To bank 0
a/c 3,000
23,000 23,000
Bank statement (Pass Book)
Date Particulars Dr. Cr. Balance
(withdrawn) (deposited)
Balance b/f 20,000 (cr.)
Bank charges 100 19,900 (cr.)
Thus, balance of Mr. X’s account in Pass Book stands ` 19,900 after this transaction while balan

(ix) Bills collected by the bank on behalf of the customer: If goods are
sold, the documents may be sent through the bank. If the bank is able to collect the
amount, it will credit the customer’s account. The customer may make the entry
only on receiving the pass book.
All these timing differences will lead to difference in balances as shown by the cash
book and the pass book.
Following is the table summarising in brief the timings of different transactions:
Sl. Transaction Time of Time of
No. recording in recording in
cash book pass book
1 Payment done by the At the time of issuing At the time of
. account holder through the cheque presenting the cheque
issuing a cheque to the bank for
payment or clearing of
funds.
2 Receipt by the At the time of At the time of
. account holder depositing the cheque collection of amount
through a cheque into the bank . from the account of
the issuing party.

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 3.12 ACCOUNTING

3 Collection of bills/cheque When the entry posted When the amount

. directly on behalf of the in the pass book comes is collected by
account holder into notice. the bank.

4 Direct payment to the When the entry posted When the amount is
. third party on behalf of in the pass book comes paid by the bank
the account holder into notice.

5 Dishonour of cheque/bills When the entry posted When the cheque

. receivable. in the pass book comes is dishonoured.
into notice.

6 Bank charges levied by When the entry posted When charges are
. the bank in the pass book comes levied by the bank
into notice.

7 Interest and When the entry posted When interest or

. dividend in the pass book comes dividend is allowed or
credited by the bank into notice. collected by the bank.

8 Interest debited by the When the entry is When interest is

. bank posted in the pass book charged by the bank
comes into notice.

To illustrate this, we give below an extract from a pass book and the bank column
of the cash book in Illustration 1:
ILLUSTRATION 1
Messer’s Tall & Short, Faiz Bazar, New Delhi-110002
in account with Punjab National Bank, Daryaganj, New Delhi-110002
PASS-BOOK
Dat Particulars Withdrawa Deposi Dr. or Balanc
e ls ts Cr. e
` ` `
202
2
Jan. 2 By Cash 4,00,000 Cr 4,00,000
.
“ 4 To Furniture Dealers 60,000 Cr 3,40,000
Ltd. .
“ 4 To Das & Co. 1,25,000 Cr 2,15,000
.
“ 10 By J. Johnson & 35,000 Cr 2,50,000
Co.’s cheque .

“ 12 To Roy & James 1,00,000 Cr 1,50,000

.

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 BANK RECONCILIATION STATEMENT 3.13

“ 15 By B. Babu & Co’s 76,000 Cr 2,26,000

cheque .
“ 16 By Cash 30,000 Cr 2,56,000
.
“ 20 To Cash 50,000 Cr 2,06,000
.
“ 26 By J. Rai & Bros cheque 43,000 Cr 2,49,000
.
“ 31 To Premium paid as
per standing 25,000 Cr 2,24,000
instructions .
31 To Bank Charges 1,000 Cr 2,23,000
.
31 By Interest 20,000 Cr 2,43,000
collected on .
Government
Securities
CASH-BOOK (Bank column only)
Date Particulars Amoun Date Particulars Amoun
t t
` `
2022 2022
Jan. 1 To Cash 4,00,000 Jan. 2 By Furniture
Jan. 2 To J. Johnson & Co. 35,000 Dealers Ltd. 60,000
Jan. 8 To B. Babu& Co. 76,000 Jan. 2 By Roy & James 1,00,000
Jan. 10 To Cash 30,000 Jan. 2 By Das & Co. 1,25,000
Jan. 16 To J. Rai & Bros. 43,000 Jan. 4 By K. Nagpal & Co. 73,000
Jan. 20 To M. Mohan & Co. 1,05,000 Jan. 17 By Cash 50,000
Jan. 22 To N. Nandy & Sons 34,000 Jan. 20 By B. Babu & Co. 78,000
Jan. 31 By Balance c/d 2,37,000

7,23,000 7,23,000
Feb. 1 To Balance b/d 2,37,000

It will be seen that whereas the pass book shows a credit balance of ` 2,43,000, the
cash-book shows a debit balance of ` 2,37,000. We shall compare the two to
establish the reasons for the difference. The reconciliation of the two statements
can be done in two ways:-
1. Arrive at pass book balance from cash book.
2. Arrive at cash book balance from pass book.
Let us start with the pass book balance and arrive at the balance as per cash book.

© The Institute of Chartered Accountants of India

 3.14 ACCOUNTING

Step: 1. Compare the debit side of cash book with the deposits column of pass
book:-
We find that the following cheques are recorded in the cash book but not in the
pass book. Therefore if we enter these two cheques in the deposit side of the pass
book the balance becomes:-
Existing balance 2, 43,000
Add:- M Mohan & Co. 1,05,000
N. Nandy & Sons 34,000

Total 3,82,000

Step: 2 Compare the credit side of the cash book with the withdrawal column of
the pass book
We find that the following cheques are not recorded. Therefore, if we enter
these two cheques on the withdrawal side of the pass book the balance becomes:
-
Existing balance 3,82,000
Less:- K Nagpal & Co. (73,000)
B Babu & Co. (78,000)

Total 2,31,000

There is an item ‘Interest on Government Securities’ which appears on the deposit

side of the pass book but not in the debit side of the cash book, so this item should
be deducted from pass book balance:-
Existing balance 2,31,000
Less:- Interest on govt. securities (20,000)

Total 2,11,000

Further, there are two items which appear on the withdrawal side of the pass book
i.e. they have been deducted from the bank balance but not on the credit side of
the cash book, so these items should be added in order to reconcile the balance:-
Existing balance:- 2,11,000
Add: Insurance premium 25,000
Add: Bank charges 1,000

Total 2,37,000

Therefore, we have arrived at the balance as per the cash book from the pass
book.

© The Institute of Chartered Accountants of India

 BANK RECONCILIATION STATEMENT 3.15

This process shows that the difference between the two balance arise only
because there are some entries made in the cash-book but not in the pass book
and some entries which are made in the pass book but not in the cash book. A
comparison of the two shows up such entries and then, on that basis, the
reconciliation is prepared. To illustrate it again, let us proceed from the cash book
balance of ` 2,37,000. Since cheques totalling ` 1,39,000 have not been entered
in the pass book, let us assume that they are also omitted from the cash book, this
will reduce the cash book balance to ` 98,000. Cheques totalling ` 1,51,000 have
been entered on the credit side of the cash book but not in the pass book their
omission from the cash book will increase the cash book balance to ` 2,49,000.
Amounts totalling ` 26,000 have been entered in the withdrawals column of the
pass book but not in the cash book; an entry on the credit side of the cash book for
these amounts will reduce the balance to ` 2,23,000. The deposits column shows
an entry of ` 20,000 not found on the debit side of the cash book; the entry
made in the cash book will increase balance to ` 2,43,000 as shown in the pass
book.
(x) Errors: While recording the entries errors can occur both in the cash book
and in the pass book. A bank rarely makes an error but if it does, the balance in the
pass book will naturally differ from cash book. Similarly if any error is committed in
the cash book then it’s balance will be different from that of the pass book.
Some of the errors include commission of entry, recording of an incorrect amount,
recording of entry on the wrong side of the book, wrong totalling of the account
or wrong balancing of the book and recording of transactions of other party.

