Accountancy NCERT Notes, Solutions and Extra Q & A (Class 11th & 12th)
11th										12th

Class 11th Chapters
1. Introduction To Accounting	2. Theory Base Of Accounting	3. Recording Of Transactions - I
4. Recording Of Transactions - II	5. Bank Reconciliation Statement	6. Trial Balance And Rectification Of Errors
7. Depreciation, Provisions And Reserves	8. Bill Of Exchange	9. Financial Statements - I
10. Financial Statements - II

Content On This Page
Notes
Need for Reconciliation	Timing Differences	Differences Caused by Errors
Preparation of Bank Reconciliation Statement	Illustrations and Solutions
NCERT Questions Solution
Test Your Understanding - I	Test Your Understanding - II	Test Your Understanding - III
Short Answers	Long Answers	Numerical Questions

Chapter 5 Bank Reconciliation Statement Concepts, Solutions and Extra Q & A

A Bank Reconciliation Statement (BRS) is a vital control tool prepared by a business to align the bank balance recorded in its own cash book with the balance shown on the bank's passbook or statement. The core purpose is to identify, explain, and account for any differences between these two sets of records. Such a reconciliation ensures the accuracy of the company's financial records and helps in detecting any unauthorized transactions or errors in a timely manner.

The discrepancies primarily arise from two sources: timing differences and errors. Timing differences are the most common cause, including cheques issued but not yet presented for payment, and cheques deposited but not yet cleared by the bank. Other examples are direct transactions by the bank, like deducting bank charges or crediting interest, which the company is yet to record. The second cause involves errors made either by the business in its cash book or by the bank in the passbook. The BRS systematically lists these reconciling items to prove that the two balances are in agreement after accounting for these differences.

Need for Reconciliation

In business accounting, it is a fundamental practice for organisations to meticulously maintain a record of all their transactions involving cash and bank. This is primarily done through a Cash Book, which is a special journal that also serves as a ledger. The bank column of the cash book specifically tracks all receipts and payments made through the bank account, essentially acting as the company's version of its bank account record.

Periodically, usually at the end of every month, it is crucial to verify the accuracy of the bank transactions recorded in the cash book. This verification is done by comparing the firm's records with the official records provided by the bank. To facilitate this, the accountant or cashier must first ensure that the cash book is completely up-to-date and then obtain a recent Bank Statement or a Bank Passbook from the bank.

A bank statement (or passbook) is the bank's copy of the customer's account. It is crucial to understand that it is prepared from the bank's perspective. For a bank, a customer's deposit is a liability (money the bank owes to the customer). Therefore:

All deposits made by the firm are shown in the CREDIT column of the passbook, as this increases the bank's liability.
All withdrawals made by the firm are shown in the DEBIT column of the passbook, as this decreases the bank's liability.

This is the exact opposite of how transactions are recorded in the firm's cash book. A positive balance in the passbook is a credit balance, while an overdraft is shown as a debit balance.

Ideally, the debit balance as per the cash book should equal the credit balance as per the passbook. However, due to various reasons, these balances rarely match on a specific date. This discrepancy necessitates the identification of the causes of the difference and the preparation of a statement to formally reconcile them.

What is a Bank Reconciliation Statement?

A Bank Reconciliation Statement (BRS) is a statement prepared periodically to reconcile the bank balance as shown in the firm's cash book with the balance as shown in the bank passbook. It is not an account but a working paper that explains the reasons for the difference between the two balances on a particular date.

The primary objectives of preparing a BRS are:

To identify and understand the reasons for the difference.
To check the accuracy of entries made in both the cash book and the passbook.
To bring to light any errors or omissions committed either by the firm's accountant or the bank staff.
To act as an important tool of internal control over cash, helping to prevent and detect fraud.
To determine the correct bank balance that should be reported in the financial statements.

To prepare a BRS, an accountant systematically compares the debit side of the cash book's bank column with the credit (deposits) column of the passbook, and the credit side of the cash book's bank column with the debit (withdrawals) column of the passbook. Any items that appear in one book but not the other are the "reconciling items".

Causes of Differences

The differences between the cash book and the bank passbook balances arise primarily from two broad categories of factors:

Timing Differences: These are the most common cause of disagreement. They occur when a transaction is recorded in one book (e.g., the cash book) but is recorded in the other book (the passbook) at a later date due to the time lag inherent in the banking process. These differences are temporary and typically resolve themselves in the next accounting period. For example, a cheque issued on March 30th might be recorded immediately by the firm but only presented to the bank for payment in April.
Errors: These are mistakes made in recording transactions. Unlike timing differences, errors are not self-correcting and require specific entries to be passed for rectification. Such errors can be committed either by the accounting staff of the business (e.g., omitting an entry, recording the wrong amount) or by the bank staff (e.g., crediting or debiting the wrong account).

Timing Differences

A time gap between the recording of a transaction by the firm and its recording by the bank is the most frequent cause for discrepancies between the cash book and passbook balances. These are not errors, but natural delays inherent in the banking system. The main timing differences are explained in detail below:

a) Cheques Issued but not yet Presented for Payment

This situation, also known as outstanding cheques, arises when a business issues a cheque to a creditor (supplier, employee, etc.), but the recipient has not yet deposited it or the cheque has not yet been paid by the business's bank.

Firm's Action: The moment a cheque is issued, the business records it on the credit (payment) side of the cash book. This immediately reduces the bank balance as per the cash book.
Bank's Action: The bank is unaware of the cheque until it is presented for payment. The bank only debits the firm's account when the cheque is actually paid to the recipient's bank.
Effect: Until the cheque is presented, the balance in the passbook will be higher than the balance in the cash book.

Example: A cheque for ₹5,000 issued on March 28 is recorded in the cash book on the same day. If the recipient presents it for payment on April 4, the BRS as on March 31 will show a difference of ₹5,000.

b) Cheques Paid into the Bank but not yet Collected

This occurs when a firm deposits cheques received from its customers into its bank account, but the bank has not yet collected the money from the customers' banks. This is also referred to as cheques in transit or uncredited cheques.

Firm's Action: As soon as cheques are deposited into the bank, the firm records them on the debit (receipt) side of the cash book. This immediately increases the bank balance as per the cash book.
Bank's Action: The bank will only credit the firm's account after the cheque goes through the clearing process and the funds are successfully transferred. This can take one to several days, especially for outstation cheques.
Effect: During the clearing period, the balance in the cash book will be higher than the balance in the passbook.

c) Direct Debits made by the Bank

These are payments made by the bank directly from the firm's account based on prior instructions or standard banking practice. The firm may not be aware of these debits until it receives the bank statement.

Bank's Action: The bank debits the firm's account for various charges as they occur. Examples include: monthly service charges, ATM fees, cheque book issuance charges, SMS alert fees, and interest charged on a bank overdraft.
Firm's Action: The firm remains unaware of these charges until it sees the bank statement and hence has not recorded them in its cash book.
Effect: The balance in the passbook will be lower than the balance in the cash book.

d) Amounts Directly Deposited in the Bank Account

Sometimes, a customer (debtor) may directly deposit cash or transfer funds (via NEFT, RTGS, IMPS, UPI) into the firm's bank account without informing the firm immediately.

Bank's Action: The bank credits the firm's account as soon as the deposit is made.
Firm's Action: The firm is unaware of this receipt until it checks the passbook or receives a credit notification.
Effect: The balance in the passbook will be higher than the balance in the cash book.

e) Interest and Dividends Collected by the Bank

A business may instruct its bank to collect income on its investments, such as interest on fixed deposits or dividends on shares held in other companies.

Bank's Action: The bank acts as an agent, collects this income, and credits it directly to the firm's account.
Firm's Action: The firm will only come to know about this collection upon perusal of the bank statement.
Effect: The balance in the passbook will be higher than the balance in the cash book until the firm records the income.

f) Direct Payments made by the Bank

A business can give standing instructions or set up direct debit mandates for the bank to make regular, recurring payments on its behalf.

Bank's Action: The bank makes the payment on the due date (e.g., insurance premium, loan EMI, rent, electricity bill) and debits the firm's account.
Firm's Action: The firm might not have recorded this payment in its cash book on the same day.
Effect: The balance in the passbook will be lower than the balance in the cash book.

g) Cheques Deposited/Bills Discounted Dishonoured

This refers to a situation where a cheque previously deposited by the firm is returned unpaid ("bounces"), or a bill of exchange that was discounted with the bank is not paid by the drawee on its maturity date.

Initial Entry: When the cheque was first deposited (or the bill was discounted), the firm increased its cash book balance.
Bank's Action on Dishonour: The bank reverses the original credit by debiting the firm's account with the amount of the dishonoured instrument, often along with some penalty charges. This reduces the passbook balance.
Firm's Action: The firm is not aware of the dishonour until it receives a "cheque return memo" or the bank statement.
Effect: The passbook balance will be lower than the cash book balance, as the cash book still shows the amount as received.

