UNIT V - BANK RECONCILIATION STATEMENT AND REPORTING

BANK RECONCILIATION STATEMENT

Business concern maintains the cash book for recording cash and bank
transactions. The Cash book serves the purpose of both the cash account and the bank
account. It shows the balance of both at the end of a period.
Bank also maintains an account for each customer in its book. All deposits by the
customer are recorded on the credit side of his/her account and all withdrawals are
recorded on the debit side of his/her account. A copy of this account is regularly sent to
the customer by the bank. This is called ‘Pass Book’ or Bank statement.
It is usual to tally the firm’s bank transactions as recorded by the bank with the
cash book. But sometimes the bank balances as shown by the cash book and that shown
by the pass book/bank statement do not match. If the balance shown by the pass book
is different from the balance shown by bank column of cash book, the business firm will
identify the causes for such difference. It becomes necessary to reconcile them.
To reconcile the balances of Cash Book and Pass Book a statement is prepared.
This statement is called the ‘Bank Reconciliation Statement.
NEED FOR PREPARING BANK RECONCILIATION STATEMENT:
It is neither compulsory to prepare Bank Reconciliation Statement nor a date is
fixed on which it is to be prepared. It is prepared from time to time to check that all
transactions relating to bank are properly recorded by the Businessman in the bank
column of the cash book and by the bank in its ledger account.
Thus, it is prepared to reconcile the bank balances shown by the cash book and by
the bank statement. It helps in detecting, if there is any error in recording the
transactions and ascertaining the correct bank balance on a particular date.
REASONS FOR DIFFERENCE:
When a businessman compares the Bank balance of its cash book with the balance
shown by the bank pass book, there is often a difference. As the time period of posting
the transactions in the bank column of cash book does not correspond with the time
period of posting in the bank pass book of the firm, the difference arises.
The reasons for difference in balance of the cash book and pass book are as
under:

(a)Cheques issued by the firm but not yet presented for payment: When
cheques are issued by the firm, these are immediately entered on the credit side
of the bank column of the cash book. Sometimes, receiving person may present
these cheques to the bank for payment on some later date. The bank will debit the
firm’s account when these cheques are presented for payment. There is a time
period between the issue of cheque and being presented in the bank for payment.
This may cause difference to the balance of cash book and pass book.
(b)Cheques deposited into bank but not yet collected: When cheques are
deposited into bank, the firm immediately enters it on the debit side of the bank

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 column of cash book. It increases the bank balance as per the cash book. But, the
bank credits the firm’s account after these cheques are actually realized. A few
days are taken in clearing of local cheques and in case of outstation cheques few
more days are taken. This may cause the difference between cash book and pass
book balance.
(c) Amount directly deposited in the bank account: Sometimes, the debtors or the
customers deposit the money directly into firm’s bank account, but the firm gets
the information only when it receives the bank statement. In this case, the bank
credits the firm’s account with the amount received but the same amount is not
recorded in the cash book. As a result the balance in the cash book will be less
than the balance shown in the Pass book.
(d)Bank Charges: The bank charge in the form of fees or commission is charged
from time to time for various services provided from the customers’ account
without the intimation to the firm. The firm records these charges after receiving
the bank intimation or statement. Example of such deductions is : Interest on
overdraft balance, credit cards’ fees, outstation cheques, collection charges, etc.
As a result, the balance of the cash book will be more than the balance of the pass
book.
(e)Interest and dividend received by the bank: Sometimes, the interest on
debentures or dividends on shares held by the account holder is directly deposited
by the company through Electronic Clearing System (ECS). But the firm does not
get the information till it receives the bank statement. As a consequence, the firm
enters it in its cash book on a date later than the date it is recorded by the bank.
As a result, the balance as per cash book and pass book will differ.

