Lesson 5

Bank Reconciliation Statement

LESSON OUTLINE
LEARNING OBJECTIVES
– Introduction In the modern times, business operates in a
– Bank financial system of the country wherein it uses
– Types of Personal Accounts in Bank
the facilities and services provided by the banks.
– Deposits
Most of the business houses conduct majority
– Withdrawals
of transactions through bank accounts. Business
– Bank Pass Book
enterprises record transactions with the bank
– Bank Reconciliation Statement
in the bank column of the cash book. Bank also
– Review Questions
maintains accounts of customers in its ledger
– Causes of difference between bank
book which are supplied to customers by the
balance as per cash book and pass book

– Significance of Bank Reconciliation bank in the form of a statement or a book. So, it

Statement becomes necessary to compare and check the
– Procedure of Preparing Bank transactions done with the bank and those
Reconciliation Statement
recorded in the books of accounts of
– Preparation of Bank Reconciliation
organisation. Bank reconciliation statement is a
Statement when overdraft balances are
given tool for such comparison and arriving at the
– Preparation of Bank Reconciliation causes and amount of difference between the
Statement when extracts of cash book and
two, if any.
pass book are given

– Lesson Round-Up In this lesson, we will study in detail about

– Glossary reconciling the bank account with the bank

– Self-Test Questions balance as per cash book of any organization.

All the money’s kind of sitting in a bank account.

Alex Tew
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INTRODUCTION
Bank
A bank is an institution which deals in money. Its main business is to accept deposits and to lend money. It
also collects money and makes payments on behalf of its clients. Bank account is a personal account and the
account-holders record their transaction with the bank in a similar manner as they do with any other person.

Types of Personal Accounts in Bank

Money can be deposited with a bank in following types of accounts.
(i) Current Account: In a Current Account, money can be deposited as often as desired and also, it can be
withdrawn without notice as often as necessary. In this account, with the permission of the bank, the amount
withdrawn can be in excess of the amount deposited; the excess amount withdrawn is called overdraft.
Generally, no interest is allowed by banks on deposits in current accounts. On the other hand, a charge is
made by the bank, known as bank charges periodically. The client can instruct the bank to collect money, say
interest or dividends on investments made by the client and to make payments say premiums of insurance
policy on his behalf. The bank credits the client’s account with such collections made and debits the client’s
account with such payments. It charges money for such services; the amount of the charge is debited by the
bank to the client’s account. Businessmen invariably prefer the current account to other two accounts as this
account alone meets all their requirements.
(ii) Savings Account: In a Savings Bank Account, deposits can be made as often as required but there are
restrictions on the number as well as amount of withdrawals that can be made and hence a savings bank
account fails to meet the requirements of most of the businessmen. But this account has the advantage that
bank allows interest on the deposits made in it. This account is really meant for individuals who wish to save
or institutions which do not need withdrawals very often.
(iii) Fixed Deposit Account: In a Fixed Deposit, money is deposited only once and cannot be withdrawn
before the expiry of that period for which it is made. The bank pays interest on such deposits. Fixed deposit is
evidenced by a receipt called Fixed Deposit Receipt issued by the bank in the name of the depositor. The
receipt has to be surrendered to the bank on the expiry on the stipulated date for withdrawal of money
deposited and interest allowed thereon by the bank.
(iv) Recurring Deposit Account: In Recurring Deposit Account, a fixed amount of money is deposited every
month for a fixed tenure mostly ranging from one to five years. The small monthly saving in the Recurring
Deposit Scheme enable the depositor to accumulate a handsome amount on maturity. The bank pays interest
on such deposits compounded quarterly at a fixed rate.

Deposits
In savings accounts and current accounts, a deposit is made by filling up a form called pay-in-slip. There is a
counterfoil which is stamped by the bank’s cashier and signed by him and returned to the client. This counter-
foil is evidence that money has been duly received by the bank. Separate pay-in-slips have to be filled in for
depositing cash and cheques. Also, there are different pay in slips for local and out-station cheques.

Withdrawals
Withdrawals are made by means of cheques. A cheque is an unconditional order on the bank made by the
client instructing the bank to pay a certain sum of money to the person named in the cheque or his order or
the bearer. In the case of a savings bank account withdrawals may be allowed by filling in withdrawal form
supplied by the bank rather than cheques.
The money deposited with bank is debited to bank account while money withdrawn from the bank is credited
to bank account. The record of money deposited and withdrawn from the bank is maintained by the business
in its cash book with bank columns which can be balanced on any date and the balance so arrived at is
known as bank balance as per cash book.
 Lesson 5  Bank Reconciliation Statement 93
Bank Pass Book
The bank on its part maintains in its ledger the account of its customers. Pass book is a copy of the clients’
account in the bank’s ledger. Bank issues pass book to its clients. It is the duty of the client to send it to bank
at intervals so that transactions can be recorded up-to-date. Pass book shows the transactions already
entered into by the bank and the client (like cheques and cash deposited, amounts withdrawn, cheques paid
by the bank, collections and payments made by the bank on behalf of the client) and the balance or overdraft
shown by the client’s account at the bank. The money deposited by the customer is credited to his account
and the money withdrawn from the bank is debited to his account. The balance as per bank ledger indicated
in the bank pass book is called the bank balance as per pass book.