Differences Caused by Errors

Sometimes, the discrepancy between the cash book and passbook balances is not due to a timing difference but is the result of an outright mistake or error. Unlike timing differences which are temporary and resolve over time, errors must be actively identified and rectified. Such errors can be committed either by the accounting staff of the business or by the bank.

a) Errors Committed by the Firm

These are mistakes made by the business's accountant while recording entries in the bank column of the cash book. These errors lead to an incorrect cash book balance. The passbook balance, in this case, would be correct (assuming the bank made no error). The firm must correct these errors in its own books. Common examples include:

Omission of a Transaction: Forgetting to record a transaction in the cash book. For instance, a cheque of ₹5,000 is issued to a creditor, and the bank correctly pays it, but the accountant completely forgets to record this payment in the cash book. Here, the cash book balance would be incorrectly higher than the passbook balance.
Recording with a Wrong Amount: Entering a transaction with an incorrect figure. For example, a cheque for ₹1,850 is issued, but it is recorded as ₹1,580 in the cash book. The cash book balance would be overstated by ₹270.
Recording on the Wrong Side: A receipt might be recorded as a payment or vice-versa. For instance, a deposit of ₹2,000 is wrongly entered on the credit (payment) side of the cash book. This single error would cause the cash book balance to be ₹4,000 less than it should be.
Recording in the Wrong Column: A bank transaction might be recorded in the cash column or vice-versa. For example, a cheque of ₹1,000 received from a debtor is correctly deposited in the bank but is recorded in the cash column instead of the bank column of the cash book. This will not affect the bank balance as per the cash book, causing a difference.
Recording a Transaction Twice: An entry is made two times by mistake. For instance, a cheque for ₹300 paid to a supplier is recorded twice on the credit side of the cash book. This would understate the cash book balance by ₹300.
Errors in Totalling or Balancing (Casting Errors): Mistakes made while adding up the columns or calculating the closing balance. For example, if the payment side of the cash book's bank column is under-totalled (undercast) by ₹100, the resulting closing balance will be incorrectly higher by ₹100.

When preparing a BRS, these errors must be adjusted to arrive at the correct cash book balance.

b) Errors Committed by the Bank

These are mistakes made by the bank's staff while posting entries in the firm's account (the passbook). The cash book, in this case, would have the correct entry. The firm should bring such errors to the bank's notice for rectification. Common examples are:

Wrongful Debit: The bank incorrectly debits the firm's account for a transaction belonging to another customer, perhaps due to a similar account name or number. For instance, a cheque issued by "Rohan Traders" is wrongly debited to the account of "Rohan Industries". This reduces the passbook balance incorrectly.
Wrongful Credit: The bank incorrectly credits the firm's account for a deposit made by another customer. This inflates the passbook balance incorrectly.
Recording an Incorrect Amount: The bank posts a correct transaction but with the wrong amount. For example, a cheque deposited by the firm for ₹10,589 is wrongly credited by the bank as ₹10,598. The passbook balance would be overstated by ₹9.
Recording a Transaction Twice: The bank might debit the same cheque twice from the account. For instance, a cheque payment of ₹500 is debited on one day and by mistake debited again on the next day.
Omission of a Transaction: Although rare, the bank might completely fail to record a cash deposit made by the firm over the counter. In this case, the passbook balance would be lower than it should be.

These bank errors are included in the Bank Reconciliation Statement to explain the difference between the uncorrected passbook balance and the cash book balance.

Preparation of Bank Reconciliation Statement

The preparation of a Bank Reconciliation Statement (BRS) is a systematic accounting procedure designed to meticulously align the bank balance as recorded in a company's Cash Book with the balance reported by the bank in its Passbook or statement. This process serves as a crucial internal control mechanism, verifying the accuracy of transactions, detecting errors, and identifying unrecorded items. The fundamental objective is to create a logical bridge between the two differing balances, proving that they are, in fact, reconcilable once all timing differences and errors are accounted for.

The Foundational Prerequisite: Mastering the Nature of Balances

Before any BRS can be prepared, it is absolutely essential to have a crystal-clear understanding of why balances are reported differently from the two perspectives—that of the business and that of the bank. This duality is the most common point of confusion.

The Business's Perspective (The Cash Book): For a business, the money held in a bank account is an Asset. Following the fundamental rules of accounting:
- An increase in an Asset is a Debit (Dr.).
- A decrease in an Asset is a Credit (Cr.).
Therefore, a Favourable Balance (positive funds) is a Debit Balance in the Cash Book, while an Overdraft (a liability to the bank) is a Credit Balance.
The Bank's Perspective (The Passbook): For a bank, a customer's deposit is a Liability (the bank owes this money to the customer). Following the fundamental rules of accounting:
- An increase in a Liability is a Credit (Cr.).
- A decrease in a Liability is a Debit (Dr.).
Therefore, a customer's Favourable Balance is a Credit Balance in the Passbook, while an Overdraft (an asset for the bank) is a Debit Balance.

Type of Balance	Meaning for the Business	Balance as per Cash Book	Balance as per Passbook
Favourable	Asset (Money deposited in Bank)	Debit (Dr.) Balance	Credit (Cr.) Balance
Unfavourable (Overdraft)	Liability (Money owed to Bank)	Credit (Cr.) Balance	Debit (Dr.) Balance

Common Causes of Difference and Their Treatment in BRS

The differences between the Cash Book and Passbook balances arise primarily from timing differences, transactions recorded by only one party, or errors. The following table explains the most common reconciling items and their logical treatment. Important: The treatment rules ("Add" or "Less") are consistent regardless of whether the balance is favourable or an overdraft; however, the arithmetic effect changes. For instance, 'Adding' an item to an overdraft balance decreases the overdraft amount, while 'Subtracting' an item increases it.

Reconciling Item	Reason for Difference & Effect on Balances	Treatment starting from Cash Book Balance	Treatment starting from Passbook Balance
1. Cheques Issued but not Presented	Business credits (decreases) its Cash Book immediately. Bank only debits (decreases) the Passbook when the cheque is presented. Effect: Cash Book balance is lower than Passbook balance.	ADD (To increase the lower CB balance to match the higher PB balance)	LESS (To decrease the higher PB balance to match the lower CB balance)
2. Cheques Deposited but not Collected	Business debits (increases) its Cash Book immediately. Bank only credits (increases) the Passbook when the funds are cleared. Effect: Cash Book balance is higher than Passbook balance.	LESS (To decrease the higher CB balance to match the lower PB balance)	ADD (To increase the lower PB balance to match the higher CB balance)
3. Interest/Dividend collected by Bank	Bank credits (increases) the Passbook. Business is unaware until it sees the statement, so Cash Book is not yet debited. Effect: Cash Book balance is lower than Passbook balance.	ADD (To record the income and match the higher PB balance)	LESS (To reverse the entry to match the lower CB balance)
4. Bank Charges / Interest on Overdraft	Bank debits (decreases) the Passbook. Business is unaware, so Cash Book is not yet credited. Effect: Cash Book balance is higher than Passbook balance.	LESS (To record the expense and match the lower PB balance)	ADD (To reverse the entry to match the higher CB balance)
5. Direct Deposit by a Customer	Bank credits (increases) the Passbook. Business is unaware, so Cash Book is not yet debited. Effect: Cash Book balance is lower than Passbook balance.	ADD (To record the receipt and match the higher PB balance)	LESS (To reverse the entry to match the lower CB balance)
6. Direct Payment by Bank (e.g., Standing Instructions)	Bank debits (decreases) the Passbook on behalf of the business. Business is unaware, so Cash Book is not yet credited. Effect: Cash Book balance is higher than Passbook balance.	LESS (To record the payment and match the lower PB balance)	ADD (To reverse the entry to match the higher CB balance)
7. Dishonour of a Deposited Cheque	Initially, both books showed an increase. On dishonour, the bank debits (decreases/reverses) the Passbook entry. Business is unaware, so Cash Book still shows the higher balance. Effect: Cash Book balance is higher than Passbook balance.	LESS (To reverse the deposit entry in the CB and match the lower PB balance)	ADD (To reverse the bank's dishonour entry to match the higher CB balance)

Methods of Preparation

The Bank Reconciliation Statement (BRS) can be prepared using two primary formats. Below are the detailed proformas for both the Single-Column (Report) Format and the Two-Column (Plus/Minus) Format, presented as per the requested specifications.

Format 1: Single-Column (Report) Format

This format presents the reconciliation in a statement style, sequentially listing additions and then deductions to the starting balance. The rules for what constitutes an "Add" or "Less" item change depending on whether the starting balance is favourable or an overdraft, which can make this method less intuitive.

The example below shows the structure starting with a Favourable Balance as per Cash Book.