Example 7: Mr. A’s cash book shows following transactions:

CASH-BOOK (Bank column only)
Date Particulars Amoun Date Particulars Amoun
t 2022 t
` `
Mar 31 By balance c/d 1,00,000
April 7 To Wayne Ltd. 60,000 Apr 1 By balance b/d 10,000
April 11 To Cash A/c 80,000 April 29 By Cash A/c 2,000
By Balance c/d 1,28,000
1,40,000 1,40,000

PASS-BOOK
Date Particulars Withdraw Depos Balance
als it ` (cr.)
` `
2022
April 1 Balance b/d 1,00,00
0

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 3.16 ACCOUNTING

Apri 7 By Wayne 60,00 1,60,00

l 11 Ltd. By Cash 0 0

Apri 13 To Vandy Ltd. 90,00 80,00 2,40,00

0 0 0
l 29 To Cash A/c
2,000 3,30,00
Apri 0
l
3,28,00
Here there are several errors made by accountant:
April 0
April 1: Balance should be have bought down in debit side as ` 1,00,000
April 13: Also a cheque issued to Vandy Ltd. has been omitted in the books of ` 90,000 So, on

Existing Balance ` 1,28,000

Add: Correct Opening Balance ` 1,00,000
Add: Incorrect Opening Balance ` 10,000
(Since it was bought down on credit side it will be added back)
Less: Cheque issued not recorded ` 90,000
Closing Balance as per Cash Book ` 1,48,000
Balance as per Pass Book 3,28,000
Less: Cheque to Vandy Ltd wrongly added to existing balance
instead of being subtracted ` 1,48,000

1,80,000
Difference in balances between cash book and pass book Nil

6. PROCEDURE FOR RECONCILING THE CASH

BOOK BALANCE WITH THE PASS BOOK BALANCE
Before proceeding further, students must understand that ‘Dr. balance as per cash
book’ means deposits in the bank or cash at bank or Cr. balance as per pass book.
Similarly, ‘Cr. balance as per cash book’ means excess amount over deposits
withdrawn by the account holder or overdraft balance or Dr. balance as per pass
book.
It means that students can be required to start bank reconciliation from any of the
following four balances as may be given in the question:

Dr. balance as per

Cr.cash bookas per
balance Dr.cash
balance
bookas per
Cr.pass
balance
bookas per pass bo

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 BANK RECONCILIATION STATEMENT 3.17

While doing reconciliation, the following types of problems can be given:-

TYPES OF PROBLEMS

1. When causes of 2. When causes of difference are not

difference are given given

a.Reconciliatio
n without b. Reconciliati a. b. Reconciliatio
adjusting on after R n after adjusting
cash book adjusting e cash
cash book c book
o
n
c
i
l
i
a
t
i
o
n

w
i
t
h
o
u
t

a
d
j
u
s
t
i
n
g
cash book

When causes of differences are known then students can start reconciliation
by taking any of the balance stated above and proceed further with the causes.
Given the causes of disagreement, the balance of the other book can be either
more or less on account of the said causes. If the balance of the other book is more
on account of the said causes, then add the amount. If the balance of the other
book is less on account of the said causes, then subtract the amount.
For example, if the reconciliation is initiated with Dr. balance as per the cash
book and there is a cheque deposited in the bank but not yet cleared, then on
account of non-clearance of the cheque, the Cr. balance of the pass book would be
© The Institute of Chartered Accountants of India
 3.18 ACCOUNTING
less. In this case, the amount of cheque should be subtracted from the cash book
balance to arrive at the balance as per the pass book. Similarly, after making all
the adjustments the balance as per the other book is obtained. It is necessary to
note here that if a student starts from debit balance of cash book and after all
adjustments the balance arrived is positive then it is known as Cr. balance as per
the pass book and if the balance is negative then it is said to be Dr. balance as per
the pass book and vice-versa.
But if causes of differences are not known then one has to compare the debit
entries of cash book with the credit entries of the pass-book and vice-versa. The
entries, which do not tally in the course, are the causes of difference in the
balances of both the books. Once the causes are located their effects on both the
books are analysed and then reconciliation statement is prepared to arrive at the
actual bank balance.
In this procedure students, should also take into care that whether opening
balance of both the books at particular point of time from where the books are
compared, tallies or not. If opening balances are not same then unticked items are
divided into two categories i.e., one relating to reconciliation of opening balance
and other relating to reconciliation of closing balance.

© The Institute of Chartered Accountants of India

 BANK RECONCILIATION STATEMENT 3.19

Example 8: Jolly Ltd has following entries in its cash book and pass book:
CASH-BOOK (Bank column only)
Date Particulars Amoun Date Particulars Amoun
2022 t 2022 t
` `
May 1 To Balance b/d 70,000 May 15 By Richa Ltd. 20,000
May 9 To Avengers Ltd. 50,000
May13 To Cash A/c 80,000
May 30 By Balance c/d 1,80,000
2,00,000 2,00,000
PASS-BOOK
Date Particulars Withdraw Deposi Dr. Balanc
als ts or e
` ` Cr. `
2022
May 1 Balance b/d Cr 1,00,000
.
May 7 To Mr. A 30,000 Cr 70,000
.
May 12 By Avengers Ltd. 50,000 Cr 1,20,000
.
May 13 By Cash A/c 80,000 Cr 2,00,000
.
May 23 To Richa Ltd. 20,000 Cr 1,80,000
.
May 29 Bank Charges 2,000 Cr 1,78,000
.
Here when we compare Cash Book and Pass Book we found that following 2
entries remain unticked in pass book i.e. they don’t appear in cash book:
Cheque to Mr. A - ` 30,000
Bank Charges - `
2,000 Excess
withdrawals as per pass book - `
32,000
However if we notice that difference between closing balances of two books is
only ` 2,000 but at the same time there is a difference of `30,000 in opening
balances as well. Thus, we need to bifurcate the unticked items as:
Regarding Opening Balance Regarding Closing Balance
Cheque to Mr. A - ` 30,000 Bank Charges - ` 2,000
This is an item which must have been These have been charged by the
recorded in Cash book during previous month bank but not recorded in books.
when cheque would have been issued and
would have appeared as a reconciling item in

© The Institute of Chartered Accountants of India

 3.20 ACCOUNTING

BRS of that month. Since, it has been

presented to bank by Mr. A in April, it has
been recorded now by the bank.

© The Institute of Chartered Accountants of India

 BANK RECONCILIATION STATEMENT 3.21

7. METHODS OF BANK RECONCILIATION

There are following two methods of reconciling the bank balances:

7.1 Bank Reconciliation Statement without Preparation of

adjusted Cash-Book
For reconciliation purposes students can take any of the four balances as the
starting point and can proceed further with the causes of differences.
Based on the earlier explanation the following table has been prepared for student’s
ready reference when reconciliation is done on the basis of ‘Balance’ presentation.
The final balance, which will come after addition and subtraction, will be the
balance as per the other book (on the opposite side).