(f) Direct payments made by the bank on behalf of the customers: Sometimes,
bank makes certain payments on behalf of the customer as per standing
instructions. Telephone bills, rent, insurance premium, taxes, etc are some of the
expenses. These expenses are directly paid by the bank and debited to the firm’s
account immediately after their payment. But the firm will record the same on
receiving information from the bank in the form of Pass Book or bank statement.
As a result, the balance of the pass book is less than that of the balance shown in
the bank column of the cash book.
(g)Dishonour of Cheques/Bill discounted: If a cheque deposited by the firm or bill
receivable discounted with the bank is dishonoured, the same is debited to firm’s
account by the bank. But the firm records the same when it receives the
information from the bank. As a result, the balance as per cash book and that of
pass book will differ.
(h)Errors committed in recording transactions by the firm: There may be certain
errors from firm’s side, e.g., omission or wrong recording of transactions relating
to cheques deposited, cheques issued and wrong balancing etc. In this case, there
would be a difference between the balances as per Cash Book and as per Pass
Book.

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 (i) Errors committed in recording transactions by the Bank: Sometimes, bank
may also commit errors, e.g., omission or wrong recording of transactions relating
to cheques deposited etc. As a result, the balance of the bank pass book and cash
book will not agree.
PREPARATION OF BANK RECONCILIATION STATEMENT:
To reconcile the bank balance as shown in the pass book with the balance shown
by the cash book, Bank Reconciliation Statement is prepared. After identifying the
reasons of difference, the Bank Reconciliation statement is prepared without making
change in the cash book balance. We may have the following different situations with
regard to balances while preparing the Bank Reconciliation statement. These are:
1. Favorable balances
(a) Debit balance as per cash book is given and the balance as per pass book is to be
ascertained.
(b) Credit balance as per pass book is given and the balance as per cash book is to be
ascertained.
2. Unfavorable balance/overdraft balance
(a) Credit balance as per cash book (i.e. overdraft) is given and the balance as per pass
book is to be ascertained.
(b) Debit balance as per pass book (i.e. overdraft) is given and the balance as per cash
book is to be ascertained.
The following steps are taken to prepare the bank reconciliation statement:
(i) Favorable balances: When debit balance as per cash book or credit balance as per
pass book is given
(a) Take balance as a starting point say Balance as per Cash Book.
(b) Add all transactions that have resulted in increasing the balance of the pass book.
(c) Deduct all transactions that have resulted in decreasing the balance of pass book.
(d) Extract the net balance shown by the statement which should be the same as
shown in the pass book.

In case balance as per pass book is taken as starting point all transactions that
have resulted in increasing the balance of the Cash book will be added and all
transactions that have resulted in decreasing the balance of Cash book will be deducted.
Now extract the net balance shown by the statement which should be the same as per
the Cash book.

Illustration 1
From the following particulars of M/s Anand Industries, prepare bank reconciliation
statement as on December 31, 2020:
1. Bank balance as per cash book Rs.32, 500
2. Cheques deposited into bank but not credited up to December 31, 2011 Rs.8, 900.
3. Cheques issued but not presented for payment Rs. 12,500.
4. Bank credited Rs.5, 000 for receiving dividend through Electronic Clearing System.
5. Bank charges debited by Bank Rs.400.

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SOLUTION:
BANK RECONCILIATION STATEMENT OF M/S ANAND INDUSTRIES
AS ON 31ST DECEMBER 2020

PLUS MINUS
PARTICULARS
(AMOUNT IN RS) (AMOUNT IN RS)
1. Balance as per cash book
32,500

2. Cheques deposited but not credited by

the bank 8,900

3. Cheques issued but not presented for

payment 12,500

4. Dividend received through ECS

5,000

5. Bank charges debited by bank

400

Balance as per pass book 40,700

Total 50,000 50,000

Illustration 2
Take the figures given in illustration number 1. Prepare bank reconciliation statement
taking balance as per pass book i.e. Rs.40, 700 as the starting point.
BANK RECONCILIATION STATEMENT OF M/S ANAND INDUSTRIES
AS ON 31ST DECEMBER 2020

PLUS MINUS
PARTICULARS
(AMOUNT IN RS) (AMOUNT IN RS)
1. Balance as per pass book
40,700