Bank Reconciliation Statement

The bank pass book and bank columns of the cash book record the same transactions. In the pass book, the
transactions are recorded from the point of view of the bank whereas in cash book they are recorded from the
point of view of the client. The bank balance as per pass book, can therefore, be expected to be equal to the
bank balance as revealed by the cash book. However, in actual practice the two balances rarely agree
because of the time lag of a few days between the entries made by the firm in cash book and by the bank in
the pass book. Thus, a comparison is necessary to find out the items on account of which differences have
arisen and a need to reconcile the two balances. Thus, a bank reconciliation statement is a statement which
is prepared as on a particular date to reconcile the bank balance as per cash book with balance as per pass
book by showing all causes of difference between the two.

REVIEW QUESTIONS
Fill in the blanks:
(a) A bank is an institution which deals in ___________.
(b) In a ________________, money can be deposited as often as desired
and also, it can be withdrawn without notice as often as necessary.
(c) In a savings bank account, restrictions are made on the __________
as well as _________of withdrawals.
(d) A deposit is made by filling up a form called _____________.
(e) In Recurring Deposit Account, deposits are made once in _____.

CASUSES OF DIFFERENCE BETWEEN BANK BALANCE SHOWN BY CASH BOOK AND

PASS BOOK
The following are the reasons for the difference between the balances shown by the cash book and the pass
book.
(i) Cheques issued but not presented for payment:
When a cheque is drawn or issued in favour of a third party, it is immediately recorded in the cash book by
debiting the party and crediting the bank and this has the effect of reducing the bank balance in the cash
book. But the bank will not debit client’s account until that cheque is presented for payment, and honoured.
So long as it is not presented, the balance shown in the pass book is more than the balance shown by the
cash book.
(ii) Cheques deposited for collection but not yet collected:
The client debits bank column of cash book as soon as he deposits cheques with the bank for collection, but
the bank credits client’s account only when it has collected cash on the cheque so deposited. It results in
bank balance as per cash book being higher than the balance as per pass book.
(iii) Bank charges not entered in the cash book:
The bank charges some amount from each customer by way of incidental charges, collection charges, etc.
94 FP-FA&A
and debits his account for this reason from time to time. As soon as these charges are made, the bank debits
the customer’s account in its own books and this reduces the bank balance. But the customer will know such
charges only when he receives a statement of account from the bank, until then, bank balance as per pass
book will be less than bank balance as per cash book.
(iv) Interest credited or debited by bank, not entered in the cash book:
When bank allows interest to a customer for deposits, it will credit customer’s account and his bank balance
as per pass book will increase. But the customer will not pass the entry in cash book simultaneously till he
knows the fact, thus the balances will differ. Likewise, interest on overdraft is debited to the customers’
account and till the same is not entered in the cash book, will result in a difference in the balances.
(v) Direct collections on behalf of customers:
A banker may receive amounts due to the customer by way of dividends, rent, interests etc. directly from the
persons concerned on account of standing instructions of the customer to such persons. Similarly, debtors
may also deposit the amounts directly to the bank. The bank credits the account of the customer for such
collections as soon as it gets such payments. But same will be entered in the cash book only when customer
receives the statement from the bank. Thus the balances differ.
(vi) Direct payment by bank:
Usually, the bank is given standing instructions for certain payments to be made, such as payment for
insurance premium, interest on loan, electricity bill etc. Bank, while making payments, debits pass book but
the customer has no information of the same till it is informed. It results in a difference in balances.
(vii) Dishonour of cheques/bills:
When cheque or bill of exchange discounted with the bank is dishonoured, the same is debited in the pass
book but not given effect in the cash book until the intimation is received. It will cause a difference in the two
balances.
(viii) Cheques received and entered in the cash book but omitted to be deposited into the bank.
When cheque is received, the same is entered in the cash book but it may not be deposited into the bank
immediately. This will cause a difference in the two balances.
(ix) Errors:
There may be errors in the accounts maintained by the customer or/ and by the bank. A wrong debit or credit
given by the customer or the bank leads to the difference in the balances.
SIGNIFICANCE OF BANK RECONCILIATION STATEMENT
 (i) It highlights the causes of difference between the bank balance as per cash book and the balance as
per pass book. Necessary adjustments can, therefore, be carried out at an early date.
(ii) It reduces the chance of fraud by the staff dealing in cash.
(iii) It acts as a moral check on the staff of the organization to keep the cash records always up to date.
(iv) Bank balance as per cash book cannot be accepted as final unless it is supported by statement of
passbook. When these two balances do not tally, reconciliation becomes essential to determine the
correct bank balance that can be used while finalizing the accounts.
(v) It helps in finding out actual position of the bank balance.