Causes of differences Favourab Unfavourab Favourabl Unfavourab

le le balance e balance le balance
balance (Cr.) as per (Cr.) as (Dr.) as per
(Dr.) as cash- book per pass- pass- book
per cash- book
book
Cheque deposited but Subtract Add Add Subtract
not cleared

Cheque issued but Add Subtract Subtract Add

not presented to
bank
Cheque directly deposited Add Subtract Subtract Add
in bank by a customer

Income (e.g., interest from Add Subtract Subtract Add

UTI) directly received by
bank
Expenses (e.g., telephone Subtract Add Add Subtract
bills, Insurance charges)
directly paid by bank on
standing instructions

Bank charges levied by bank Subtract Add Add Subtract

Locker rent levied by bank Subtract Add Add Subtract

Wrong debit in the cash Subtract Add Add Subtract

book
Wrong credit in the cash Add Subtract Subtract Add
book

© The Institute of Chartered Accountants of India

 3.22 ACCOUNTING

Wrong debit in the pass Subtract Add Add Subtract

book
Wrong credit in pass book Add Subtract Subtract Add

Undercasting of Dr. side of Add Subtract Subtract Add

bank account in the cash
book
Overcasting of Dr. side of Subtract Add Add Subtract
bank account in cash book

Undercasting of Cr. side of Subtract Add Add Subtract

bank account in cash book

Overcasting of Cr. side of Add Subtract Subtract Add

bank account in cash book

Bill receivable collected Add Subtract Subtract Add

directly by bank

Interest on bank Subtract Add Add Subtract

overdraft charged

Final Balance If answer is If answer If answer If answer

positive is is is
then positive positive positive
favourable then then then
balance Unfavourable favourable Unfavourable
(Cr.) as per balance (Dr.) balance balance (Cr.)
pass- book as per pass- (Dr.) as as per cash-
and if book and if per cash- book and if
negative negative then book and if negative then
then Favourable negative Favourable
unfavourabl balance (Cr.) then balance (Dr.)
e balance as per pass- unfavourabl as per cash-
(Dr.) as per book e balance book
pass- book. (Cr.) as
per cash-
book

It is proper to prepare a neat statement showing the reconciliation of the two

balances. Taking the example given in the illustration 1, the statement may be
prepared as follows:
1. ‘Balance’ presentation.
2. ‘Plus & Minus’ presentation.

© The Institute of Chartered Accountants of India

 BANK RECONCILIATION STATEMENT 3.23

1. As per Balance Presentation:

Bank Reconciliation Statement as on 31st January, 2022

Particulars Details(`) Amount(`)

Balance as per Pass Book 2,43,000
Add: Cheques deposited but not yet credited:
M. Mohan & Co. 1,05,000
N. Nandy & Sons 34,000 1,39,000
Add: Premium paid and bank charges entered in the
26,000
Pass Book but not yet entered in the Cash-Book

4,08,000
Less: Cheques issued but not yet presented
K. Nagpal & Co.
B. Babu & Co. 73,000
78,000 1,51,000
Less: Interest credited by bank but not yet entered in 2,57,000
the Cash Book 20,000
Balance as per Cash Book
O 2,37,000
R
Balance as per Cash Book
2,37,000
Add: Cheques issued but not yet presented:
K. Nagpal & Co.
B. Babu & Co. 73,000
78,000
Add: Interest entered in the Pass Book, but not yet in 1,51,000
the Cash Book
20,000
Less: Cheques deposited but not yet credited:
4,08,000
M. Mohan & Co.
N. Nandy & Sons
1,05,000
34,000 1,39,000
Less: Premium paid and bank charges entered in the
Pass Book but not yet in the Cash Book 2,69,000
Balance as per Pass Book
26,000
2,43,000

© The Institute of Chartered Accountants of India

 3.24 ACCOUNTING

2. As per Plus-Minus Presentation:

Bank Reconciliation Statement as on 31st January, 2022
Particulars Plus Minus
Amou Amount (`)
nt (`)
Balance as per Cash Book 2,37,000
Cheques issued but not yet presented:
K. Nagpal & Co. 73,000
B. Babu & Co. 78,000
Interest entered in pass book but not yet entered 20,000
into cash book
Cheques deposited but not yet credited:
M. Mohan & Co. 1,05,000
N. Nandy & Sons 34,000
Premium paid and bank charges entered in pass 26,000
book
Balance as per pass book 2,43,000
4,08,000 4,08,000

ILLUSTRATION 2
From the following particulars, prepare a Bank Reconciliation Statement for Jindal
offset Ltd.
(1) Balance as per cash book is ` 2,40,000
(2) Cheques issued but not presented in the bank amounts to ` 1,36,000.
(3) Cheques deposited in bank but not yet cleared amounts to ` 90,000.
(4) Bank charges amounts to ` 300.
(5) Interest credited by bank amounts to ` 1,250.
(6) The balance as per pass book is ` 2,86,950.
SOLUTION
Bank Reconciliation Statement
Particulars Amount `
Balance as per Cash Book 2,40,000
Add: Cheque issued but not presented 1,36,000
Interest credited by bank 1,250
3,77,250

© The Institute of Chartered Accountants of India

 BANK RECONCILIATION STATEMENT 3.25

Less : Cheque deposited but not yet cleared (90,000)

Bank charges debited by bank (300)
Balance as per Pass Book 2,86,950

ILLUSTRATION 3
On 31st March 2022, the Bank Pass Book of Namrata showed a balance of `
1,50,000 to her credit while balance as per cash book was ` 1,12,050. On scrutiny
of the two books, she ascertained the following causes of difference:
i) She has issued cheques amounting to ` 80,000 out of which only ` 32,000
were presented for payment.
ii) She received a cheque of ` 5,000 which she recorded in her cash book
but forgot to deposit in the bank.
iii) A cheque of ` 22,000 deposited by her has not been cleared yet.
iv) Mr. Gupta deposited an amount of ` 15,700 in her bank which has not
been recorded by her in Cash Book yet.
v) Bank has credited an interest of ` 1,500 while charging ` 250 as
bank charges. Prepare a bank reconciliation statement.
SOLUTION
Bank Reconciliation Statement as on 31st March, 2022
Particulars Details Amount
(`) (`)
Balance as per Pass Book (Cr.) 1,50,000
Add: Cheque deposited but not yet cleared 22,000
Add: Cheque recorded in Cash Book but not yet 5,000
deposited
Add: Bank Charges debited by bank 250 27,25
0
Less: Cheque issued but not yet presented 48,000
Less: Amount deposited but not recorded in Cash Book 15,700
Less: Interest allowed by bank 1,500 65,200
Balance as per Cash Book 1,12,050

© The Institute of Chartered Accountants of India

 3.26 ACCOUNTING

ILLUSTRATION 4
From the following particulars ascertain the balance that would appear in the
Bank Pass Book of A on 31st December, 2022.
(1) The bank overdraft as per Cash Book on 31st December, 2022 ` 6,340.
(2) Interest on overdraft for 6 months ending 31st December, 2022 ` 160 is
entered in Pass Book.
(3) Bank charges of ` 400 are debited in the Pass Book only.
(4) Cheques issued but not cashed prior to 31st December, 2022, amounted to `
11,68,000.
(5) Cheques paid into bank but not cleared before 31st December, 2022 were for
` 22,17,000.

