Bank Reconciliation Statement
Purpose and causes
A bank reconciliation statement explains why the cash book bank balance and the pass book balance differ on a given date. Common causes are timing differences: cheques deposited but not yet credited, cheques issued but not yet presented, bank charges and interest not entered in the cash book, direct deposits by customers, standing instructions, and errors by the trader or bank. Start from either the cash book balance or the pass book balance and adjust items until the other balance is reached.
Worked example
Cash book shows a debit balance of ₹12,000. A cheque of ₹3,000 deposited is not yet credited; a cheque of ₹1,500 issued is not yet presented; bank charges are ₹100; a customer directly deposited ₹2,000. To find the pass book balance: start ₹12,000; add direct deposit ₹2,000; subtract bank charges ₹100; subtract cheque deposited but not credited ₹3,000; add cheque issued but not presented ₹1,500. Pass book balance = ₹12,400. Reasoning: unpresented cheques make the pass book higher; uncredited deposits and charges make it lower.
Traps that cost marks
Do not simply add every item. Decide whether you are moving from cash book to pass book or the reverse. An overdraft reverses the treatment. Bank charges reduce the pass book and are not yet in the cash book. A cheque deposited but not credited reduces the pass book relative to the cash book. Do not ignore errors; adjust them separately. Always state the balance type: debit or credit, favourable or overdraft.