Particulars	Amount (₹)
Balance as per Cash Book (Favourable/Debit)	XXXX
Add:
Cheques issued but not yet presented	XXXX
Interest credited by the bank only	XXXX
	XXXX
Less:
Cheques deposited but not yet collected	(XXXX)
Bank charges debited by the bank only	(XXXX)
Balance as per Passbook (Favourable/Credit)	XXXX

Format 2: Two-Column (Plus/Minus) Format

This is the highly recommended format due to its superior logic and clarity. It uses two separate amount columns, one for additions (+) and one for subtractions (-). The treatment of reconciling items is consistent and does not change with the nature of the balance (favourable or overdraft), making it less prone to errors.

The example below starts with a Favourable Balance as per Cash Book. For an overdraft, the starting balance would simply be placed in the 'Minus (-)' column.

Particulars	Plus (+) Amount (₹)	Minus (-) Amount (₹)
Balance as per Cash Book (Favourable/Debit)	XXXX
Cheques issued but not yet presented for payment	XXXX
Interest/Dividends credited by the bank only	XXXX
Cheques deposited but not yet collected/cleared		XXXX
Bank charges debited by the bank only		XXXX
Direct payments made by the bank on our behalf		XXXX
Total	XXXX	XXXX
Balance as per Passbook (Favourable/Credit)	XXXX

Illustrations and Solutions

The following illustrations demonstrate the preparation of a Bank Reconciliation Statement in various scenarios, progressing from simple cases to more complex ones involving overdrafts and errors. The two-column (plus/minus) format is primarily used for its clarity and consistency.

Illustration 1: Favourable Balance, Starting from Cash Book. From the following particulars of Mr. Vinod, prepare a bank reconciliation statement as on March 31, 2017.

Bank balance as per cash book: ₹ 50,000.
Cheques issued but not presented for payment: ₹ 6,000.
The bank had directly collected a dividend of ₹ 8,000 and credited it to the bank account, but it was not entered in the cash book.
A customer directly deposited ₹ 5,000 into the bank account, which was not recorded in the cash book.
Bank charges of ₹ 400 were not entered in the cash book.
The bank paid an insurance premium of ₹ 2,500 as per standing instructions, but no entry was made in the cash book.
A cheque for ₹ 6,000 was deposited but not collected by the bank.

Answer:

Note: We start with the Cash Book's favourable balance in the 'Plus' column. We then add items that have increased the passbook balance (or decreased the cash book balance) and subtract items that have decreased the passbook balance (or increased the cash book balance).

(i) Two-Column Format

Bank Reconciliation Statement of Mr. Vinod as on March 31, 2017

Particulars	Plus (+) Amount (₹)	Minus (-) Amount (₹)
Balance as per Cash Book (Favourable)	50,000
Cheques issued but not presented for payment	6,000
Dividend directly collected by the bank	8,000
Direct deposit by a customer	5,000
Cheque deposited but not yet credited by the bank		6,000
Bank charges debited by the bank		400
Insurance premium paid by the bank		2,500
Total	69,000	8,900
Balance as per Passbook (Favourable) (69,000 - 8,900)	60,100

(ii) Single-Column Format

Bank Reconciliation Statement of Mr. Vinod as on March 31, 2017

Particulars	Amount (₹)
Balance as per Cash Book (Favourable)	50,000
Add:
Cheques issued but not yet presented	6,000
Dividend directly collected by bank	8,000
Direct deposit by customer	5,000
	69,000
Less:
Cheques deposited but not yet collected	6,000
Bank charges debited by bank	400
Insurance premium paid by bank	2,500
	(8,900)
Balance as per Passbook (Favourable)	60,100

Illustration 2: Favourable Balance, Starting from Passbook. The bank passbook of M/s. Boss & Co. showed a balance of ₹ 45,000 on May 31, 2017. Prepare a bank reconciliation statement.

Cheques issued before May 31, 2017, amounting to ₹ 25,940 had not been presented for encashment.
Two cheques of ₹ 3,900 and ₹ 2,350 were deposited into the bank but the bank gave credit for the same in June 2017.
There was a debit in the passbook of ₹ 2,500 in respect of a cheque dishonoured on May 31, 2017.
Interest of ₹ 1,000 was credited by the bank, but not recorded in the cash book.
Bank charges of ₹ 250 were debited by the bank, but not recorded in the cash book.

Answer:

Note: We are starting from the Passbook balance. Therefore, the logic is reversed. We add items that would be subtracted when starting from the cash book, and vice-versa.

Bank Reconciliation Statement of M/s. Boss & Co. as on May 31, 2017

Particulars	Plus (+) Amount (₹)	Minus (-) Amount (₹)
Balance as per Passbook (Favourable)	45,000
Cheques deposited but not collected (₹3,900 + ₹2,350)	6,250
Cheque dishonoured (entry only in passbook)	2,500
Bank charges not recorded in cash book	250
Cheques issued but not presented for payment		25,940
Interest credited by bank only		1,000
Total	54,000	26,940
Balance as per Cash Book (Favourable) (54,000 - 26,940)	27,060

Illustration 3: Overdraft, Starting from Cash Book. On March 31, 2017, Rakesh had an overdraft of ₹ 8,000 as shown by his cash book. Prepare a BRS with the following information:

Cheques amounting to ₹ 2,000 had been paid in by him but were not collected by the bank.
He issued cheques of ₹ 800 which were not presented to the bank for payment.
A cheque of ₹ 1,500 deposited was dishonoured and debited by the bank but no record of dishonour existed in the cash book.
There was a debit in his passbook of ₹ 60 for interest and ₹ 100 for bank charges.
A customer directly deposited ₹ 2,500 in the bank account.

Answer:

Note: An overdraft is a negative balance. We place the starting overdraft balance in the 'Minus' column. The logic for adding and subtracting other items remains the same as in Illustration 1 (items that worsen the overdraft go to Minus, items that improve it go to Plus).

(i) Two-Column Format

Bank Reconciliation Statement of Rakesh as on March 31, 2017

Particulars	Plus (+) Amount (₹)	Minus (-) Amount (₹)
Overdraft as per Cash Book		8,000
Cheques issued but not presented for payment	800
Direct deposit by customer	2,500
Cheques deposited but not yet collected		2,000
Cheque dishonoured (debited by bank only)		1,500
Interest on overdraft debited by bank		60
Bank charges debited by bank		100
Total	3,300	11,660
Overdraft as per Passbook (11,660 - 3,300)		8,360

(ii) Single-Column Format

Bank Reconciliation Statement of Rakesh as on March 31, 2017

Particulars	Amount (₹)
Overdraft as per Cash Book	(8,000)
Add: Items that decrease the overdraft
Cheques issued but not yet presented	800
Direct deposit by customer	2,500
	(4,700)
Less: Items that increase the overdraft
Cheques deposited but not yet collected	(2,000)
Cheque dishonoured	(1,500)
Interest on overdraft	(60)
Bank charges	(100)
	(3,660)
Overdraft as per Passbook	(8,360)

Illustration 4: Overdraft, Starting from Passbook. From the following particulars of Asha & Co. prepare a bank reconciliation statement on December 31, 2017.

Overdraft as per passbook: ₹ 20,000
Interest on overdraft debited by bank only: ₹ 2,000
Insurance Premium paid by the bank as per standing instruction: ₹ 200
Cheque issued but not presented for payment: ₹ 6,500
Cheque deposited but not yet cleared: ₹ 6,000
A cheque of ₹ 1,000 was deposited into the bank but was not recorded in the cash book.
A cheque of ₹ 500 was wrongly debited by the bank to Asha & Co.'s account.

Answer:

Note: We start from the Passbook Overdraft (a minus balance) and apply reverse logic to arrive at the Cash Book balance.

Bank Reconciliation Statement of Asha & Co. as on December 31, 2017

Particulars	Plus (+) Amount (₹)	Minus (-) Amount (₹)
Overdraft as per Passbook		20,000
Interest on overdraft (to be recorded in CB)	2,000
Insurance premium paid by bank (to be recorded in CB)	200
Cheques deposited but not yet cleared	6,000
Amount wrongly debited by the bank	500
Cheque issued but not presented for payment		6,500
Cheque deposited but not recorded in cash book		1,000
Total	8,700	27,500
Overdraft as per Cash Book (27,500 - 8,700)		18,800

Illustration 5: Dealing with Errors. From the following particulars, prepare a bank reconciliation statement as on March 31, 2017.

(a) Debit balance as per cash book is ₹ 10,000.
(b) A cheque for ₹ 1,000 deposited but not recorded in the cash book.
(c) A cash deposit of ₹ 200 was recorded in the cash book as a payment in the bank column.
(d) The debit balance of ₹ 1,500 as on the previous day was brought forward as a credit balance in the cash book.
(e) The payment side of the cash book bank column was undercast by ₹ 100.
(f) One outgoing cheque of ₹ 300 was recorded twice in the cash book bank column.
(g) A cheque of ₹ 500 received from a debtor was recorded in the cash book but not deposited in the bank.

Answer:

Note: This illustration focuses on correcting errors originating in the cash book. Each error's impact on the cash book balance is analyzed and adjusted.