2. Cheques deposited but not credited by

the bank 8,900

3. Cheques issued but not presented for

payment 12,500

4. Dividend received through ECS

5,000

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 5. Bank charges debited by bank
400

Balance as per cash book 32,500

Total 50,000 50,000
Illustration 3
From the following particulars of Royal Traders, prepare a bank reconciliation statement
on June 30, 2021:
1. Balance as per the cash book Rs.35, 750
2. Rs.250 charges for Credit card fee is debited by bank, which is not recorded in cash
book.
3. Cheques for Rs.7, 550 are deposited in the bank but not yet collected by the Bank.
4. There was also a debit in the pass book of Rs.3, 500 in respect of a discounted bill
dishonoured.
SOLUTION:
BANK RECONCILIATION STATEMENT OF M/S Royal Traders as on June 30, 2021

PLUS MINUS
PARTICULARS (AMOUNT IN (AMOUNT IN
RS) RS)
1. Balance as per Cash book
35,750

2. Cheques deposited but not credited by the

bank 7,550

3. Credit card fee charges debited by the bank

250

4. Discounted bill dishonoured recorded only in

pass book 3,500

Balance as per pass book 24,450

Total 35,750 35,750

Illustration 4
From the following particulars of Mr. Vikram, prepare bank reconciliation statement as
on March 31, 2019.
1. Bank balance as per cash book Rs. 50,000.
2. Cheques issued but not presented for payment Rs. 6,000.
3. The bank had directly collected dividend of Rs. 8,000 and credited to bank account
but was not entered in the cash book.
4. Bank charges of Rs. 400 were not entered in the cash book.
5. A cheque for Rs. 6,000 was deposited but not collected by the bank.

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Solution
Bank Reconciliation Statement of Mr. Vikram as on March 31, 2019

+ -
Particulars
Rs. Rs.
1 Balance as per cash book 50,000 -
2 Cheques issued but not presented for payment 6,000 -
3 Dividends collected by the bank 8,000 -
4 Cheque deposited but not credited by the bank - 6,000
5 Bank charges debited by the bank - 400
6 Balance as per passbook - 57,600
64,000 64,000

Illustration 5
From the following particulars of Sindhu & Co. prepare a bank reconciliation statement
as on August 31, 2021.
1. Balance as per the cash book Rs. 54,000.
2. Rs. 100 bank incidental charges debited to Sindhu & Co. account, which is not
recorded in cash book.
3. Cheques for Rs. 5,400 is deposited in the bank but not yet collected by the bank.
4. A cheque for Rs. 20,000 is issued by Sindhu & Co. not presented for payment.
Solution
Bank Reconciliation Statement of Sindhu & Co. as on August 31, 2021

+ -
Particulars
Rs. Rs.
1 Balance as per cash book 54,000 -
2 Cheques issued but not presented for payment 20,000 -
3 Cheque deposited but not credited by the bank - 5,400
4 Bank incidental charges debited by the bank - 100
5 Balance as per passbook - 68,500
74,000 74,000

Illustration 6
The bank passbook of M/s. Rahil & Co. showed a balance of Rs. 45,000 on May 31,
2020.
1. Cheques issued before May 31, 2020, amounting to Rs. 25,940 had not been
presented for encashment.
2. Two cheques of Rs. 3,900 and Rs. 2,350 were deposited into the bank on May 31 but
the bank gave credit for the same in June, 2020.

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3. There was also a debit in the passbook of Rs. 2,500 in respect of a cheque
dishonoured on 31.5.2020. Prepare a bank reconciliation statement as on May 31, 2020.
Solution
Bank Reconciliation Statement of Rahil & Co as on May 31, 2020

+ -
Particulars
Rs. Rs.
1 Balance as per passbook 45,000 -
Cheques deposited but not collected by the bank
2 6,250 -
(Rs. 3,900+ Rs. 2,350)
3 Cheque dishonoured recorded only in passbook 2,500 -
4 Cheques issued but not presented for payment - 25,940
5 Balance as per cash book - 27,810
53,750 53,750

UNFAVOURABLE BALANCE/OVERDRAFT BALANCE:

Sometimes a businessman withdraws excess amount from the bank account and the
closing bank balance of a month is a debit balance. This balance amount is called
‘overdraft balance’ as per Pass Book. This is shown in the cash book as a credit balance.
Credit balance as per cash book/Debit balance as per Pass Book.
Overdraft balance is to be shown in the minus column of statement as the starting point.
The other steps shall remain same. The following illustration helps to understand dealing
with the unfavourable balance as per cash book and pass book.
Illustration 1
On December 31, 2019, the cash book of the M/s. Malar Plastics shows the credit
balance Rs.6,500. Cheques amounting to Rs.3,500 deposited into bank but were not
collected by the bank. Firm issued cheques of Rs. 1,000 which were not presented for
payment. There was a debit in the pass book of Rs.200 for interest and Rs.400 for bank
charges. Prepare Bank Reconciliation Statement.
SOLUTION:
BANK RECONCILIATION STATEMENT OF M/S Malar Plastics
as on December 31, 2019

PLUS MINUS
PARTICULARS (AMOUNT IN (AMOUNT IN
RS) RS)
1. Overdraft as per cash book
6,500

2. Cheques issued but not presented for payment

1,000

3. Cheques deposited but not credited by the bank

3,500

4. Bank charges and interest charged

600

5. Overdraft balance as per bank pass book 9,600

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 Total 10,600 10,600

Illustration 2
Prepare Bank Reconciliation Statement of M/s Ambal Travels, from the following
information:
(a)Bank overdraft as per Cash Book on 31st July, 2021 Rs.45,000
(b)Cheques issued but not presented for payment Rs.17,500
(c)Cheques deposited but not yet collected by the bank Rs.9, 600
(d)Interest on investment collected by the bank Rs.2, 300
(e)Bank charges Rs.350 debited by the bank not yet entered in the cash book.
Solution:
BANK RECONCILIATION STATEMENT OF M/S Ambal Travels
as on July 2021

PLUS MINUS
PARTICULARS (AMOUNT (AMOUNT
IN RS) IN RS)
1. Overdraft as per cash book
- 45,000

2. Cheques issued but not presented for payment

17,500 -

3. Cheques deposited but not credited by the bank

- 9,600

4. Interest on investment collected by the bank

- 2,300

5. Bank charges
350 -

Overdraft balance as per bank pass book 39,050 -

Total 56,900 56,900

Illustration 4
On March 31, 2019, Rajesh had on overdraft of Rs. 8,000 as shown by his cash book.
Cheques amounting to Rs. 2,000 had been paid in by him but were not collected by the
bank. He issued cheques of Rs. 800 which were not presented to the bank for payment.
There was a debit in his passbook of Rs. 60 for interest and Rs. 100 for bank charges.
Prepare bank reconciliation statement.
Solution
Bank Reconciliation Statement of Rakesh
as on April 01, 2019

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 + -
Particulars
Rs. Rs.
1 Overdraft as per cash book - 8,000
2 Cheques deposited but not yet collected by the bank - 2,000
3 Interest charged by the Bank - 100
4 Bank charges - 60
5 Cheques issued but not presented for payment - 800
6 Balance as per bank passbook (overdraft) 9,360 -
10,160 10,160

Illustration 5
On March 31, 2021 the bank column of the cash book of Arthi Traders showed a credit
balance of Rs. 1,18,100 (Overdraft). On examining of the cash book and the bank
statement, it was found that:
1. Cheques received and recorded in the cash book but not sent to the bank of collection
Rs. 12,400.
2. Payment received from a customer directly by the bank Rs. 27,300 but no entry was
made in the cash book.
3. Cheques issued for Rs. 1,75,200 not presented for payment.
Interest of Rs. 8,800 charged by the bank was not entered in the cash book. Prepare
bank reconciliation statement.