PROCEDURE OF PREPARING BANK RECONCILIATION STATEMENT

A bank reconciliation statement is prepared as on a particular date for a particular period to reconcile the bank
balance as per cash book with balance as per pass book by showing causes of difference between the two.
The statement starts with bank balance as per cash book and then additions to and subtraction from this
balance are made to arrive at the balance as per pass book. Alternate procedure is to start with bank balance
as per pass book and to end up with bank balance as per cash book.
 Lesson 5  Bank Reconciliation Statement 95

Steps for preparing a bank reconciliation statement:

(i) The cash book should be completed and the balance as per bank column on a particular date should
be found out covering the period for which the statement has to be prepared.
(ii) The bank should be requested to complete and send to the firm the bank pass book upto the date
mentioned.
(iii) Check the entries of the debit and credit sides of the bank columns of the cash book with
corresponding entries on the credit and debit sides of the pass book relating to the same period.
(iv) The items not tallying should be classified into common groups according to their characteristics.
(v) The balance as shown by any one book (i.e. the cash book or the bank pass book) should be taken
as the base. This is, as a matter of fact, the starting point for determining the balance as shown by
the other book after making suitable adjustments taking into account the causes of difference.
(vi) The effect of the particular cause of difference on the balance shown by the other book should be noted.
(vii) In case, the cause has resulted in an increase in the balance shown by the other book, the amount of
such increase should be added to the balance as per the former book which has been taken as the base.
(viii) In case, the cause has resulted in a decrease in balance shown by the other book, the amount of such
decrease should be deducted from the balance as per the former book which has been taken as the base.

SPECIMEN OF BANK RECONCILIATION STATEMENT

(From Balance as per Cash Book)
Bank Reconciliation Statement as on....
Particulars ` `
Balance as per Cash Book XXX
Add :
Cheques issued but not yet presented for payment XXX
Interest allowed by the bank XXX
Direct payment by customers into bank XXX
Interest on investment received by the bank XXX
Dividend on shares collected by the bank XXX
Rebate on bills retired under rebate through the bank but full amount entered XXX
in the cash book
Any wrong entry on credit side of the pass book XXX XXX
XXX
Less :
Cheques deposited with the bank but not yet collected XXX
Bank charges XXX
Insurance premium paid by the bank XXX
Interest on overdraft charged by the bank XXX
Dishonoured cheques / bills XXX
Drawings made but not entered in the cash book XXX
Cheques received entered in the cash book but not yet deposited XXX
Any wrong entry on debit side of the pass book XXX (XXX)
Balance as per Pass Book XXX
96 FP-FA&A
Note: If the reconciliation statement has been started with balance, as per the pass book, to arrive at balance
as per cash book the entries made above should be reversed i.e. all added items should be deducted and
deducted items should be added.

SUMMARY
PREPARATION OF BANK RECONCILIATION STATEMENT

Transactions Starting with the Bank Balance Starting with the Bank
as per Pass Book Balance as per Cash Book

Cheques issued but not Deduct : The amount of Add : The amount of
presented unpresented cheques. unpresented cheques.

Cheques deposited but not yet Add : The amount of cheques Deduct : The amount of
collected deposited cheques deposited

Cheques received and Add : The amount of cheques. Deduct : The amount of
entered in the bank column of cheques.
the cash book but not
deposited

Dishonour of cheques Add : The amount of Deduct : The amount of

deposited with banks earlier dishonoured cheques dishonoured cheques

Collection of interest and Deduct : The amount of these Add : The amount of these
dividends and interest allowed items items.
by the banker not yet recorded
in the cash book.

Bank charges Add : The amount of bank Deduct : The amount of bank
charges charges.

Balance Bank Balance as per Cash Book Bank Balance as per Pass
Book

PREPARATION OF BANK RECONCILIATION STATEMENT WHEN OVERDRAFT BALANCES

ARE GIVEN
In case the books show an adverse balance i.e. an overdraft, the procedure is just the reverse of that which
has been discussed in the case of a favorable balance. Overdraft means overdrawing of a bank account. The
customer is allowed to draw from his account over and above his balance subject to a limit agreed upon. For
overdraft facility, the banker will charge interest. In the case of overdraft, the bank pass book will show a debit
balance in the account of the customer and similarly there will be a credit balance in the bank column of the cash
book.
 Lesson 5  Bank Reconciliation Statement 97
SPECIMEN OF BANK RECONCILIATION STATEMENT

(From overdraft balances)

Bank Reconciliation Statement as on....

Particulars ` `
Overdraft as per Cash Book XXX
Add :
Cheques deposited into bank but not yet collected XXX
Bank charges XXX
Insurance premium paid by the bank XXX
Interest on overdraft charged by the bank XXX
Dishonoured cheques / bills XXX
Drawings made but not entered in cash book XXX
Cheques received and entered in the cash book but not deposited XXX
Any wrong entry on debit side of the pass book XXX XXX
Less :
Cheques issued but not yet presented for payment XXX
Interest allowed by the bank XXX
Direct payment by customers into bank XXX
Interest on investment received by the bank XXX
Dividend on shares collected by the bank XXX
Rebate on bills retired under rebate through the bank but full amount entered XXX
in the cash book
Any wrong entry on credit side of the pass book XXX (XXX)
Overdraft as per Pass Book XXX

Note: If the reconciliation statement has been started with overdraft as per the pass book to arrive at overdraft
as per the cash book the entries made above should be reversed i.e. all added items should be deducted and
all deducted items should be added.

SUMMARY
PREPARATION OF BANK RECONCILIATION STATEMENT
Transactions Starting with the Overdraft as Starting with the Overdraft
per Cash Book as per Pass Book

Cheques issued but not Deduct: The amount of Add: The amount of
presented unpresented cheques. unpresented cheques.