Bank Reconciliation Statement as on March 31, 2017

Particulars	Plus (+) Amount (₹)	Minus (-) Amount (₹)
Debit Balance as per Cash Book	10,000
Error in carrying forward balance (1,500 Dr. became 1,500 Cr. - difference is 3,000)	3,000
Cheque deposited but omitted from Cash Book	1,000
Cash deposit wrongly recorded as payment (200 + 200)	400
Outgoing cheque recorded twice in Cash Book	300
Payment side of Cash Book undercast		100
Cheque recorded but not deposited		500
Total	14,700	600
Balance as per Passbook (Favourable) (14,700 - 600)	14,100

NCERT Questions Solution

Test Your Understanding - I

Question I. Read the following transactions and identify the cause of difference on the basis of time gap or errors made by business firm/bank. Put a sign (✔) for the correct cause.

S.No.	Transactions	Time Gap	Errors made by business/bank
1.	Cheques issued to customers but not presented for payment.
2.	Cheque amounting to ₹ 5,000 issued to M/s. XYZ but recorded as ₹ 500 in the cash book.
3.	Interest credited by the bank but yet not recorded in the cash book.
4.	Cheque deposited into the bank but not yet collected by the bank.
5.	Bank charges debited to firm’s current account by the bank.

Answer:

S.No.	Transactions	Time Gap	Errors made by business/bank
1.	Cheques issued to customers but not presented for payment.	✔
2.	Cheque amounting to ₹ 5,000 issued to M/s. XYZ but recorded as ₹ 500 in the cash book.		✔
3.	Interest credited by the bank but yet not recorded in the cash book.	✔
4.	Cheque deposited into the bank but not yet collected by the bank.	✔
5.	Bank charges debited to firm’s current account by the bank.	✔

Question II. Fill in the blanks :

Passbook is a copy of _________ as it appears in the ledger of the bank.
When money is with drawn from the bank, the bank _________ the account of the customer.
Normally, the cash book shows a debit balance, passbook shows _________ balance.
Favourable balance as per the cash book means _________ balance in the bank column of the cash book.
If the cash book balance is taken as starting point the items which make the cash book balance smaller than the passbook must be _________ for the purpose of reconciliation.
If the passbook shows a favourable balance and if it is taken as the starting point for the purpose of bank reconciliation statement then cheques issued but not presented for payment should be _________ to find out cash balance.
When the cheques are not presented for payment, favourable balance as per the cash book is _________ than that of the passbook.
When a banker collects the bills and credits the account passbook overdraft shows _________ balance.
If the overdraft as per the passbook is taken as the starting point, the cheques issued but not presented are to be _________ in the bank reconciliation statement.
When the passbook balance is taken as the starting point items which makes the passbook balance _________ than the balance in the cash book must be deducted for the purpose of reconciliation.

Answer:

Passbook is a copy of customer's account as it appears in the ledger of the bank.

Explanation: The passbook is essentially a mirror image of the customer's bank account as maintained by the bank in its own books.
When money is with drawn from the bank, the bank debits the account of the customer.

Explanation: From the bank's perspective, a customer's deposit is a liability. A withdrawal reduces this liability, and a decrease in liability is debited.
Normally, the cash book shows a debit balance, passbook shows credit balance.

Explanation: For the business, money in the bank is an asset (debit balance). For the bank, this money is a liability owed to the customer (credit balance).
Favourable balance as per the cash book means debit balance in the bank column of the cash book.

Explanation: A favourable balance means the business has positive funds in the bank. The bank account is an asset, and assets have a debit balance.
If the cash book balance is taken as starting point the items which make the cash book balance smaller than the passbook must be added for the purpose of reconciliation.

Explanation: To move from a smaller balance (Cash Book) to a larger balance (Passbook), one must add the difference (e.g., interest credited by the bank but not recorded in the cash book).
If the passbook shows a favourable balance and if it is taken as the starting point for the purpose of bank reconciliation statement then cheques issued but not presented for payment should be deducted to find out cash balance.

Explanation: Cheques issued but not presented cause the passbook balance to be higher than the cash book balance. To reconcile from the higher passbook balance to the lower cash book balance, the amount must be deducted.
When the cheques are not presented for payment, favourable balance as per the cash book is less/lower than that of the passbook.

Explanation: The business has recorded the payment (reducing its balance), but the bank has not yet processed it (its balance remains high).
When a banker collects the bills and credits the account passbook overdraft shows less/reduced balance.

Explanation: An overdraft is a liability (loan from the bank). When the bank collects money on our behalf, it reduces the amount we owe them, thus reducing the overdraft.
If the overdraft as per the passbook is taken as the starting point, the cheques issued but not presented are to be added in the bank reconciliation statement.

Explanation: Passbook overdraft is lower than the actual overdraft (as per cash book) because the payment for the issued cheque has not yet been processed by the bank. To arrive at the higher cash book overdraft, the amount must be added.
When the passbook balance is taken as the starting point items which makes the passbook balance more/higher than the balance in the cash book must be deducted for the purpose of reconciliation.

Explanation: This is the logic of reconciliation. If the starting point (Passbook) is higher than the destination (Cash Book), the difference must be deducted to arrive at the correct figure.

Test Your Understanding - II

Select the Correct Answer

Question 1. A bank reconciliation statement is prepared by:

(a) Creditors

(b) Bank

(d) Debtors

Answer:

(c) Account holder in a bank

Explanation: A Bank Reconciliation Statement (BRS) is a statement prepared periodically by a business (the account holder) to verify the accuracy of its own accounting records (the bank column of the cash book) against the records provided by the bank (the passbook or bank statement). The bank provides the statement, but the act of reconciliation is performed by the account holder. Therefore, option (c) is the correct answer.

Question 2. A bank reconciliation statement is prepared with the balance:

(a) Passbook

(b) Cash book

(d) None of these

Answer:

(c) Both passbook and cash book

Explanation: The very purpose of a BRS is to reconcile the balances of two different books. One starts with the balance as per the cash book and, by making adjustments for differing items, arrives at the balance as per the passbook (or vice versa). This process of comparison and reconciliation is impossible without using both the cash book and the passbook. Therefore, both are required.

Question 3. Passbook is a copy of:

(a) Copy of customer Account

(b) Bank column of cash book

(d) Copy of receipts and payments

Answer:

(a) Copy of customer Account

Explanation: A passbook or bank statement is a document provided by the bank to its customer. It is essentially a copy of the customer's account as maintained in the bank's own ledger books. It shows all the deposits, withdrawals, and other transactions from the bank's perspective.

Question 4. Unfavourable bank balance means:

(a) Credit balance in passbook

(b) Credit balance in cash book

(d) None of these

Answer:

(b) Credit balance in cash book

Explanation: An "unfavourable" bank balance is another term for a Bank Overdraft. From the business's perspective, an overdraft is a short-term liability (money owed to the bank). According to the rules of accounting, liabilities have a credit balance. Therefore, an unfavourable balance is represented by a credit balance in the bank column of the cash book. Conversely, this would be shown as a debit balance in the passbook (as the business is a debtor in the bank's books).

Question 5. Favourable bank balance means:

(a) Credit balance in the cash book

(b) Credit balance in passbook

(d) Both (b) and (c)

Answer:

(d) Both (b) and (c)

Explanation: A "favourable" bank balance means the business has its own funds deposited in the bank. This is represented differently in the two books:

In the Cash Book, the bank account is an asset, and assets have a debit balance. So, (c) is correct.
In the Passbook (bank's records), the customer's deposit is a liability for the bank (money the bank owes to the customer), and liabilities have a credit balance. So, (b) is also correct.

Since both (b) and (c) describe a favourable balance from their respective viewpoints, the most complete answer is (d).

Question 6. A bank reconciliation statement is mainly prepared for:

(a) Reconcile the cash balance of the cash book.

(b) Reconcile the difference between the bank balance shown by the cash book and bank passbook

(d) None of these

Answer:

(b) Reconcile the difference between the bank balance shown by the cash book and bank passbook

Explanation: This is the primary and fundamental purpose of preparing a Bank Reconciliation Statement. It does not deal with the 'cash' column of the cash book; it specifically focuses on identifying the reasons for discrepancies between the 'bank' column of the cash book and the bank passbook balances on a given date.

Test Your Understanding - III

State whether each of the following statements is True or False

Question 1. State whether the following statement is True or False: Passbook is the statement of account of the customer maintained by the bank.

Answer:

True.

Explanation: A Passbook (or Bank Statement) is indeed a copy of the customer's account as it exists in the bank's ledger. It reflects all deposits, withdrawals, and other transactions from the bank's perspective.

Question 2. State whether the following statement is True or False: A business firm periodically prepares a bank reconciliation statement to reconcile the bank balance as per the cash book with the passbook as these two show different balances for various reasons.

Answer:

True.

Explanation: This statement accurately describes the purpose of a Bank Reconciliation Statement. It is prepared to identify and explain the timing differences and errors that cause the balance in the company's cash book to differ from the balance in the bank's passbook.