(6) Interest on investments collected by the bank and credited in the Pass Book
` 12,00,000.
SOLUTION
Bank Reconciliation
Statement As on 31st
December, 2022
Particulars Amoun
t
`
Overdraft as per Cash Book 6,340
Add: Interest debited in the Pass Book but not yet entered in the 160
Cash Book
Add: Bank charges debited in the Pass Book but not entered in the 400
Cash Book
Add : Cheques deposited but not yet credited in the Pass Book 22,17,000
22,23,900
Less: Cheques issued but not yet presented (11,68,000)
Less: Interest collected and credited by bank but not yet entered in (12,00,000)
Cash Book
Balance as per Pass Book (Credit/Favourable balance) (1,44,100)

The above illustration can also be presented with the column for “Plus” and “Minus.”
Particulars Plus Minus
Amount Amount
` `
Overdraft as per Cash Book 6,340
Interest debited in Pass Book but not yet in Cash 160
Book

© The Institute of Chartered Accountants of India

 BANK RECONCILIATION STATEMENT 3.27

Cheque issued but not yet presented 11,68,00

0
Cheques paid in but not yet credited by the 22,17,000
Bank

© The Institute of Chartered Accountants of India

 3.28 ACCOUNTING

Bank charges 400

Interest collected and credited by the Bank in
the Pass Book but not yet entered in Cash Book 12,00,000
Balance as per Pass Book 1,44,100
Total
23,68,000 23,68,00
0

7.2 Bank Reconciliation Statement after the Preparation of

adjusted Cash-Book
7.2.1 Meaning of adjusted cash book
When the balance in the cash book is first adjusted for certain adjustments before
taking it to the bank reconciliation statement, then it is known as adjusted cash
book balance. Adjusting the cash-book before preparing the bank reconciliation
statement is completely optional, if reconciliation is done during different months.
But if reconciliation is done at the end of the accounting year or financial year, the
cash-book must be adjusted so as to reflect the correct bank balance in the balance
sheet.
While adjusting the cash-book the following adjustments are considered:-
1. All the errors (like incorrect amount recorded in the cash-book, entry posted
twice in the cash-book, over/undercasting of the balance etc.) and
2. Omissions (like bank charges recorded in the pass-book only, interest debited
by the bank, direct receipt or payment by the bank, dishonour of
cheques/bills etc.) by the cash-book are taken into care
Only above transactions are considered for adjusting cash book. Apart from this,
any delay in recording in the pass-book due to difference in timing (like cheque
issued but not presented for payment, cheque deposited but not cleared) is taken
to bank reconciliation statement. This adjusted cash-book balance is taken to bank
reconciliation statement.
Errors occurring in the pass-book are not to be adjusted in the cash book. All the adju

ILLUSTRATION 5
On 30th September, 2022, the bank account of X, according to the bank column
of the Cash- Book, was overdrawn to the extent of ` 4,062. On the same date the
bank statement showed a credit balance of ` 20,758 in favour of X. An examination
of the Cash Book and Bank Statement reveals the following:

© The Institute of Chartered Accountants of India

 BANK RECONCILIATION STATEMENT 3.29

1. A cheque for ` 13,14,000 deposited on 29th September, 2022 was

credited by the bank only on 3rd October, 2022.
2. A payment by cheque for ` 16,000 has been entered twice in the Cash Book.
3. On 29th September, 2022, the bank credited an amount of ` 1,17,400
received from a customer of X, but the advice was not received by X until
1st October, 2022.
4. Bank charges amounting to ` 580 had not been entered in the Cash Book.
5. On 6th September, 2022, the bank credited ` 20,000 to X in error.
6. A bill of exchange for ` 1,40,000 was discounted by X with his bank. This
bill was dishonoured on 28th September, 2022 but no entry had been
made in the books of X.
7. Cheques issued upto 30th September, 2022 but not presented for payment
upto that date totalled ` 13,26,000.
You are required :
(a) to show the appropriate rectifications required in the Cash Book of X, to
arrive at the correct balance on 30th September, 2022 and
(b) to prepare a bank reconciliation statement as on that date.
SOLUTION
(a) Cash Book (Bank Column)
Date Particulars Amoun Date Particulars Amoun
2022 t 2022 t
` `
Sept. 30 T Party A/c 16,000 Sept. B Balance b/d 4,062
o Customer 30 y Bank charges
T A/c 580
B Customer A/c
o (Direct 1,17,400 y
deposit) B (B/R
Balance c/d 11,242 dishonoured) 1,40,00
y
To 0
1,44,642 1,44,64
2
(b) Bank Reconciliation Statement as on 30th September,
2022
Particulars Amoun
t
`
Overdraft as per Cash Book 11,242
Add: Cheque deposited but not collected upto 30th 13,14,000
September, 2022

© The Institute of Chartered Accountants of India

 3.30 ACCOUNTING

13,25,242

© The Institute of Chartered Accountants of India

 BANK RECONCILIATION STATEMENT 3.31

Less: Cheques issued but not presented for payment upto (13,26,000
30th September, 2022 )
Credit by Bank erroneously on 6th September (20,000)
Credit balance as per bank statement 20,758

Note: Bank has credited X by 20,000 in error on 6th September, 2022. If this
mistake is rectified in the bank statement, then this will not be deducted in
the above statement along with ` 13,26,000 resulting in credit balance of `
758 as per pass-book.
ILLUSTRATION 6
On 30th December, 2022 the bank column of A. Philip’s cash book showed a debit
balance of
` 4,610. On examination of the cash book and bank statement you find that:
1. Cheques amounting to ` 6,30,000 which were issued to trade payables
and entered in the cash book before 30th December, 2022 were not
presented for payment until that date.
2. Cheques amounting to ` 2,50,000 had been recorded in the cash book as
having been paid into the bank on 30th December, 2022, but were entered
in the bank statement on1st January, 2023.
3. A cheque received for ` 73,000 had been dishonoured prior to 30th
December, 2022, but no record of this fact appeared in the cash book.
4. A dividend of ` 3,80,000, paid direct to the bank had not been recorded in the
cash book.
5. Bank interest and charges amounting to ` 4,200 had been charged in the
bank statement but not entered in the cash book.
6. No entry had been made in the cash book for a trade subscription of `
10,000 paid vide banker’s order in November, 2022.
7. A cheque for ` 27,000 drawn by B. Philip had been charged to A. Philip’s
bank account by mistake in December, 2022.
You are required:
(a) to make appropriate adjustments in the cash book bringing down the
correct balance, and
(b) to prepare a statement reconciling the adjusted balance in the cash book
with the balance shown in the bank statement.

© The Institute of Chartered Accountants of India

 3.32 ACCOUNTING

SOLUTION
(a) A. Philip

Dr Cash Book (Bank column) Cr.

.

Date Particulars Amoun Date Particulars Amoun

t t
2022 2022
` `
Dec To Balance b/d 4,610 Dec By Trade 73,000
. 30 . 30
To Dividend 3,80,000 receivables-
received
Cheque
4,200

dishonoured
10,000
Dec By Bank interest and 2,97,410
. 31 charges
By Trade
3,84,610 3,84,610
Subscription By
2023 To Balance b/d
Balance c/d
Jan. 1 2,97,410

(b) Bank Reconciliation Statement as at 30th December,

2022
Particulars Amoun
t
`
Balance per cash book 2,97,410
Add: Cheques not yet presented 6,30,000
9,27,410
Less: Lodgement not yet recorded by bank (2,50,000)
6,77,410
Less: Cheque wrongly charged (27,000)
Balance as per the bank statement 6,50,410

© The Institute of Chartered Accountants of India

 BANK RECONCILIATION STATEMENT 3.33

ILLUSTRATION 7
From the following information, prepare a Bank reconciliation statement as at
31st December, 2022 for Messrs New Steel Limited : `

(1) Bank overdraft as per Cash Book on 31st December, 2022 22,45,900
(2) Interest debited by Bank on 26th December, 2022 but no advice 2,78,700
received
(3) Cheque issued before 31st December, 2022 but not yet 6,60,000
presented to Bank
(4) Transport subsidy received from the State Government directly 14,25,000
by the Bank but not advised to the company