Cheques deposited but not yet Add: The amount of cheques Deduct: The amount of
collected deposited cheques deposited

Cheques received entered in Add: The amount of cheques. Deduct: The amount of
the bank column of the cash cheques.
book but not deposited
98 FP-FA&A

Dishonour of cheques Add: The amount of dishonoured Deduct: The amount of

deposited earlier cheques dishonoured cheques
Collection of interest and Deduct: The amount of these Add: The amount of these
dividends and interest by items items.
banks
Bank charges Add: The amount of bank Deduct: The amount of bank
charges charges.

Balance/ Overdraft Bank Overdraft as per Cash Bank Overdraft as per Pass
Book Book

Alternative Method is to keep two columns ‘Plus’ and ‘Minus’. All additions are to be shown in ‘plus’ column
while all deductions in the ‘minus’ column. Balance is to be shown in ‘plus’ column while overdraft is shown in
‘minus’ column.

PREPARATION OF BANK RECONCILIATION STATEMENT WHEN EXTRACTS OF CASH

BOOK AND PASS BOOK ARE GIVEN
In some instances, students are given extracts from the cash book and the pass book and are required to find
out causes of differences and prepare a bank reconciliation statement. In solving such a problem, the
following points should be noted:
(i) Heading of the pass book, and
(ii) Period for which cash book and pass book are given.
Heading of the pass book can be given in two ways:
(i) Party in account with bank: It means pass book is a copy of party’s account in the books of bank.
Generally, pass book is written in this form. The student should compare debit side of the cash book
with credit side/column of the pass book and also compare credit side of the cash book with debit side
of the pass book.
(ii) Bank in account with party: It means pass book is the copy of bank’s account (so far as it relates to the
party) in the books of bank. In this form the student should compare debit side of the cash book with
the debit side/ column of the pass book and credit side with credit side/column.
Practically in such situations, upto date bank statement is obtained and the cash book is amended by
incorporating only those transactions in respect of which entries have been made in the pass book. The errors
in the cash book are also rectified by suitable entries and thus the upto date bank balance as per cash book is
obtained. This balance appears in the balance sheet.
For examination purpose, a reconciliation statement may be prepared after amending the cash book
especially if it is mentioned or when the firm prepares reconciliation statement on the date of closing the
books of account.

ILLUSTRATIONS
Illustration 1:
On 31st March, 2011 the pass book of Mitra showed a credit balance of ` 2,16,000. A comparison of pass
book and cash book revealed the following:
`
(i) Cheques deposited but not cleared by 31st March 1,08,150
(ii) Cheques issued by Mitra but not presented for payment before 1st April, 2011 26,000
(iii) Insurance premium paid by bank on behalf of Mitra but not yet recorded in cash book 52,075
(iv) Commission charged by bank not yet recorded in cash book 750
(v) Interest on bonds collected by bank on behalf of Mitra not yet recorded in cash book 25,000
 Lesson 5  Bank Reconciliation Statement 99
Bank balance as per cash book as on 31st March, 2011 is ` 3,25,975. Prepare a Bank Reconciliation
Statement as on 31st March, 2011.
Solution:
Bank Reconciliation Statement of Mitra
as on 31st March, 2011
Particulars ` `
Balance as per Pass Book 2,16,000
Add :
Cheques deposited into bank but not yet collected 1,08,150
Commission charged 52,075
Insurance premium paid by the bank 750 1,60,975
3,76,975
Less:
Cheques issued but not yet presented for payment 26,000
Interest on bonds received by the bank 25,000 _51,000
Balance as per Cash Book 3,25,975
Alternatively:
Bank Reconciliation Statement of Mitra
as on 31st March, 2011
Particulars ` `
Balance as per Cash Book 3,25,975
Add :
Cheques issued but not yet presented for payment 26,000
Interest on bonds received by the bank 25,000 51,000
3,76,975
Less:
Cheques deposited into bank but not yet collected 1,08,150
Commission charged 52,075
Insurance premium paid by the bank ____750 1,60,975
Balance as per Pass Book 2,16,000
Illustration 2:

The cash book of Shri Gupta showed an overdraft of ` 30,000 on 31.3.2011. The scrutiny of the entries in the
cash book and the pass book revealed that:
(a) On 22nd March, cheques totaling ` 6,000 were sent to bankers for collection, out of these, a cheque
for ` 1,000 was wrongly recorded on the credit side of the cash book and cheques amounting to ` 300
could not be collected by bank within the accounting year.
(b) A cheque for ` 4,000 was issued to a supplier on 28th March, 2011. The cheque was presented to
bank on 4th April, 2011.
(c) There were debits in the pass book for interest ` 2,000 on overdraft and bank charges ` 600 not
recorded in the cash book.
100 FP-FA&A
(d) The credit side of the bank column of the cash book was undercast by ` 100.
(e) A cheque for ` 1,000 was issued to a creditor on 27th March, but the same was not recorded in the
cash book. The cheque was, however, duly en-cashed before 31st March.
(f) As per standing instructions, the banker collected dividend of ` 500 on behalf of Gupta and credited
the same to his account within 31st March, 2011. The fact was, however, intimated to Gupta on 3rd
April, 2011.
You are required to prepare a bank reconciliation statement as on 31st March, 2011.
Solution:

Shri Gupta
Bank Reconciliation Statement as on 31.3.2011
Particulars ` `
Bank Overdraft as per Cash Book 30,000
Add :
Cheques deposited into bank but not yet collected 300
Bank charges not yet recorded in cash book 600
Interest on overdraft charged by the bank 2,000
Credit side of the bank column of the cash book undercast 100
Cheques issued to creditor not recorded in the cash book but duly
encashed by 31st March 1,000 4,000
34,000
Less:
Cheque wrongly recorded on the credit side of the cash book (` 1,000 x 2) 2,000
Cheques issued but not yet presented for payment 4,000
Dividend collected by the bank but not recorded in the cash book __500 _6,500
Overdraft as per Pass Book 27,500
Illustration 3:

From the following information, prepare Bank Reconciliation Statement as on 31st March, 2011:
Cash Book of Mr. S. Ray
Dr. (Bank Columns only) Cr.
Date Particulars Amount Date Particulars Amount
` `
2011 2011
Mar. 1 ToBalance b/fd 7,000 Mar. 5 By Drawings 5,000
” 5 ”Manohar Lal 4,000 ” 8 ” Interest 150
” 10 ”Deepak Kumar 10,000 ” 10 ” Cheque Book 100
” 17 ”Sher Singh 13,000 ” 15 ” Salaries 3,500
” 25 ”Mohan Lal 4,000 ” 17 ” Ajit Singh 4,000
” 31 ”Harish Kumar 1,900 ” 21 ” Abdul & Co. 5,000
” 25 ” Karim & Sons 7,000
” 30 ” Harish & Co. 1,000
______ ” 31 ” Balance c/fd 14,150
39,900 39,900
 Lesson 5  Bank Reconciliation Statement 101
Bank Pass Book
(Bank in Account with Mr. S. Ray)
Dr. Cr.
Date Particulars Amount Date Particulars Amount
` `
2011 2011
Mar. 1 To Balance b/fd 7,000 Mar. 5 By Drawings 5,000
” 8 ” Manohar Lal 4,000 ” 8 ” Interest 150
” 15 ” Deepak Kumar 10,000 ” 10 ” Cheque Book 100
” 24 ” Sher Singh 13,000 ” 15 ” Salaries 3,500
” 28 ” Interest on ” 22 ” Ajit Singh 4,000
Investment 1,200 ” 29 ” Abdul & Co. 5,000
” 30 ” Rent 300 ” 31 ” Bank charges 32
” 31 ” Bhura Mal 800 ” 31 ” Electricity charges 78
______ ” 31 ” Balance c/fd 18,440
36,300 36,300

Solution:

Bank Reconciliation Statement

as at 31st March, 2011
Particulars ` `
Balance as per Cash Book 14,150
Add :
Cheques issued but not presented for payment 8,000
Interest on investment collected by bank 1,200
Rent collected by bank 300
Direct deposit by the customer 800 10,300
24,450
Less: Cheques deposited but not yet collected 5,900
Bank charges 32
Electricity charges 78 6,010
Balance as per pass book 18,440

Illustration 4:

On 30th April, 2011 the cash book of Sircar showed a bank overdraft of ` 1,970. A comparison of entries in
the pass book with those in the cash book revealed the following:
– Cheques deposited with the bank but not yet credited in the pass book ` 8,505.
– Cheques issued by Sircar but not yet presented by payees to bank for payment ` 12,500.
– Interest on fixed deposit credited by bank under standing instructions but not yet recorded in cash
book ` 650.
102 FP-FA&A
Prepare bank reconciliation statement as on 30th April, 2011 to ascertain the balance as per pass book.
Solution:

Mr. Sircar
Bank Reconciliation Statement as at 30th April, 2011
Particulars ` `
Overdraft as per cash book 1,970
Add :
Cheques deposited with the bank but not yet credited in pass book 8,505
10,475
Less :
Cheques issued but not yet presented to bank for payment 12,500
Interest on fixed deposit credited by bank under standing instructions ___650 13,150
Balance as per pass book 2,675

Illustration 5:

On 30th April, 2011 pass book of Ghosh showed a debit balance of ` 32,675. You are required to prepare
bank reconciliation statement taking into consideration the following information:

`
Cheques issued but not yet presented for payment 18,513
Total cheques deposited with bank for collection 1,38,000
But so far credited in the pass book 1,12,000
Interest collected by the bank but not recorded in cash book by Ghosh 1,200
Bank charges not yet entered in cash book 150

Solution:

Mr. Ghosh
Bank Reconciliation Statement as at April 30, 2011
Particulars ` `
Overdraft as per pass book 32,675
Add :
Cheques issued but not yet presented for payment 18,513
Interest collected by bank but not yet recorded in cash book by Ghosh 1,200 19,713
52,388
Less :
Cheques deposited with bank not yet credited in pass book 26,000
(`1,38,000 – `1,12,000)
Bank charges not yet entered in cash book 150 26,150
Overdraft as per cash book 26,238
 Lesson 5  Bank Reconciliation Statement 103
The bank reconciliation statement can also be prepared by having two amount columns, one for the amounts
that increase the positive balance (or reduce the overdraft) and one for those amounts that reduce positive
balance (or increase the overdraft). The first may be headed “+” and the second “-”, the opening balance is
first entered in the appropriate column and finally the two columns are balanced. The illustration given above
is solved below in the manner just stated:
Mr. Ghosh
Bank Reconciliation Statement as at April 30, 2011
Particulars (+) (-)
` `
Overdraft as per pass book 32,675
Cheques issued but not yet presented for payment 18,513
Interest collected by bank but not yet recorded in cash book by Ghosh 1,200
Cheques deposited with bank not yet credited in pass book 26,000
Bank charges not yet entered in cash book 150
Overdraft Balance as per cash book 26,238
52,338 52,338