Solution
Bank Reconciliation Statement of Arthi Traders
as on March 31, 2021

+ -
Particulars
Rs. Rs.
1 Overdraft as per cash book - 1,18,100
Cheques received and recorded in the cash book but
2 - 12,400
not sent to the bank for collection
Interest on bank overdraft debited by the bank but not
3 - 8,800
entered in the cash book
Payment received from the customer directly Credited
4 27,300 -
in the bank a/c but not entered in the cash book
5 Cheques issued but not presented for payment 1,75,200 -
6 Balance as per the passbook (favourable balance) - 63,200
2,02,500 2,02,500

Illustration 6
From the following particulars of Anandhi & Co. prepare a bank reconciliation statement
on December 31, 2019.
Particulars Rs.

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 Overdraft as per passbook 20,000
Interest on overdraft 2,000
Insurance Premium paid by the bank 200
Cheque issued but not presented for payment 6,500
Cheque deposited but not yet cleared 6,000
Wrongly debited by the bank 500
Solution
Bank Reconciliation Statement of Anandhi & Co
as on December 31, 2019

+ -
Particulars
Rs. Rs.
1 Overdraft as per passbook - 20,000
2 Interest on overdraft 2,000 -
3 Insurance premium paid by the bank 200 -
4 Cheque issued but not presented for payment - 6,500
5 Cheques deposited but not yet cleared 6,000 -
6 Wrongly debited by the bank 500 -
7 Balance as per the cash book (overdraft) 17,800 -
26,500 26,500

Illustration 7
From the following particulars, prepare a bank reconciliation statement as on March 31,
2021.
(a) Debit balance as per cash book is Rs. 10,000.
(b) A cheque for Rs. 1,000 deposited but not recorded in the cash book.
(c) A cash deposit of Rs. 200 was recorded in the cash book as if there is not bank,
column therein.
(d) A cheque issued for Rs. 250 was recorded as Rs. 205 in the cash column.
(e) The debit balance of Rs. 1,500 as on the previous day was brought forward as a
credit balance.
(f) The payment side of the cash book was under cast by Rs. 100.
(g) A cash discount allowed of Rs. 112 was recorded as Rs. 121 in the bank column.
(h) A cheque of Rs. 500 received from a debtor was recorded in the cash book but not
deposited in the bank for collection.
(i) One outgoing cheque of Rs. 300 was recorded twice in the cash book.
Solution
Bank Reconciliation statement
as on September 30, 2014

+ -
Particulars
Rs. Rs.
1 Debit balance as per cash book 10,000 -
2 Error in carrying forward 3,000 -
3 Cheque recorded twice in cash book 300 -
4 Cheque deposit not record in bank column 200 -

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 5 Cheque deposit but not recorded 1,000 -
6 Under casting of payment side - 100
7 Cheque issued but not entered - 250
8 A cash discount wrongly recorded in bank column - 121
9 Cheque recorded but not deposited - 500
10 Credit balance as per passbook - 13,529
14,500 14,500

Illustration 8
From the following particulars, prepare the bank reconciliation statement of Shri.
Kumaran as on March 31, 2020.
(a) Balance as per passbook is Rs. 10,000.
(b) Bank collected a cheque of Rs. 500 on behalf of Shri Kumaran but wrongly credited it
to Shri. Kumaran’s account.
(c) Bank recorded a cash book deposit of Rs. 1,589 as Rs. 1,598.
(d) Withdrawal column of the passbook under cast by Rs. 100.
(e) The credit balance of Rs. 1,500 as on the pass-book was recorded in the debit
balance.
(f) The payment of a cheque of Rs. 350 was recorded twice in the passbook.
(g) The pass-book showed a credit balance for a cheque of Rs. 1,000 deposited by Shri.
Kumaran.
Solution
Bank Reconciliation Statement
as on March 31, 2014

+ -
Particulars
Rs. Rs.
1 Credit balance as per passbook 10,000
2 Cheque wrongly credited to another customer account 500 -
3 Error in carrying forward 3,000 -
4 Cheque recorded twice 350 -
5 Excess credit for cash deposit - 9
6 Under casting of withdrawal column - 100
7 Wrong credit - 1,000
8 Debit balance as per cash book - 12,741
13,850 13,850

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