(5) Draft deposited in the Bank, but not credited till 31st December, 13,50,000
2022
(6) Bills for collection credited by the Bank till 31st December, 8,36,000
2022 but no advice received by the company

(7) Amount wrongly debited to company account by the Bank, for 7,40,000
which no details are available

SOLUTIO
N
M/s. New Steel Ltd.
Bank Reconciliation Statement as on 31st
Dec, 2022
Particulars Detail Amoun
s t
` `
Overdraft as per Cash Book 22,45,900
Add : Interest charged by the bank 2,78,700
Draft deposited in bank but not yet 13,50,000
credited Wrong debit by the bank, 7,40,000 23,68,700
under verification
46,14,600
(6,60,000)
Less: Cheque issued but not yet presented
(14,25,000
Transport subsidy not yet recorded in the Cash Book )
Bills for collection credited in the bank not yet entered
in the cash book (8,36,000) (29,21,000
)
Overdraft as per bank statement
16,93,600

ILLUSTRATION 8
The Cash Book of Mr. Gadbadwala shows ` 8,36,400 as the balance at Bank as on
31st December, 2022, but you find that it does not agree with the balance as per
the Bank Pass Book. On scrutiny, you find the following discrepancies:

© The Institute of Chartered Accountants of India

 3.34 ACCOUNTING

(1) On 15th December, 2022 the payment side of the Cash Book was undercast
by ` 10,000.
(2) A cheque for ` 1,31,000 issued on 25th December, 2022 was not taken
in the bank column.
(3) One deposit of ` 1,50,000 was recorded in the Cash Book as if there is no
bank column therein.
(4) On 18th December, 2022 the debit balance of ` 15,260 as on the
previous day, was brought forward as credit balance in the Cash book.
(5) Of the total cheques amounting to ` 11,514 drawn in the last week of
December, 2022, cheques aggregating ` 7,815 were encashed in December.
(6) Dividends of ` 25,000 collected by the Bank and subscription of ` 1,000
paid by it were not recorded in the Cash Book.
(7) One out-going Cheque of ` 3,50,000 was recorded twice in the Cash
Book. Prepare a Reconciliation Statement.
SOLUTION
(If the books are not closed on 31st December, 2022)
Bank Reconciliation Statement of Mr. Gadbadwala as on 31st Dec.,
2022
Particulars Detail Amoun
s t
` `
Balance as per the Cash Book 8,36,400
Add : Mistake in bringing forward ` 15,260 30,520
debit balance as credit balance on 18th
Dec., 2022
Cheques issued but not presented :
11,514
Issued
Cashed 7,815 3,699

Dividends directly collected by bank but

not yet entered in the Cash Book 25,000
Cheque recorded twice in the Cash Book 3,50,00
Deposit not recorded in the Bank column 0
1,50,00 5,59,219
0
Less : Wrong casting in the Cash Book on 15th 13,95,619
Dec.
10,000

© The Institute of Chartered Accountants of India

 BANK RECONCILIATION STATEMENT 3.35

Cheques issued but not entered in the 1,31,00

Bank column 0

Subscription paid by the bank directly not

yet
recorded in the Cash Book 1,000 (1,42,000)
Balance as per the Pass Book 12,53,619

If the books are to be closed on 31st December, then adjusted cash book will be
prepared as given below:
Cash Book (Bank Column)
Particulars Amount Particulars Amount
(`) (`)
To Balance b/d 8,36,400 By wrong casting 10,000
To error for wrong posting 30,520 By cheques not entered 1,31,000
To dividends collected by 25,000 By subscription 1,000
bank
To cheques recorded twice 3,50,000 By balance c/d 12,49,920
To deposit not recorded 1,50,000
13,91,920 13,91,920

Bank Reconciliation Statement

Particulars `
Balance as per the Cash Book (corrected) 12,49,920
Add: Cheques issued but not yet presented 3,699
Balance as per the Pass Book 12,53,619

ILLUSTRATION 9
The following are the Cash Book (bank column) and Pass Book of Jain for the months
of March, 2022 and April, 2022:
Cash Book (Bank Column only)
Date Particulars Amoun Date Particulars Amoun
t t
Dr. Cr.
` `
01/3/2022 To Balance b/d 60,000 03/3/2022 By Cash A/c 2,00,00
0
06/3/2022 To Sales A/c 3,00,000 07/3/2022 By Modi 60,000
10/3/2022 To Ram 65,000 12/3/2022 By Patil 30,000
18/3/2022 To Singhal 2,70,000 18/3/2022 By Suresh 40,000

© The Institute of Chartered Accountants of India

 3.36 ACCOUNTING

25/3/2022 To Goyal 33,000 24/3/2022 By Ramesh 1,50,00

0
31/3/2022 To Patel 65,000 30/3/2022 By Balance c/d 3,13,00
0
7,93,000 7,93,00
0
Pass Book
Date Particulars Amoun Amoun Dr. or Balanc
t t Cr. e
Dr. Cr. `
` `
1/4/2022 By Balance b/d 3,65,000 Cr 3,65,000
.
3/4/2022 By Goyal 33,000 Cr 3,98,000
.
5/4/2022 By Patel 65,000 Cr 4,63,000
.
7/4/2022 To Naresh 2,80,000 Cr 1,83,000
.
12/4/2022 To Ramesh 1,50,000 Cr 33,000
.
15/4/2022 To Bank Charges 200 Cr 32,800
.
20/4/2022 By Usha 17,000 Cr 49,800
.
25/4/2022 By Kalpana 38,000 Cr 87,800
.
30/4/2022 To Sunil 6,200 Cr 81,600
.
Reconcile the balance of cash book on 31/3/2022.
SOLUTION
1. On scrutiny of the debit side of the Cash Book of March 2022 and receipt side
of the Pass Book of April, 2022 reveals that two cheques deposited in
Bank (Goyal ` 33,000 and Patel ` 65,000) in March were not credited by the
Bank till 31/3/2022.
2. On scrutiny of the credit side of the cash book and payment side of the Pass
Book reveals that a cheque issued to Ramesh for ` 1,50,000 in March 2022,
had not been presented for payment in Bank till 31/3/2022. Therefore the
Bank Reconciliation statement on 31/3/2022 will appear as follows :
Bank Reconciliation Statement as on 31st March, 2022
Particulars Amount (`)
Balance as per the Cash Book 3,13,000
Add : Cheque issued but not presented for payment 1,50,000
4,63,000
© The Institute of Chartered Accountants of India
 BANK RECONCILIATION STATEMENT 3.37

Less : Cheque deposited but not credited by Bank (98,000)

Balance as per the Pass Book 3,65,000

© The Institute of Chartered Accountants of India

 3.38 ACCOUNTING

ILLUSTRATION 10
When Nikki & Co. received a Bank Statement showing a favourable balance of `
10,39,200 for the period ended on 30th June, 2022, this did not agree with the
balance in the cash book.
An examination of the Cash Book and Bank Statement disclosed the following :
1. A deposit of ` 3,09,200 paid on 29th June, 2022 had not been credited by
the Bank until 1st July, 2022.
2. On 30th March, 2022 the company had entered into hire purchase agreement
to pay by bank order a sum of ` 3,00,000 on the 10th of each month,
commencing from April, 2022. No entries had been made in Cash Book.
3. A customer of the firm, who received a cash discount of 4% on his account of
` 4,00,000 paid the firm a cheque on 12th June. The cashier erroneously
entered the gross amount in the bank column of the Cash Book.
4. Bank charges amounting to ` 3,000 had not been entered in Cash-Book.
5. On 28th June, a customer of the company directly deposited the amount in
the bank
` 4,00,000, but no entry had been made in the Cash Book.