Question 3. State whether the following statement is True or False: Cheques issued but not presented for payment will reduce the balance as per the passbook.

Answer:

False.

Explanation: When a cheque is issued, the business reduces its balance in the cash book. However, the passbook balance is only reduced when the cheque is actually presented to and paid by the bank. If it is "not presented", the passbook balance remains unchanged (and therefore higher than the cash book balance).

Question 4. State whether the following statement is True or False: Cheques deposited but not collected will result in increasing the balance of the cash book when compared to passbook.

Answer:

True.

Explanation: When a cheque is deposited, the business immediately increases the bank balance in its cash book. However, the bank only increases the balance in the passbook after the cheque has been cleared and collected. This timing difference results in the cash book balance being temporarily higher than the passbook balance.

Question 5. State whether the following statement is True or False: Overdraft as per the passbook is less than the overdraft as per cash book when there are cheques deposited but not collected by the banker.

Answer:

False.

Explanation: When a cheque is deposited, the business reduces its overdraft in the cash book. The bank, however, has not yet collected the funds, so the overdraft in the passbook remains high. Therefore, the overdraft as per the passbook is more than the overdraft as per the cash book.

Question 6. State whether the following statement is True or False: The debit balance of the bank account as per the cash book should be equal to the credit balance of the account of the business in the books of the bank.

Answer:

True.

Explanation: In the absence of any timing differences or errors, this is the expected state. A debit balance in the cash book represents an asset (money in the bank) for the business. The same amount represents a liability (money owed to the customer) for the bank, which is shown as a credit balance in the bank's books (the passbook).

Question 7. State whether the following statement is True or False: Favourable bank balance as per the cash book will be less than the bank passbook balance when there are unpresented cheques for payment.

Answer:

True.

Explanation: When cheques are issued but not yet presented for payment, the business has already deducted the amount from its cash book balance. The bank, however, has not yet paid the amount, so the passbook balance remains higher. Therefore, the cash book balance is less than the passbook balance.

Question 8. State whether the following statement is True or False: Direct collections received by the bank on behalf of the customers would increase the balance as per the bank passbook when compared to the balance as per the cash book.

Answer:

True.

Explanation: When the bank directly collects amounts (like dividends or interest) on behalf of the customer, it credits the customer's account, increasing the passbook balance. The business is often unaware of this until it sees the bank statement. Before the business records this receipt, its cash book balance will be lower than the passbook balance.

Question 9. State whether the following statement is True or False: When payments made by the bank as per the standing instructions of the customer, the balance in the passbook will be more when compared to the cash book.

Answer:

False.

Explanation: When the bank makes a payment (e.g., insurance premium) based on standing instructions, it debits the customer's account, which reduces the balance in the passbook. The business will only record this payment in its cash book later. Therefore, the balance in the passbook will be less than the balance in the cash book until the entry is made by the business.

Short Answers

Question 1. State the need for the preparation of bank reconciliation statement?

Answer:

The preparation of a Bank Reconciliation Statement (BRS) is a crucial internal control procedure. The primary needs for its preparation are:

To Identify Reasons for Difference: It helps in identifying the specific reasons (like timing differences or errors) that cause a discrepancy between the bank balance shown in the company's cash book and the balance shown in the bank's passbook.
To Detect Errors and Fraud: The reconciliation process can reveal errors made either by the business's accounting staff or by the bank. It also acts as a deterrent to fraud, as any unauthorized withdrawal or misappropriation of funds can be quickly detected.
To Update Accounting Records: It helps in identifying transactions that the bank has recorded but the business has not (e.g., bank charges, interest credited). This allows the business to update its cash book and reflect the true bank balance.
To Ensure Accuracy: By regularly reconciling the two balances, a business can ensure the accuracy of its own banking records.

Question 2. What is a bank overdraft?

Answer:

A bank overdraft is a short-term credit facility extended by a bank to a current account holder, which allows them to withdraw more money from their account than is actually available in it, up to a certain pre-approved limit.

Essentially, it is a loan from the bank. When an account is overdrawn, it has a negative balance. This is treated as a liability by the business. In the accounting records:

An overdraft is shown as a credit balance in the bank column of the cash book.
An overdraft is shown as a debit balance in the passbook or bank statement.

Question 3. Briefly explain the statement ‘wrongly debited by the bank’ with the help of an example.

Answer:

The statement 'wrongly debited by the bank' refers to a situation where the bank has made an error and has incorrectly reduced the balance in a customer's account. From the bank's perspective, a customer's account is a liability, and a debit reduces this liability (i.e., reduces the customer's balance). This is an error made by the bank, not the business.

Example:

Suppose M/s Sharma Traders has an account with ABC Bank. Another customer, M/s Sharma Enterprises, also has an account with the same bank. A cheque for $\textsf{₹ } \ 5,000$ issued by M/s Sharma Enterprises is mistakenly paid out from the account of M/s Sharma Traders.

In this case, ABC Bank has 'wrongly debited' the account of M/s Sharma Traders. This will cause the passbook balance of Sharma Traders to be $\textsf{₹ } \ 5,000$ lower than its cash book balance. This difference needs to be rectified by the bank upon notification.

Question 4. State the causes of difference occurred due to time lag.

Answer:

Differences between the cash book and passbook balances often occur due to a 'time lag' in recording transactions. This means that a transaction is recorded by one party (either the business or the bank) in one period, while the other party records it in a subsequent period.

The main causes of difference due to time lag are:

Cheques Issued but Not Yet Presented for Payment: The business records the payment as soon as a cheque is issued, but the bank only records it when the cheque is actually presented by the payee.
Cheques Deposited into the Bank but Not Yet Collected/Credited: The business records the receipt as soon as a cheque is deposited, but the bank only records it after the cheque has been cleared and the funds have been collected.
Direct Debits/Payments by the Bank: The bank makes payments on behalf of the customer based on standing instructions (e.g., insurance premium), but the business only records it after seeing the bank statement.
Direct Deposits/Collections by the Bank: The bank receives money directly into the account (e.g., dividends, interest), but the business only records it after seeing the bank statement.

Question 5. Briefly explain the term ‘favourable balance as per cash book’.

Answer:

'Favourable balance as per cash book' refers to a situation where the business has a positive amount of funds in its bank account, according to its own accounting records (the cash book).

From the business's perspective, money held in a bank account is an asset. According to the rules of accounting, assets have a debit balance. Therefore, a favourable balance as per the cash book is also known as a debit balance as per the cash book. It signifies that the total of the debit side (receipts into the bank) of the bank column in the cash book is greater than the total of the credit side (payments from the bank).

Question 6. Enumerate the steps to ascertain the correct cash book balance.

Answer:

Ascertaining the correct cash book balance, also known as preparing an Adjusted Cash Book, involves updating the cash book for all items that the business has not yet recorded but the bank has already processed. This is done before preparing the Bank Reconciliation Statement.

The steps are as follows:

Start with the Unadjusted Balance: Begin with the balance as per the bank column of the cash book before any adjustments.
Compare with Bank Statement: Compare the debit side of the cash book with the credit side of the passbook, and the credit side of the cash book with the debit side of the passbook.
Record Unrecorded Bank Credits: Identify items credited by the bank but not yet recorded in the cash book (e.g., interest credited, dividends collected). Make entries for these on the debit (receipt) side of the cash book.
Record Unrecorded Bank Debits: Identify items debited by the bank but not yet recorded in the cash book (e.g., bank charges, interest on overdraft, payments on standing instructions). Make entries for these on the credit (payment) side of the cash book.
Correct Errors: Rectify any errors made in the cash book (e.g., wrong amount recorded, an entry posted on the wrong side).
Calculate the New Balance: Balance the cash book again. The new balance is the 'Adjusted' or 'Corrected' cash book balance, which is then used as the starting point for the BRS.

Long Answers

Question 1. What is a bank reconciliation statement. Why is it prepared?

Answer:

A Bank Reconciliation Statement (BRS) is a statement prepared periodically (usually monthly) by a business or an individual account holder to compare the bank balance as per their own records (the bank column of the cash book) with the balance as per the bank's records (the passbook or bank statement). The primary objective is to identify, explain, and account for any differences between these two balances on a specific date.

It is important to note that a BRS is not a part of the formal books of accounts but is a crucial working paper used as an internal control tool.

A Bank Reconciliation Statement is prepared for the following important reasons:

1. To Reconcile the Differences: The main purpose is to systematically identify the reasons for the disagreement between the cash book's bank balance and the passbook's balance. These reasons can be timing differences or errors.

2. To Detect and Prevent Errors: The process of reconciliation helps in uncovering errors committed either by the accountant of the firm (e.g., omitting an entry, recording a wrong amount) or by the bank (e.g., wrong debit/credit, posting a transaction to the wrong account). Early detection allows for timely correction.

3. To Update the Cash Book: Often, the bank records certain transactions that the business is unaware of until it receives the bank statement. These include bank charges, interest credited by the bank, dividends collected directly by the bank, or payments made on standing instructions. The BRS helps identify these items, so the business can update its cash book to reflect the correct financial position.

