Bank Reconciliation Statement
A bank reconciliation statement explains why the bank column of the cash book and the passbook show different balances on the same date. The examiner tests the direction of each adjustment and the treatment of an overdraft.
Causes of difference
- Cheques deposited but not yet credited by the bank.
- Cheques issued but not yet presented for payment.
- Bank charges, commission, interest on overdraft and direct payments under standing instructions, recorded only by the bank.
- Interest or dividends collected directly by the bank.
- Dishonour of a cheque deposited earlier.
- Errors in either book.
Worked example
Balance as per cash book (debit) ₹20,000. Cheques issued but not presented ₹5,000; cheques deposited but not credited ₹3,000; bank charges ₹200; interest credited by bank ₹500. Passbook balance = 20,000 + 5,000 − 3,000 − 200 + 500 = ₹22,300. The cheques not yet presented and the interest make the passbook higher; deposits not credited and bank charges make it lower.
Rules to remember
Start from one balance and reach the other. If starting from the passbook, reverse every sign. An overdraft is a credit balance in the cash book and a debit balance in the passbook, so the same logic applies but the opening label changes.
Traps
- Adding cheques deposited but not credited.
- Ignoring bank charges because they are not in the cash book.
- Mixing up adjustment of the cash book with preparation of the BRS.
- Treating an overdraft as a normal positive balance.