6. ` 11,200 paid into the bank had been entered twice in the Cash Book.

7. A debit of ` 11,00,000 appeared in the Bank Statement for an unpaid cheque,

which had been returned marked ‘out of date’. The cheque had been re-
dated by the customer and paid into Bank again on 5th July, 2022.
Prepare Bank Reconciliation Statement on 30 June, 2022.
SOLUTION
Bank Reconciliation Statement on 30th June, 2022
Particulars Details (`) Amount
(`)
Balance as per the Pass Book 10,39,200
Add: Deposited with bank but not credited 3,09,200
Payment of Hire Purchase installments not entered 9,00,000
in the Cash Book (` 3,00,000 x 3)
Discount allowed wrongly entered in bank 16,000
column Bank charges not entered in the
3,000
Cash Book Deposit entered in the Cash Book
11,200
twice
11,00,000 23,39,400
Cheque returned ‘out of date’ entered in the Cash
Book

© The Institute of Chartered Accountants of India

 BANK RECONCILIATION STATEMENT 3.39

33,78,600
Less: Direct deposit by customer not entered in the (4,00,000)
Cash Book
Balance as per the Cash Book 29,78,600

ILLUSTRATION 11
Mr. Manoj is employed by Century Rayon and Carpets Pvt Ltd. as their cashier. The
main responsibility of Mr. Manoj is to maintain the company’s cash book and
prepare a bank reconciliation statement at the end of each month. The cash book
(only bank column) is set out below together with a copy of the bank statement for
the month of February 2022.
You are required to :
a) Reconcile the cash book with the bank statement.
b) Make necessary entries to update the cash book.
c) Start with the balance as per cash book, list any unpresented cheques and
sub-total on the reconcliation statement.
Century Rayon and Carpets Pvt
Ltd Cash Book (Bank Column
only)
Date Particulars Amoun Date Particulars Amoun
t t
Dr. Cr.
`
`
01/02/2022 To Balance b/d 1,42,500 03/02/2022 By Bhagwandas 1,980
01/02/2022 To Blue and Co 1,570 07/02/2022 By Maruti Ltd (400460) 1,500
04/02/2022 To GM Ltd 2,430 12/02/2022 By Jackson Ltd (400461) 54,000
08/02/2022 To Robinson Ltd 910 18/02/2022 By PC computers 1,420
(400462)
13/02/2022 To Donald 750 24/02/2022 By Shiv garage 49,000
(400463)
20/02/2022 To Avenue Super 4,200 30/02/2022 By Petty cash (400465) 1,500
mart
28/02/2022 To Sleep Well Ltd 940 By Shweta & Co 2,100
(400464)
By AV Partners 5,200
(400466)
By Balance c/d 36,600
1,53,300 1,53,300

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 3.40 ACCOUNTING

Customer: Century Rayon and Carpets Pvt

Ltd Account No – xxxxx0439
Account Statement for the month of February 2022
Date Particulars Amoun Amoun Dr. or Balanc
t t Cr. e
Dr. Cr. `
1/02/2022 Balance b/d 1,42,50
0
3/02/2022 Cheques 1,570 Cr. 1,44,07
0
5/02/2022 Maruti Ltd 1,500 Dr 1,42,57
. 0
7/02/2022 Bhagwandas 1,980 Dr 1,40,59
. 0
12/02/2022 GM Ltd 2,430 Cr. 1,43,02
0
15/02/2022 Robinson Ltd 910 Cr. 1,43,93
0
20/02/2022 Premium of New India 3,800 Dr 1,40,13
Insurance Ltd . 0
14/02/2022 Donald 750 Cr. 1,40,88
0
14/02/2022 400463 49,000 Dr 91,88
23/02/2022 cheques 4,200 . 0
Cr. 96,08
0
26/02/2022 Savita 1,03 Dr 95,05
26/02/2022 400465 . 0
0
27/02/2022 Shreya 2,200 Dr 93,55
1,50 . 0
0
Cr. 95,75
0
28/02/2022 Bank charges 2,538 Dr 93,212
.
SOLUTION
In the books of Century Rayon and Carpets Pvt Ltd
a) Journal entries to be posted:
Bank A/c Dr 2200
To Shreya A/c 2200

Bank Charges A/c Dr

2538 Insurance premium A/c Dr
3800 Savita A/c Dr
© The Institute of Chartered Accountants of India
 BANK RECONCILIATION STATEMENT 3.41

1030
To Bank A/c 7368

© The Institute of Chartered Accountants of India

 3.42 ACCOUNTING

After posting above entries, following will be the updated book of the company.
Cash Book (Bank Column)
Particulars Amount Particulars Amount
(`) (`)
To balance b/d 36,600 By bank charges 2,538
To direct receipt in bank 2,200 By insurance premium 3,800
By direct payment to 1,030
Savita
By balance c/d 31,432
38,800 38,800
Bank Reconciliation Statement as on February 28, 2022
Particulars Details Amount
`
Updated Balance as per Cash book 31,432
Add: Cheques issued but not yet presented for
payment Jackson Ltd
54000
P C Computers
Shweta & Co 1,420
A.V. Partners 2,100
5,200 62,720
94,152
Less: Cheques deposited but not yet
credited Sleep Well Ltd
Balance as per the bank statement 940 940
93,212

SUMMARY
 Bank pass book is merely a copy of the customer’s account in the books of bank.
 Bank reconciliation statement is a statement which reconciles the balance as per cash boo
The salient features of bank reconciliation statement:

The reconciliation will bring out any errors that may have been committed either in the

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 BANK RECONCILIATION STATEMENT 3.43


Any undue delay in the clearance of cheques will be shown up by the
reconciliation;

A regular reconciliation discourages the accountant of the bank from
embezzlement. There have been many cases when the cashiers
merely made entries in the cash book but never deposited the cash in
the bank; they were able to get away with it only because of lack of
reconciliation.

It helps in finding out the actual position of the bank balance.

The difference in the balances of both the books can be because of the
following reasons:
1. Timing differences,
2. Transactions;
3. Errors.

Bank reconciliation can be started from any of the following four balances
given in the question:
1. Dr. balance as per cash book
2. Cr. balance as per cash book
3. Dr. balance as per pass book
4. Cr. balance as per pass book

There are two methods of reconciling the bank balances :
1. Bank reconciliation statement without preparation of adjusted cash-
book.
2. Bank reconciliation statement after the preparation of adjusted cash-
book.

TEST YOUR KNOWLEDGE

True or False
1. Bank Reconciliation is the process of reconciling cash column of the cash
book and bank column of the cash book.
2. There are 3 types of differences between cash book and pass book namely
Timing, Transactions & Errors.
3. Adjusting the cash book for any errors and/or omissions before preparing
bank reconciliation is optional when the reconciliation is done at the end of
the financial year.
4. Debit balance in cash book is same as overdraft as per pass book.