Illustration 6:
From the following information supplied by Shri Mehta, prepare his bank reconciliation statement as on 31st
March, 2011 after amending the cash book on that date:

`
1. Bank overdraft as per bank statement 1,65,000

2. Cheques issued but not yet presented for payment 87,500

3. Cheques deposited with the bank but not yet collected 1,05,000

4. Cheque recorded in the bank column of the cash book but not sent to the
bank for collection 20,000

5. Payments received from customers direct by the bank 35,000

6. Bank charges debited in the statement 200

7. A bill for ` 30,000 (discounted with the bank in February at ` 29,780) dishonored
on 31st March and noting charges paid by the bank 100

8. Premium on life policy of Mehta paid by the bank on standing advice 1,800

9. Overdraft balance (Credit) on 25.3.2011, ` 80,000 carried over as debit balance on

the next day.
104 FP-FA&A
Solution:

Cash Book
Dr. (Bank Column only) Cr.
Particular ` Particular `
31.3.2011 31.3.2011 `
To Balance b/fd 29,600 By Bank charges 200
(balancing figure) ” Customer 30,100
” Customer 35,000 (discounted bill
(amount directly dishonoured and noting
collected by Bank) charges paid by bank)
” Balance c/d 1,27,500 ” Drawings 1,800
(life insurance premium
paid by bank)
” Error 1,60,000
(overdraft balance carried
_______ over as debit balance) _______
1,92,100 1,92,100
1.4.2011
By Balance b/fd 1,27,500
Notes:
(a) Discounted value of the bill is immaterial here, because on dishonor, the bank has debited the pass
book with ` 30,100.
(b) Overdraft credit balance means overdraft as per Cash Book.
Bank Reconciliation Statement of Shri Mehta
as on 31st March, 2011
Particulars ` `
Overdraft as per bank statement 1,65,000
Add:
Cheques issued but not presented for payment 87,500
2,52,500
Less:
Cheques deposited with the bank but not collected 1,05,000
Cheques recorded in cash book but not sent to bank for collection 20,000 1,25,000
Overdraft as per cash book 1,27,500
 Lesson 5  Bank Reconciliation Statement 105
Illustration 7:
On 31st March, 2011, the cash book of Ajay Ghosh showed a bank overdraft of ` 3,458. On examination of the
cash book and bank statement, the following discrepancies were noted:
(i) Cheques issued for `1,200 were entered in the cash book but were not presented at the bank till first
week of April, 2011.
(ii) Cheques amounting to ` 1,000 were entered in the cash book on 30th March, 2011 but were banked
on 2nd April, 2011.
(iii) Cheques amounting to ` 500 were deposited in the bank but were not collected till March 31st, 2011.
(iv) A cheque for ` 300 received from Mr. Dass Gupta and deposited in the bank was dishonored but
advice of non-payment was not received from the bank upto 31st March.
(v) ` 3,000 being the proceeds of a bill collected on 20th March did not appear in the cash book.
(vi) ` 300 being the proceeds of a bill collected on 20th March was omitted to be credited in the pass book.
(vii) The pass book showed an amount of ` 340, being rent which his tenant Madan Gopal had directly
deposited on the bank on 31st March, 2011.
(viii) A bill payable of ` 600 was duly paid off on 31st March according to the instructions of Ajay Ghosh but
this was not entered in cash book.
(ix) Bank charges of ` 30 and interest an overdraft ` 170 appeared in the pass book but not in the cash
book.
Prepare a bank reconciliation statement and find out the balance as per pass book.
Solution:
Ajay Ghosh
Bank Reconciliation Statement as on 31st March, 2011

Particulars ` `
Overdraft as per cash book 3,458
Add : Items increasing overdraft in pass book:
Cheques entered in cash book but not banked 1,000
Cheques deposited but not collected 500
Cheques deposited but dishonoured 300
Bill collected but omitted to be entered in pass book 300
Pay off of bills payable not entered in cash book 600
Bank charges 30
Interest on overdraft 170 2,900
6,358
Less : Items reducing overdraft in pass book:
Cheques issued, not presented for payment 1,200
Bill collected, not entered in cash book 3,000
Direct deposit of rent into bank 340 4,540
Overdraft as per pass book 1,818
106 FP-FA&A
Illustration 8;
On 31st March 2011, the cash book of a trader showed a bank overdraft of ` 15,280. On a comparison of the
cash book with the bank pass book, the trader ascertained the following differences.
(` )
Cheques deposited with bank, but not credited by the bank 20,000
Interest on securities collected by the bank, but not yet
recorded in the cash book 2,560
Dividend collected by the bank, but not yet recorded in the cash book 2,000
Cheques issued, but not yet presented to the bank for payment 74,800
Bank charges not yet recorded in the cash book 680
Solution:
Bank Reconciliation Statement as on 31st March 2011

Particulars Plus items Minus items

(`) (`)

Overdraft as per cash book 15,280

Cheques deposited with the bank but not yet
credited by bank 20,000
Interest on securities collected by the bank,
but not yet recorded in the cash bank 2,560
Dividend collected by the bank, but not yet
recorded in the cash book 2,000
Cheques issued, but not yet presented to the
bank for payment 74,800
Bank charges not yet recorded in the cash book ______ 680
79,360 35,960

Balance as per pass book = ` 79,360 – ` 35,960 = ` 43,400.