4. To Deter and Detect Fraud: Regular preparation of a BRS acts as a strong deterrent to fraudulent activities. Any unauthorized withdrawal or misappropriation of funds can be quickly identified. The knowledge that records will be reconciled discourages employees from attempting fraud.

5. To Ascertain the Correct Bank Balance: The BRS helps a business ascertain the actual, available bank balance on a particular date. This is crucial for managing working capital, making payments, and ensuring that cheques issued by the business do not get dishonoured due to insufficient funds.

Question 2. Explain the reasons where the balance shown by the bank passbook does not agree with the balance as shown by the bank column of the cash book.

Answer:

The balance shown by the bank passbook often does not agree with the balance shown by the bank column of the cash book due to a variety of reasons. These reasons can be broadly categorized into two main groups: Timing Differences and Errors.

I. Differences Due to Time Lag (Timing Differences)

These differences arise because a transaction is recorded by one party (the business or the bank) at one point in time and by the other party at a later date.

Cheques Issued but Not Yet Presented for Payment: The business credits its bank account in the cash book as soon as a cheque is issued. However, the bank only debits the firm's account when the payee actually presents the cheque for payment. The time gap between issuing and presenting the cheque causes the passbook balance to be higher than the cash book balance.
Cheques Deposited but Not Yet Collected or Credited: The business debits its bank account in the cash book as soon as it deposits a cheque. The bank, however, credits the firm's account only after the cheque has been cleared and the funds are collected, which may take a few days. During this period, the cash book balance is higher than the passbook balance.
Direct Debits by the Bank: The bank may make payments on behalf of the customer based on standing instructions, such as insurance premiums, loan EMIs, or club subscriptions. The bank debits the account immediately, but the business will only record the payment after receiving the bank statement. This causes the passbook balance to be lower than the cash book balance.
Direct Credits by the Bank: The bank may collect amounts like dividends or interest and credit them directly to the customer's account. The business remains unaware until it sees the passbook. This causes the passbook balance to be higher than the cash book balance.
Bank Charges and Interest on Overdraft: The bank debits the customer's account for services rendered (bank charges) or for interest on an overdraft. The firm records these only after notification from the bank, leading to a temporary difference.

II. Differences Due to Errors

These are mistakes made in recording transactions either by the business or by the bank.

Errors Committed by the Business Firm:
- An error of omission, e.g., a cheque issued is completely omitted from being recorded in the cash book.
- An error of commission, e.g., recording a wrong amount, posting an entry twice, or recording a transaction on the wrong side of the cash book.
Errors Committed by the Bank:
- A wrong debit or credit to the firm's account. For example, the bank may wrongly debit a cheque issued by another customer to the firm's account.
- An error in the amount recorded by the bank.

Question 3. Explain the process of preparing bank reconciliation statement with amended cash balance.

Answer:

Preparing a Bank Reconciliation Statement with an amended cash balance (also known as an adjusted cash book) is considered a more logical and complete approach. This method involves two main stages: first, correcting and updating the business's own cash book, and second, preparing the BRS to reconcile the remaining differences.

The process is as follows:

Stage 1: Preparation of the Amended Cash Book

The goal of this stage is to update the cash book for all transactions that have been recorded by the bank but omitted by the business, and to correct any errors made by the business.

Start with the Cash Book Balance: Take the unadjusted balance as per the bank column of the cash book.
Record Unrecorded Debits: Go through the passbook/bank statement and identify all items that have been credited by the bank but are not yet recorded in the cash book. Record these items on the debit (receipts) side of the cash book. These include:
- Interest credited by the bank.
- Dividends or any income directly collected by the bank.
- Direct deposits made by customers into the bank account.
Record Unrecorded Credits: Identify all items that have been debited by the bank but are not yet recorded in the cash book. Record these items on the credit (payments) side of the cash book. These include:
- Bank charges and commission.
- Interest charged on overdraft.
- Payments made by the bank on standing instructions (e.g., insurance premium).
- Dishonour of a deposited cheque.
Correct Errors: Correct any errors that were made in the cash book itself (e.g., wrong amount, wrong casting).
Calculate the Amended Balance: After making all the above entries, the cash book is balanced. The new closing balance is the "Amended" or "Corrected" Cash Book Balance. This new balance is the figure that will be shown as 'Cash at Bank' in the Balance Sheet.

Stage 2: Preparation of the Bank Reconciliation Statement

After amending the cash book, the BRS is prepared to reconcile the new cash book balance with the passbook balance. The BRS will now only contain items representing timing differences and errors made by the bank.

Bank Reconciliation Statement as on ...

Particulars	Amount (₹)
Balance as per Amended Cash Book	XXXX
Add:
Cheques issued but not yet presented for payment	XXXX
(Any error by bank that increased our passbook balance wrongly)	XXXX
	XXXX
Less:
Cheques deposited but not yet collected/credited	(XXXX)
(Any error by bank that decreased our passbook balance wrongly)	(XXXX)
Balance as per Passbook	XXXX

Numerical Questions

Favourable balance of cash book and passbook –

Question 1. From the following particulars, prepare a bank reconciliation statement as at March 31, 2017.

Balance as per cash book ₹ 3,200
Cheque issued but not presented for payment ₹ 1,800
Cheque deposited but not collected upto March 31, 2017 ₹ 2,000
Bank charges debited by bank ₹ 150

Answer:

Bank Reconciliation Statement as at March 31, 2017

Particulars	Amount (₹)
Balance as per Cash Book (Favourable)	3,200
Add:
Cheque issued but not yet presented for payment	1,800
	5,000
Less:
Cheque deposited but not yet collected	(2,000)
Bank charges debited by the bank only	(150)
Balance as per Passbook (Favourable)	2,850

Question 2. On March 31, 2017 the cash book showed a balance of ₹ 3,700 as cash at bank, but the bank passbook made up to same date showed that cheques for ₹ 700, ₹ 300 and ₹ 180 respectively had not presented for payment, Also, a cheque amounting to ₹ 1,200 deposited into the account had not been credited. Prepare a bank reconciliation statement.

Answer:

Bank Reconciliation Statement as at March 31, 2017

Particulars	Amount (₹)
Balance as per Cash Book (Favourable)	3,700
Add:
Cheques issued but not yet presented for payment:
($\textsf{₹ } \ 700 + \textsf{₹ } \ 300 + \textsf{₹ } \ 180$)	1,180
	4,880
Less:
Cheque deposited but not yet credited	(1,200)
Balance as per Passbook (Favourable)	3,680

Question 3. The cash book shows a bank balance of ₹ 7,800. On comparing the cash book with passbook the following discrepancies were noted:

Cheque deposited in bank but not credited ₹ 3,000
Cheque issued but not yet present for payment ₹ 1,500
Insurance premium paid by the bank ₹ 2,000
Bank interest credit by the bank ₹ 400
Bank charges ₹ 100
Directly deposited by a customer ₹ 4,000

Answer:

Bank Reconciliation Statement as on ...

Particulars	Amount (₹)
Balance as per Cash Book (Favourable)	7,800
Add:
Cheque issued but not yet presented	1,500
Bank interest credited by the bank	400
Direct deposit by customer	4,000
	13,700
Less:
Cheque deposited but not yet credited	(3,000)
Insurance premium paid by the bank	(2,000)
Bank charges debited by bank	(100)
Balance as per Passbook (Favourable)	8,600

Question 4. Bank balance of ₹ 40,000 showed by the cash book of Atul on December 31, 2016. It was found that three cheques of ₹ 2,000, ₹ 5,000 and ₹ 8,000 deposited during the month of December were not credited in the passbook till January 02, 2017. Two cheques of ₹ 7,000 and ₹ 8,000 issued on December 28, were not presented for payment till January 03, 2017. In addition to it bank had credited Atul for ₹ 325 as interest and had debited him with ₹ 50 as bank charges for which there were no corresponding entries in the cash book.

Prepare a bank reconciliation statement as on December 31, 2016.

Answer:

Bank Reconciliation Statement of Atul as on December 31, 2016

Particulars	Plus (+) Amount (₹)	Minus (-) Amount (₹)
Balance as per Cash Book (Favourable)	40,000
Cheques issued but not presented for payment: ($\textsf{₹ } \ 7,000 + \textsf{₹ } \ 8,000$)	15,000
Interest credited by the bank	325
Cheques deposited but not yet credited: ($\textsf{₹ } \ 2,000 + \textsf{₹ } \ 5,000 + \textsf{₹ } \ 8,000$)		15,000
Bank charges debited by the bank		50
Total	55,325	15,050
Balance as per Passbook (Favourable) (55,325 - 15,050)	40,275

Question 5. On comparing the cash book with passbook of Naman it is found that on March 31, 2017, bank balance of ₹ 40,960 showed by the cash book differs from the bank balance with regard to the following:

Bank charges ₹ 100 on March 31, 2017, are not entered in the cash book.
On March 21, 2017, a debtor paid ₹ 2,000 into the company’s bank in settlement of his account, but no entry was made in the cash book of the company in respect of this.
Cheques totaling ₹ 12,980 were issued by the company and duly recorded in the cash book before March 31, 2017, but had not been presented at the bank for payment until after that date.
A bill for ₹ 6,900 discounted with the bank is entered in the cash book without recording the discount charge of ₹ 800.
₹ 3,520 is entered in the cash book as paid into bank on March 31st, 2017, but not credited by the bank until the following day.
No entry has been made in the cash book to record the dishonour on March 15, 2017 of a cheque for ₹ 650 received from Bhanu.