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 3.44 ACCOUNTING

5. Bank charges debited by the bank is an example of timing difference for the
purposes of bank reconciliation.
6. Overcasting of the debit side of the cash book is an example of a
difference that is due to error.
7. When we start bank reconciliation with a debit balance in cash book, then
cheques issued but not yet presented should be added back to arrive at the
balance as per pass book.
8. The bank charges charged by the bank should be deducted when bank
reconciliation statement is being prepared starting from a credit balance of
pass book.
9. When the causes of differences between pass book balance and cash book is
not known, then the bank reconciliation statement can be prepared by
matching the two books and identifying any unticked items in both sets.
10. While preparing the bank reconciliation statement starting with debit
balance as per pass book or bank statement, the deposited cheques that
are not yet cleared need not be adjusted.
11. Cash book shows a debit balance of ` 50,000 and the only difference from
the balance as shown in pass book relates to cheques issued for ` 60,000 but
not yet presented for payment. The balance as per pass book should be `
1,10,000.
12. Overcasting of credit side of the cash book shall result in a higher bank
balance in cash book when compared with pass book balance.
13. A cheque for ` 25,000 that was issued and was also presented for payment
in same month but erroneously recorded on debit side of the cash book
would cause a difference of ` 50,000 from the balance in pass book.
14. A direct debit by bank on account of any payment as may be instructed
by customer should be recorded on credit side of cash book.
15. Bank Reconciliation Statement can be prepared in two formats – “Balance”
presentation and “Plus & Minus” presentation.
16. The difference between cash book & pass book that relates to errors are
those mostly made by Bank.
17. A cheque for ` 80,000 that was discounted from bank was dishonoured and
the bank charged ` 1,600 as the charges on account of same. While starting
with debit balance in cash book for preparing bank reconciliation statement,
we need to deduct ` 78,400 to reconcile with pass book.
18. Interest on savings bank that is allowed or credited by bank is generally
recorded in cash book prior to it being recorded by bank.

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 BANK RECONCILIATION STATEMENT 3.45

19. A regular bank reconciliation discourages the accountants to be involved in

any kind of funds embezzlement.
20. Timing difference relates the transactions that are recorded in the same
period in both cash book and also the bank pass book.

Multiple Choice Questions

1. When the balance as per Cash Book is the starting point, direct deposits
by customers are:
(a) Added
(b) Subtracted
(c) Not required to be adjusted.
2. A debit balance in the depositor’s Cash Book will be shown as:
(a) A debit balance in the Bank Statement.
(b) A credit balance in the Bank Statement.
(c) An overdrawn balance in the Bank Statement.
3. When balance as per Pass Book is the starting point, interest allowed by
Bank is
(a) Added
(b) Subtracted
(c) Not required to be adjusted
4. A Bank Reconciliation Statement is prepared with the help of:
(a) Bank statement and bank column of the Cash Book.
(b) Bank statement and cash column of the Cash Book
(c) Bank column of the Cash Book and cash column of the Cash Book.
5. The cash book showed an overdraft of ` 1,50,000, but the pass book made up
to the same date showed that cheques of ` 10,000, ` 5,000 and ` 12,500
respectively had not been presented for payments; and the cheque of `
4,000 paid into account had not been cleared. The balance as per the pass
book will be:
(a) ` 1,10,000

(b) ` 2,17,500

(c) ` 1,26,500

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 3.46 ACCOUNTING

6. When drawing up a Bank Reconciliation Statement, if you start with a

debit balance as per the Bank Statement, the unpresented cheques should
be:
(a) Added;
(b) Deducted;
(c) Not required to be adjusted.
7. When drawing up a BRS if you start with a Dr. Balance as per Bank
Statement, the following are added:
1. Cheque issued but not presented to bank
2. B/R collected directly by bank
3. Overcasting of the Dr. Side of bank A/c in the cash book.
(a) only 1
(b) only 1& 2
(c) all of the above
8. A bank reconciliation statement is mainly prepared to:
(a) Reconcile the cash balance of the cash book
(b) Reconcile the difference between the bank balance shown by the
cash book and bank passbook
(c) both a & b

Theory Questions
1. Write short note on Bank reconciliation statement.
2. State the causes of difference between the balance shown by the pass book
and the cash book.

Practical Questions
1. From the following particulars prepare a bank reconciliation statement as
on 31st December 2022:
(i) On 31st December, 2022 the cash-book of a firm showed a bank
balance of
` 60,000 (debit balance).

(ii) Cheques had been issued for ` 15,00,000, out of which

cheques worth
` 4,00,000 only were presented for payment.

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 BANK RECONCILIATION STATEMENT 3.47

(iii) Cheques worth ` 11,40,000 were deposited in the bank on 28th

December, 2022 but had not been credited by the bank. In addition to
this, one cheque for
` 5,00,000 was entered in the cash book on 30th December, 2022 but
was banked on 3rd January, 2023.
(iv) A cheque from Susan for ` 4,00,000 was deposited in the bank on
26th December 2022 but was dishonoured and the advice was
received on 2nd January, 2023.
(v) Pass-book showed bank charges of ` 2000 debited by the bank.
(vi) One of the debtors deposited a sum of ` 5,00,000 in the bank
account of the firm on 20th December, 2022 but the intimation in this
respect was received from the bank on 2nd January, 2023.
(vii) Bank pass-book showed a debit balance of ` 3,82,000 on 31st
December, 2022.
2. According to the cash-book of Gopi, there was a balance of ` 44,50,000 in his
bank on 30th June, 2022. On investigation you find that:
(i) Cheques amounting to ` 6,00,000 issued to creditors have not been
presented for payment till the date.
(ii) Cheques paid into bank amounting to ` 11,05,000 out of which
cheques amounting to ` 5,50,000 only collected by the bank up to
30th June 2022.
(iii) A dividend of ` 40,000 and rent amounting to ` 6,00,000 received
by the bank and entered in the pass-book but not recorded in the
cash book.
(iv) Insurance premium (up to 31st December, 2022) paid by the bank `
27,000 not entered in the cash book.
(v) The payment side of the cash book had been under casted by ` 5,000.
(vi) Bank charges ` 1,500 shown in the pass book had not been entered in
the cash book.
(vii) A bill payable of ` 2,00,000 had been paid by the bank but was not
entered in the cash book and bill receivable for ` 60,000 had been
discounted with the bank at a cost of ` 1,000 which had also not been
recorded in cash book.
Required:
(a) to make the appropriate adjustments in the cash book, and
(b) to prepare a statement reconciling it with the bank pass book.

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 3.48 ACCOUNTING

3. Prepare a bank reconciliation statement as on 30th September, 2022 from

the following particulars:
Particulars `
Bank balance as per pass-book 10,00,000
Cheque deposited in the bank, but no entry was passed in the 5,00,000
Cash-Book
Cheque received, but not sent to bank 11,20,000
Credit side of the bank column cast short 2,000
Insurance premium paid directly by the bank under the 60,000
standing advice
Bank charges entered twice in the cash book 2,000
Cheque issued, but not presented to the bank for payment 5,00,000
Cheque received entered twice in the cash book 10,000
Bills discounted dishonoured not recorded in the cash book. 5,00,000

4. Prepare a bank reconciliation statement from the following particulars on

31st March, 2022:
Particulars `
Debit balance as per bank column of the cash book 37,20,000
Cheque issued to creditors but not yet presented to the bank 7,20,000
for payment

Dividend received by the bank but not yet entered in the 5,00,000
cash book
Interest allowed by the bank 12,500
Cheques deposited into bank for collection but not collected 15,40,000
by bank up to this date.

Bank charges 2,000

A cheque deposited into bank was dishonoured, but no 3,20,000
intimation received

Bank paid house tax on our behalf, but no information 3,50,000

received from bank in this connection.