Dr. Cash Book (Bank Columns only) Cr.

Particulars ` Particulars `

To Interest on securities 2,560 By Balance b/d 15,280

To Dividends received 2,000 By Bank charges 680
To Balance c/d 11,400 _____
15,960 15,960
By Balance b/d 11,400
 Lesson 5  Bank Reconciliation Statement 107
Illustration 9:
The following is a summary of the Cash Book of Shri Mohan Das, for the month of June 2011.
` `
Receipts 14,690 Balance b/d 7,610
Balance c/d 5,540 Payments 12,620
20,230 20,230
All receipts are banked and payments are made by cheque.
On investigation it is found that:
– Bank charges of ` 1,360 entered on the bank statement had not been entered in the cash book.
– Cheques drawn amounting to ` 2,670 had not been presented to the bank for payment.
– Cheques received totaling ` 17,620 had been entered in the cash book and paid into the bank, but had
not been credited by the bank until July, 2011.
– A cheques for ` 1,220 had been entered as a receipt in the cash book instead of as a payment.
– A cheque for ` 1,250 had been debited by the bank in error.
– A cheque received for ` 800 had been dishonored. No adjustments had been made in the cash book.
– All dividends receivable are credited directly to the bank account. During June, amount totaling `
2,620 were credited by the bank and no entries were made in the cash book.
– A cheque drawn for ` 600 in favour of a creditor had been incorrectly entered in the cash book as `
6,000.
– The balance brought forward should have been ` 7,110
– The bank statement as on 30th June, 2011, showed an overdraft ` 17,820.
You are required to:
– Show the adjustments required in the cash book; and
– Prepare a bank reconciliation statement as on 30th June, 2011.
Solution:
Shri Mohan Das
Cash Book
Dr. (Bank column only) Cr.

Particulars ` Particulars `
30.6.2011 30.6.2011
To Dividend 2,620 By Balance b/d 5,540
To Creditor - cheque drawn By Bank charges 1,360
for ` 600 wrongly By Error - cheque issued
entered as ` 6,000 5,400 wrongly entered as
To Error - wrong carry received ` 1,220 2,440
forward of balance on By Customer - cheque
1st June, 2011 500 returned 800
To Balance c/d 1,620 _____
10,140 10,140
108 FP-FA&A
Bank Reconciliation Statement
as on 30th June, 2011

Particulars ` `
Bank balance as per cash book (overdraft) 1,620
Add: Cheques deposited but not credited by the
bank until after 30th June, 2011 17,620
Cheque debited by the bank in error 1,250 18,870
20,490
Less: Cheque issued but not presented for payment 2,670
Bank balance as per bank statement (overdraft) 17,820

LESSON ROUND UP

– Bank’s main business is to accept deposits and to lend money.

 – Money can be deposited with a bank in three types of accounts: Current Account, Savings Account
and Fixed Deposit Account
– Pass book is a copy of the client’s account in the bank’s ledger.
– The balance as per bank ledger indicated in the bank pass book is called the bank balance as per
pass book.
– Bank Reconciliation Statement is a statement prepared as on a particular date to reconcile the bank
balance as per cash book with balance as per pass book by showing all causes of difference between
the two.
– Overdraft means that the money withdrawn from bank account is in excess of the money deposited in
the bank.
– The following are the usual causes of difference between the balances as shown by the cash book
and pass book
– Cheques issued but not presented for payment
– Cheques deposited into the bank but not yet collected and credited by bank
– Bank charges not entered in the cash book
– Interest credited or debited by the bank not entered into the cash book
– Amount collected by the bank on behalf of customers
– Amount paid by the bank on standing instructions of the customers
– Dishonor of cheque(s)/bill(s)
– Cheques received and entered in the cash book but omitted to be deposited in to the bank
– Other Errors either in cash book or in pass book

GLOSSARY

Current Account Account in which money can be deposited as often as desired and can be
withdrawn without notice as often as necessary.
Savings Bank Account in which deposits can be made as often as required but there are
Account restrictions on the number as well as amount of withdrawals that can be made.
Fixed Deposit Account in which money is deposited only and cannot be withdrawn before the
expiry of that period for which it is made.
Recurring Deposits Account in which money is deposited monthly & withdrawn after the expiry of fixed
Account tenure.
 Lesson 5  Bank Reconciliation Statement 109