Prepare a reconciliation statement as on March 31, 2017.

Answer:

A Bank Reconciliation Statement (BRS) can be prepared in two ways. The first is the standard method where we start with the cash book balance and make adjustments for all differing items to arrive at the passbook balance. The second method involves first correcting the cash book for items that should have been recorded (the Amended Cash Book Method) and then preparing a BRS for the remaining timing differences.

Both solutions are provided below.

Solution 1: Standard Bank Reconciliation Statement Method

In this method, we directly reconcile the given cash book balance with the passbook balance by adjusting for all causes of difference.

Bank Reconciliation Statement as on March 31, 2017

Particulars	Amount ($\textsf{₹ }$)
Balance as per Cash Book (Favourable/Debit)	40,960
Add:
Direct deposit by a debtor not recorded in Cash Book	2,000
Cheques issued but not yet presented for payment	12,980
	55,940
Less:
Bank charges not recorded in Cash Book	(100)
Discounting charges not recorded in Cash Book	(800)
Cheques deposited but not yet credited by the bank	(3,520)
Cheque from Bhanu dishonoured, not recorded in Cash Book	(650)
Balance as per Passbook (Favourable/Credit)	50,870

Alternate Solution: Using Amended Cash Book Method

This method involves two steps. First, we update or amend the cash book to account for all items that were omitted or incorrectly recorded in it. Second, we prepare a BRS using this adjusted balance to reconcile it with the passbook balance by accounting for only the timing differences.

(i) Amended Cash Book (Bank Column only) as on March 31, 2017

Dr.Cr.

Date	Particulars	Amount ($\textsf{₹ }$)	Date	Particulars	Amount ($\textsf{₹ }$)
2017			2017
Mar. 31	To Balance b/d (Original)	40,960	Mar. 31	By Bank Charges A/c	100
Mar. 31	To Debtor's A/c (Direct Deposit)	2,000	Mar. 31	By Discounting Charges A/c	800
			Mar. 31	By Bhanu's A/c (Cheque Dishonour)	650
			Mar. 31	By Balance c/d (Adjusted)	41,410
	Total	42,960		Total	42,960

(ii) Bank Reconciliation Statement as on March 31, 2017

Particulars	Amount ($\textsf{₹ }$)
Balance as per Amended Cash Book	41,410
Add:
Cheques issued but not yet presented for payment	12,980
	54,390
Less:
Cheques deposited but not yet credited by the bank	(3,520)
Balance as per Passbook (Favourable)	50,870

Question 6. Prepare bank reconciliation statement as on December 31, 2017. This day the passbook of Mr. Himanshu showed a balance of ₹ 7,000.

Cheques of ₹ 1,000 directly deposited by a customer.
The bank has credited Mr. Himanshu for ₹ 700 as interest.
Cheques for ₹ 3000 were issued during the month of December but of these cheques for ₹ 1,000 were not presented during the month of December.

Answer:

Bank Reconciliation Statement of Mr. Himanshu as on December 31, 2017

Particulars	Amount (₹)
Balance as per Passbook (Favourable)	7,000
Add:
Cheques issued but not presented for payment	1,000
	8,000
Less:
Cheque directly deposited by customer	(1,000)
Interest credited by bank	(700)
Balance as per Cash Book (Favourable)	6,300

Question 7. From the following particulars prepare a bank reconciliation statement showing the balance as per cash book on December 31, 2016.

Two cheques of ₹ 2,000 and ₹ 5,000 were paid into bank in October, 2016 but were not credited by the bank in the month of December.
A cheque of ₹ 800 which was received from a customer was entered in the bank column of the cash book in December 2016 but was omitted to be banked in December, 2016.
Cheques for ₹ 10,000 were issued into bank in November 2016 but not credited by the bank on December 31, 2016.
Interest on investment ₹ 1,000 collected by bank appeared in the passbook.

Balance as per Passbook was ₹ 50,000

Answer:

Bank Reconciliation Statement as on December 31, 2016

Particulars	Amount ($\textsf{₹ }$)
Balance as per Passbook (Favourable/Credit)	50,000
Add:
Cheques deposited in October but not credited ($\textsf{₹ } \ 2,000 + \textsf{₹ } \ 5,000$)	7,000
Cheque recorded in Cash Book but not deposited	800
	57,800
Less:
Cheques issued but not yet presented for payment	(10,000)
Interest on investment collected by bank, not recorded in Cash Book	(1,000)
Balance as per Cash Book (Favourable/Debit)	46,800

Question 8. Balance as per passbook of Mr. Kumar is ₹ 3,000. Prepare a bank reconciliation statement.

Cheque paid into bank but not yet cleared

Ram Kumar ₹ 1,000

Kishore Kumar ₹ 500

Bank Charges ₹ 300
Cheque issued but not presented

Hameed ₹ 2,000

Kapoor ₹ 500

Interest entered in the passbook but not entered in the cash book ₹ 100

Answer:

Bank Reconciliation Statement of Mr. Kumar

Particulars	Plus (+) Amount (₹)	Minus (-) Amount (₹)
Balance as per Passbook (Favourable)	3,000
Cheques deposited but not yet cleared: ($\textsf{₹ } \ 1,000 + \textsf{₹ } \ 500$)	1,500
Bank Charges (not recorded in cash book)	300
Cheques issued but not presented for payment: ($\textsf{₹ } \ 2,000 + \textsf{₹ } \ 500$)		2,500
Interest credited by bank (not recorded in cash book)		100
Total	4,800	2,600
Balance as per Cash Book (Favourable) (4,800 - 2,600)	2,200

Question 9. The passbook of Mr. Mohit current account showed a credit Balance of ₹ 20,000 on dated December 31, 2016. Prepare a Bank Reconciliation Statement with the following information.

A cheque of ₹ 400 drawn on his saving account has been shown on current account.
He issued two cheques of ₹ 300 and ₹ 500 on of December 25, but only the Ist cheque was presented for payment.
One cheque issued by Mr. Mohit of ₹ 500 on December 25, but it was not presented for payment whereas it was recorded twice in the cash book.

Answer:

Bank Reconciliation Statement of Mr. Mohit as on December 31, 2016

Particulars	Amount (₹)
Balance as per Passbook (Favourable)	20,000
Add:
Cheque wrongly debited by bank from current a/c	400
Cheque issued but not presented ($\textsf{₹ } \ 500$) and recorded twice in cash book ($\textsf{₹ } \ 500$)	1,000
	21,400
Less:
Cheque of $\textsf{₹ } \ 500$ issued but not presented	(500)
Balance as per Cash Book (Favourable)	20,900

Unfavourable balance of cash book

Question 10. On Ist January 2017, Rakesh had an overdraft of ₹ 8,000 as showed by his cash book. Cheques amounting to ₹ 2,000 had been paid in by him but were not collected by the bank by January 01, 2017. He issued cheques of ₹ 800 which were not presented to the bank for payment up to that day. There was a debit in his passbook of ₹ 60 for interest and ₹ 100 for bank charges. Prepare bank reconciliation statement for comparing both the balance.

Answer:

Bank Reconciliation Statement of Rakesh as on January 01, 2017

Particulars	Amount (₹)
Overdraft as per Cash Book	8,000
Add:
Cheques deposited but not yet collected	2,000
Interest on overdraft debited by bank	60
Bank charges debited by bank	100
	10,160
Less:
Cheques issued but not yet presented for payment	(800)
Overdraft as per Passbook	9,360

Question 11. Prepare bank reconciliation statement.

Overdraft shown as per cash book on December 31, 2017 ₹ 10,000.
Bank charges for the above period also debited in the passbook ₹ 100.
Interest on overdraft for six months ending December 31, 2017 ₹ 380 debited in the passbook.
Cheques issued but not incashed prior to December 31, 2017 amounted to ₹ 2,150.
Interest on Investment collected by the bank and credited in the passbook ₹ 600.
Cheques paid into bank but not cleared before December, 31, 2017 were ₹ 1,100.

