MEANING OF KEY TERMS USED IN THE CHAPTER

1. Bank Reconciliation Bank Reconciliation Statement is a statement prepared on a

Statement particular day to reconcile the bank balance as per Cash Book with the balance
as per Bank Pass Book or Bank Statement showing entries causing difference
between the two balances.
2. Bank Pass Book or Bank Pass Book or Bank Statement is a copy of account of the
Bank Statement account holder in the books of the bank.
3. Favourable or Debit It means that the amount lying deposited with the bank. It is the
Balance as per difference between debit side and credit side of the bank column of
Cash Book the Cash Book, debit side being bigger.
4. Favourable or Credit It means that the amount lying deposited with the bank. It is the
Balance as per difference between credit side and debit side of the Bank Pass
Pass Book or Book or Bank Statement, credit side being bigger.
Bank Statement
5. Unfavourable or It means amount overdrawn, i.e., amount drawn in excess of deposits. It is
Credit Balance as the difference between credit side and debit side of the bank column
per Cash Book of the Cash Book, credit side being bigger.
6. Unfavourable or Debit It means amount overdrawn, i.e., amount drawn in excess of deposits. It is
Balance as per Bank the difference between debit side and credit side of the Bank Pass
Pass Book or Bank Book or Bank Statement, debit side being bigger.
Statement
7. Overdraft A situation when the account holder withdraws more money from the bank
than the deposits in his/her account.
8. Corrected or As a result of bank reconciliation, entries may have to be passed in
Amended Cash Book the Cash Book. The Cash Book after recording such entries is known as
Corrected or Amended Cash Book.

CHAPTER SUMMARY

• Bank Reconciliation Statement is a statement prepared on a particular date reconciling

the bank balance in the Cash Book with the balance as per Bank Statement or Pass Book
showing the reasons or causes of difference between the two balances.
• Reasons or Causes of Difference can be as follows:
(i) Cheques issued but not presented for payment;
(ii) Cheques deposited but not credited;
(iii) Interest allowed by the bank not recorded in Cash Book;
(iv) Interest and expenses charged by the bank not recorded in Cash Book;
(v) Interest and dividend collected by the bank not recorded in Cash Book;
(vi) Direct payments by the bank not recorded in Cash Book;
(vii) Direct payments into the bank by a customer not recorded in Cash Book;
(viii) Dishonour of bills discounted with the bank not recorded in Cash Book;
(ix) Bills collected by the bank on behalf of a customer not recorded in Cash Book; and
(x) Errors committed.
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• Debit Balance as per Cash Book or Credit Balance as per Pass Book means favourable
balance.
• Credit Balance as per Cash Book or Debit Balance as per Pass Book means unfavourable
balance.
• Amended Cash Book is prepared to record unrecorded entries that have been debited and
credited by the bank and passing rectifying entries for errors in the Cash Book.

BANK RECONCILIATION STATEMENT—AT A GLANCE

Particulars Cash Book—Starting Balance Pass Book—Starting Balance
Favourable Overdraft Favourable Overdraft
Balance Balance
(Dr. Balance) (Cr. Balance) (Cr. Balance) (Dr. Balance)
1. Cheques issued but not yet presented for payment. + – – +
2. Cheques deposited into the Bank but not yet collected. – + + –
3. Interest allowed by the Bank but not entered in the Cash Book. + – – +
4. Bank charges not entered in the Cash Book. – + + –
5. Direct deposit into the bank by a customer. + – – +
6. Direct payments from the bank not entered in the
Cash Book. – + + –
7. Direct collections made by the bank not entered in the
Cash Book. + – – +
8. Cheque issued and payment received by the creditor
but not entered in the Cash Book. – + + –
9. Cheque paid into the bank but omitted to be entered
in the Cash Book. + – – +
10. Dishonour of a cheque and bill discounted with the bank. – + + –
11. Cheque entered in the Cash Book but not sent to the Bank. – + + –
Difference between Bank Reconciliation Statement and Bank Statement
Basis Bank Reconciliation Statement Bank Statement
1. Who prepares It is prepared by the account holder. It is prepared by the bank.
2. Objective It is prepared to reconcile the difference It is prepared to inform the customer,
between Cash Book Balance and Pass i.e., account holder about all transactions
Book Balance. which have taken place in his account
during the period covered by the statement.
3. When it is prepared It is prepared on a particular date. It is prepared for a particular period.
4. Necessity It is not compulsory. It is compulsory for the bank to prepare it.
5. Final Result It may show the bank balance as per It shows the balance of Customer’s Account
Cash Book or Pass Book at the end as per bank ledger at the end of the
end of the period. period.