SELF-TEST QUESTIONS

Theory Questions
1. What is a bank reconciliation statement?
2. What is the significance of preparing a bank reconciliation statement?
3. What are the types of personal accounts in bank?
4. Describe the reasons why bank balance as per cash book may not agree with the bank balance as per
pass book.
5. Briefly mention the steps of reconciliation.
Practical Questions
1. On 31st March, 2011 the cash book of Gupta showed a debit bank balance of ` 4,800. Prepare a bank
reconciliation statement as at that date taking into account the following additional information:
 – Cheques deposited but not yet credited by bank ` 3,610.
– Cheques issued but not yet presented by payees for payment in the bank ` 2,050.
– Bank charges appearing in pass book but not yet recorded in cash book ` 40.
– Collections made by the bank and appearing in pass book but not yet recorded in cash book ` 1,000.
[Balance as per Pass Book ` 4,200].
2. On 31st March, 2011 the cash book of a trader shows a bank overdraft of ` 1,800. A comparison of the
cash book with the pass book reveals the following facts:
– Cheques issued but not presented for payment upto 31st March, 2011 ` 8,500.
– Cheques deposited with the bank on 31st March, 2011 but credited by bank on 1st April, 2011 `
9,200.
– Bank charges debited by bank, ` 230 and dividends collected by bank on behalf of the trader `
5,000 have not been recorded in the cash book.
– A cheque of ` 1,400 received from X and deposited with the bank on 26th March, 2011 was
recorded as that of ` 400 in the cash book.
You are required to prepare a bank reconciliation statement after passing the necessary entries in the
cash book to bring its balance up-to-date. The firm closes the books on 31st March. How much will be
shown in the balance sheet as bank balance/overdraft?
(Balance as per Pass Book ` 3,270; Amended cash book balance ` 3,970.)
3. Following are the transactions recorded in the bank column of the Cash Book of Madhur for the month
ending 31 December, 2011 :

Dr. Cash Book (Bank Columns) Cr.

Date Particulars ` Date Particulars `

2011 2011
Dec. Dec.
19 To Cash 54,000 1 By Balance b/fd 60,000
24 ” Buddha 36,000 8 ” Ram 3,000
26 ” Chaitanya 15,000 10 ” Lakshman 600
31 ” Balance c/fd 11,460 19 ” Bharat 360
24 ” Shatrughan 52,500
_______ _______
1,16,460 1,16,460
On the receipt of Bank Statement on 31st December, 2011, Madhur collected the following
information:
110 FP-FA&A
– Credit in pass book not recorded in the cash book ` 300
– Interest on Government bonds collected by the bank but not entered in the cash book `
1,620.
– Cheques for ` 51,000 deposited but the bank collected only ` 36,000.
– Dividend collected by the bank directly but not intimated the same to Madhuri ` 1,500.
– Interest on overdraft charged by the bank but not entered in the cash book ` 1,500.
– Cheques for ` 56,460 issued by the trader but presented to the bank for payment only `
3,960.
Amend the Cash Book and prepare a Bank Reconciliation Statement from the above information.
4. From the following information supplied by Vikas, prepare bank reconciliation statement as on March
31, 2011.
– Bank balance as per passbook `7,700.
– Cheques issued for `1,75,200 were entered in cash book as `1,72,500. Cheques for `65,000
were not presented for payment till March 31, 2010.
– A cheque of `8,500 paid into the bank had been debited by the bank in error.
– Cheques received and recorded but not sent to bank for collection `12,400.
– Payment received from a customer direct by the bank `27,300 but no entry was made in the
cash book.
– `44,900 was entered in the cash book as paid into bank on 31.3.2010 but was credited by the
bank on 2.4.2010.
– The bank column on payment side of the cash book had been undercast by `1, 000.
5. From the following particulars, ascertain the balance as would appear in the bank pass book of Mohan
on 31st March, 2011. The cash book showed a credit balance of `82,000 on that date
– Cheques issued, but not presented for payment by 31st March, 2011 `23,000
– Cheques paid into bank, but not cleared by 31st March, 2011 `30,000
– Interest charged on overdraft appeared in the pass book only ` 500
– Bank charges debited by bank, but not recorded in the cash book ` 200
– Interest on debentures collected by bank, but not recorded in the cash book `6,000
– Bank paid insurance premium as per standing instructions, not yet recorded in the cash book
`2,200
– A customer paid into the firm’s bank account directly ` 10,000
6. The following is a summary of the Cash Book of Shri Mohan Das, for the month of June 2011.
Dr. Cr.
Particulars ` Particulars `
Receipts 14,690 Balance b/fd 7,610
Balance c/fd 5,540 Payments 12,620
20,230 20,230
All receipts are banked and payments are made by cheques. On investigation, it is found that:
– Bank charges of ` 1,360 entered on the bank statement had not been entered in the cash
book.
– Cheques drawn amounting to ` 2,670 had not been presented to the bank for payment.
 Lesson 5  Bank Reconciliation Statement 111
– Cheques received totaling ` 17,620 had been entered in the cash book and paid into the
bank, but had not been credited by the bank until July, 2011.
– A cheques for ` 1,220 had been entered as a receipt in the cash book instead of as a
payment.
– A cheque for ` 1,250 had been debited by the bank in error.
– A cheque received for ` 800 had been dishonoured. No adjustments had been made in the
cash book.
– All dividends receivable are credited directly to the bank account. During June, amount
totaling ` 2,620 were credited by the bank and no entries were made in the cash book.
– A cheque drawn for ` 600 in favour of a creditor had been incorrectly entered in the cash
book as ` 6,000.
– The opening balance brought forward in the cash book should have been ` 7,110
– The bank statement as on 30th June, 2011, showed an overdraft ` 17,820.
You are required to: Show the adjustments required in the cash book; and Prepare a bank reconciliation
statement as on 30th June, 2011.
112 FP-FA&A