5. Prepare a bank reconciliation statement from the following particulars on

31st March, 2022 and show the balance as per cash book:
i) Overdraft as per passbook on March 31, 2022, is ` 3,00,000.
ii) Interest on bank overdraft not entered in the cash book Rs. 36,500

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 BANK RECONCILIATION STATEMENT 3.49

iii) Insurance premium of Rs. 17,950 was due and paid by the bank but
same has not been accounted in the books.
iv) Cheques drawn in the last week of March,2022, but not cleared till
date for
` 13,000 and Rs. 23,500.
v) Cheques deposited into bank on February,2022, but yet to be
credited on dated March 31, 2022 Rs. 56,000.
vi) Amount of Rs. 20,500 is wrongly debited by the bank
vii) Interest on Investment Rs. 83,800 collected and credited by bank
but the same has not been entered in the Cash Book.

ANSWERS/HINTS
True and False
1. False : Bank Reconciliation Statement reconciles bank column of cash book
with the balance in the pass book i.e. customer account in the books of
bank.
2. True : These are the three broad categories.
3. False : Adjusting the cash book is mandatory when bank reconciliation is
done at the end of the financial year.
4. False : Debit balance as per cash book should be represented by credit or
favourable balance in pass book.
5. False : Bank charges are example of the transactions that bank carries out by
itself and the same has not been recorded in the cashbook until statement is
obtained from the bank.
6. True : Overcasting is an example of an error.
7. True : Since the cheques issued would have been recorded as payments and
bank balance was credited in cash book, we need to add it back as the same
is not yet deducted from our bank balance.
8. False : Bank charges should be added when we start with credit or
favourable balance in pass book as bank would have debited the charges.
9. True : Since, we don’t know the causes of difference, matching the two
statements is only efficient way to identify the difference.
10. False : Cheques deposited but not yet cleared should be subtracted from
debit or unfavourable balance in pass book.

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 3.50 ACCOUNTING

11. True : Cheques issued but not yet presented should be added back to a
debit balance in cash book to arrive at pass book balance i.e. ` 50,000 + `
60,000 = ` 1,10,000.
12. False : Overcasting of credit side means excessive payments are recorded
and hence would lower the bank balance.
13. True: ` 25,000 payment is recorded as a receipt and hence it will have to be
adjusted twice (once to nullify and then once to record actual payment)
hence causing the difference of double amount.
14. True : It is an example of a payment instructed by customer to be directly
debited by bank, and hence credited in the cash book.
15. True : Reconciliation statement can be prepared in either of the two formats.
16. False : Bank rarely makes mistakes, and hence differences that relate
to errors are generally made in cash book.
17. False : We need to deduct ` 81,600 (i.e. both cheque returned & charges)
from debit balance in cash book to arrive at balance as per pass book.
18. False : Interest allowed by bank is mostly recorded in cash book after
the entry has been made in the pass book or bank statement.
19. True : In absence of any reconciliation, the accountants can mis-utilize the
funds temporarily by recording the entry without actual depositing the cash.
20. False : Timing differences relate to the transactions that are recorded in
cash book and pass book in two different periods.

Multiple Choice Questions

1. (a) 2. (b 3. (b) 4. (a) 5. (c) 6. (a)
)
7. (b) 8. (b
)

Theoretical Questions
1. Bank reconciliation statement is prepared as on a particular date to reconcile
and explain the causes of difference between the bank balance as per cash
book and the same as per savings bank pass book or current account
statement. At the end of each month, the bank balance as per cash book and
that as per pass book /bank statement should be compared and, if there is
disagreement, these balances should be reconciled stating exact reasons of
disagreement. The reconciliation is made in a statement called the bank
reconciliation statement.

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 BANK RECONCILIATION STATEMENT 3.51

2. The difference between the balance shown by the passbook and the
cashbook may arise on account of the following:
(i) Cheques issued but not yet presented for payment.
(ii) Cheques deposited into the bank but not yet cleared.
(iii) Interest allowed by the bank.
(iv) Interest and expenses charged by the bank.
(v) Interest and dividends collected by the bank.
(vi) Direct payments by the bank.
(vii) Direct deposits into the bank by a customer.
(viii) Dishonour of a bill discounted with the bank.
(ix) Bills collected by the bank on behalf of the customer.
(x) An error committed in cash book or by the bank etc.
(xi) Undercasting or Overcasting in cashbook.

Practical Questions
1.
Bank Reconciliation
Statement as on 31st
December, 2022
` `
Bank balance (Dr.) as per cash book 60,000
Add: Cheques issued but not yet presented for payment 11,00,000
Cheques directly deposited by a customer not yet 5,00,000 16,00,000
recorded in cash book

16,60,000
Less: Cheques deposited but not yet credited by bank
11,40,000
Cheque received and recorded in cash book but
not yet banked 5,00,000

Cheque dishonoured by the bank; the dishonour

entry not yet passed in cash book 4,00,000
Bank charges not recorded in cash
2,000 (20,42,000
book Bank balance (Dr.) as per pass book )
(3,82,000)

© The Institute of Chartered Accountants of India

 3.52 ACCOUNTING

2.
Cash Book (Bank Column)
Receipts ` Payments `
To Balance b/d 44,50,000 By Insurance premium A/c 27,000
To Dividend A/c 40,000 By Correction of errors 5,000
To Rent A/c 6,00,000 By Bank charges 1,500
To Bill receivable A/c 59,000 By Bill payable 2,00,000
By Balance c/d 49,15,500

51,49,000 51,49,000

Bank Reconciliation
Statement as on 30th
June, 2022
`
Adjusted balance as per cash book (Dr.) 49,15,500
Add: Cheques issued but not presented for payment till 30th June, 6,00,000
2022
Less: Cheques paid into bank for collection but not collected till 30th (5,55,000)
June, 2022
Balance as per pass book 49,60,500
3.
Bank Reconciliation Statement as on 30th September, 2022
` `
Bank balance as per pass book 10,00,000
Add: Cheque received but not sent to the 11,20,000
bank Credit side of the bank column cast 2,000
short
60,000
Insurance premium paid directly not recorded in the
cash book
10,000
Cheque received entered twice in the cash
5,00,000 16,92,000
book Bills dishonoured not recorded in the
cash book 26,92,000
5,00,000
Less: Cheque deposited into the bank but no entry was
passed in the cash book 2,000
Bank charges recorded twice in the cash 5,00,000 (10,02,000
book Cheque issued but not presented to )
the bank 16,90,000

Bank balance as per cash book

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 BANK RECONCILIATION STATEMENT 3.53

4.
Bank Reconciliation
Statement as on 31st
March, 2022
` `
Debit balance as per cash book 37,20,000
Add: Cheque issued but not yet presented to bank for 7,20,000
payment
Dividend received by bank not entered in cash book 5,00,000
Interest allowed by bank 12,500 12,32,500
49,52,500
Less: Cheques deposited into bank but not yet collected 15,40,000
Bank charges 2,000
A cheque deposited into bank was dishonoured 3,20,000
House tax paid by bank 3,50,000 (22,12,000)
Credit balance as per pass book 27,40,500
5.
Bank Reconciliation Statement as on 31st March, 2022
` `
Balance as per bank statement (Overdraft) 3,00,000
Add: Cheques drawn but not cleared 36,50
0
Interest collected on investments directly credited 1,20,300
by bank 83,80
0
4,20,300
Less: Interest on bank overdraft not entered in the cash
36,50
book Cheques deposited but not yet cleared 0
Insurance premium paid by 56,00
bank Amount wrongly debited 0
1,30,950
by bank 17,95
Overdraft as per cash book 0
20,50
0
289,350

© The Institute of Chartered Accountants of India

© The Institute of Chartered Accountants of India