Answer:

Bank Reconciliation Statement as on December 31, 2017

Particulars	Plus (+) Amount (₹)	Minus (-) Amount (₹)
Overdraft as per Cash Book	10,000
Bank charges debited in passbook	100
Interest on overdraft debited in passbook	380
Cheques deposited but not cleared	1,100
Cheques issued but not presented		2,150
Interest on investment collected by bank		600
Total	11,580	2,750
Overdraft as per Passbook (11,580 - 2,750)	8,830

Question 12. Kumar find that the bank balance shown by his cash book on December 31, 2017 is ₹ 90,600 (Credit) but the passbook shows a difference due to the following reason:

A cheque (post dated) for ₹ 1,000 has been debited in the bank column of the cash book but not presented for payment. Also, a cheque for ₹ 8,000 drawn in favour of Manohar has not yet been presented for payment. Cheques totaling ₹ 1,500 deposited in the bank have not yet been collected and cheque for ₹ 5,000 has been dishonoured.

Answer:

The solution provided in the input is incorrect because it misinterprets the first transaction. Let's break down the correct treatment of each item when starting with an overdraft as per the Cash Book.

Starting Point: Overdraft (Credit Balance) as per Cash Book = $\textsf{₹ }$ 90,600. This is an unfavourable balance.
Post-dated cheque debited in Cash Book (₹1,000): "Debited" in the cash book means it was recorded as a deposit. Since the bank has not collected it, the cash book balance is showing less overdraft than the passbook. To reconcile, this must be Added to the cash book overdraft.
Cheque issued to Manohar (₹8,000): This cheque was issued (reducing the cash book balance, i.e., increasing the overdraft) but not presented. The bank is unaware of it. Therefore, the passbook shows less overdraft. To reconcile, this must be Subtracted from the cash book overdraft.
Cheques deposited but not collected (₹1,500): The cash book balance was increased (overdraft reduced) upon deposit, but the passbook balance has not yet increased. This means the cash book shows less overdraft than the passbook. To reconcile, this must be Added to the cash book overdraft.
Cheque Dishonoured (₹5,000): When the cheque was dishonoured, the bank reduced the account balance (increased the overdraft). This is not yet reflected in the cash book. The cash book balance is therefore showing less overdraft than the passbook. To reconcile, this must be Added to the cash book overdraft.

Bank Reconciliation Statement of Kumar as on December 31, 2017

Particulars	Amount ($\textsf{₹ }$)
Overdraft as per Cash Book (Credit Balance)	90,600
Add:
Post-dated cheque recorded in cash book but not credited by bank	1,000
Cheques deposited but not yet collected by bank	1,500
Cheque deposited was dishonoured (not yet recorded in cash book)	5,000
	98,100
Less:
Cheque issued to Manohar but not yet presented for payment	(8,000)
Overdraft as per Passbook (Debit Balance)	90,100

Question 13. On December 31, 2017, the cash book of Mittal Bros. Showed an overdraft of ₹ 6,920. From the following particulars prepare a Bank Reconciliation Statement and ascertain the balance as per passbook.

Debited by bank for ₹ 200 on account of Interest on overdraft and ₹ 50 on account of charges for collecting bills.
Cheques drawn but not encashed before December, 31, 2017 for ₹ 4,000.
The bank has collected interest and has credited ₹ 600 in passbook.
A bill receivable for ₹ 700 previously discounted with the bank had been dishonoured and debited in the passbook.
Cheques paid into bank but not collected and credited before December 31, 2017 amounted ₹ 6,000.

Answer:

Bank Reconciliation Statement of Mittal Bros. as on December 31, 2017

Particulars	Plus (+) Amount (₹)	Minus (-) Amount (₹)
Overdraft as per Cash Book	6,920
Interest on overdraft charged by bank	200
Bank charges for collecting bills	50
Discounted bill receivable dishonoured	700
Cheques deposited but not collected	6,000
Cheques issued but not encashed		4,000
Interest collected by bank		600
Total	13,870	4,600
Overdraft as per Passbook (13,870 - 4,600)	9,270

Unfavourable balance of the passbook

Question 14. Prepare bank reconciliation statement of Shri Bhandari as on March 31, 2017

The Payment of a cheque for ₹ 550 was recorded twice in the passbook.
Withdrawal column of the passbook under cast by ₹ 200
A Cheque of ₹ 200 has been debited in the bank column of the Cash Book but it was not sent to bank at all.
A Cheque of ₹ 300 debited to Bank column of the cash book was not sent to the bank.
₹ 500 in respect of dishonoured cheque were entered in the passbook but not in the cash book.

Overdraft as per passbook is ₹ 20,000.

Answer:

Bank Reconciliation Statement of Shri Bhandari as on March 31, 2017

Particulars	Amount (₹)
Overdraft as per Passbook	20,000
Add:
Withdrawal column of passbook undercast	200
	20,200
Less:
Cheque payment recorded twice in passbook	(550)
Cheque recorded in cash book but not sent to bank ($\textsf{₹ } \ 200 + \textsf{₹ } \ 300$)	(500)
Dishonoured cheque not recorded in cash book	(500)
Overdraft as per Cash Book	18,650

Question 15. Overdraft shown by the passbook of Mr. Murli is ₹ 20,000. Prepare bank reconciliation statement on dated March 31, 2017.

Bank charges debited as per passbook ₹ 500.
Cheques recorded in the cash book but not sent to the bank for collection ₹ 2,500.
Received a payment directly from customer ₹ 4,600.
Cheque issued but not presented for payment ₹ 6,980.
Interest credited by the bank ₹ 100.
LIC paid by bank ₹ 2,500.
Cheques deposited with the bank but not collected ₹ 3,500.

Answer:

Bank Reconciliation Statement of Mr. Murli as on March 31, 2017

Particulars	Plus (+) Amount (₹)	Minus (-) Amount (₹)
Overdraft as per Passbook	20,000
Cheques issued but not presented for payment	6,980
Bank charges (not in cash book)		500
Cheques recorded but not sent to bank		2,500
Direct deposit by customer		4,600
Interest credited by bank		100
LIC paid by bank		2,500
Cheques deposited but not collected		3,500
Total	26,980	13,700
Overdraft as per Cash Book (26,980 - 13,700)	13,280

Question 16. Raghav & Co. have two bank accounts. Account No. I and Account No. II. From the following particulars relating to Account No. I, find out the balance on that account of March 31, 2017 according to the cash book of the firm.

Cheques paid into bank prior to March 31, 2017, but not credited for ₹ 10,000.
Transfer of funds from account No. II to account no. I recorded by the bank on March 31, 2017 but entered in the cash book after that date for ₹ 8,000.
Cheques issued prior to March 31, 2017 but not presented until after that date for ₹ 7,429.
Bank charges debited by bank not entered in the cash book for ₹ 200.
Interest Debited by the bank not entered in the cash book ₹ 580.
Overdraft as per Passbook ₹ 18,990.

Answer:

Bank Reconciliation Statement of Raghav & Co. (Account No. I) as on March 31, 2017

Particulars	Amount (₹)
Overdraft as per Passbook	18,990
Add:
Cheques issued but not yet presented	7,429
	26,419
Less:
Cheques paid into bank but not credited	(10,000)
Funds transferred from A/c II, not in cash book	(8,000)
Bank charges not entered in cash book	(200)
Interest debited by bank, not in cash book	(580)
Overdraft as per Cash Book	7,639

Question 17. Prepare a bank reconciliation statement from the following particulars and show the balance as per cash book.

Balance as per passbook on March 31, 2017 overdrawn ₹ 20,000.
Interest on bank overdraft not entered in the cash book ₹ 2,000.
₹ 200 insurance premium paid by bank has not been entered in the cash book.
Cheques drawn in the last week of March 2017, but not cleared till date for ₹ 3,000 and ₹ 3,500.
Cheques deposited into bank on February 2017, but yet to be credited on dated March 31, 2017 ₹ 6,000.
Wrongly debited by bank ₹ 500.

Answer:

Bank Reconciliation Statement as on March 31, 2017

Particulars	Plus (+) Amount (₹)	Minus (-) Amount (₹)
Overdraft as per Passbook	20,000
Cheques issued but not cleared ($\textsf{₹ } \ 3,000 + \textsf{₹ } \ 3,500$)	6,500
Interest on overdraft (not in cash book)		2,000
Insurance premium paid by bank (not in cash book)		200
Cheques deposited but not credited		6,000
Wrongly debited by bank		500
Total	26,500	8,700
Overdraft as per Cash Book (26,500 - 8,700)	17,800

Question 18. The passbook of Mr. Randhir showed an overdraft of ₹ 40,950 on March 31, 2017. Prepare bank reconciliation statement on March 31, 2017.

Out of cheques amounting to ₹ 8,000 drawn by Mr. Randhir on March 27 a cheque for ₹ 3,000 was encashed on April 2017.
Credited by bank with ₹ 3,800 for interest collected by them, but the amount is not entered in the cash book.
₹ 10,900 paid in by Mr. Randhir in cash and by cheques on March, 31 cheques amounting to ₹ 3,800 were collected on April, 07.
A Cheque of ₹ 780 credited in the passbook on March 28 being dishonoured is debited again in the passbook on April 01, 2017. There was no entry in the cash book about the dishonour of the cheque until April 15.

Answer:

Bank Reconciliation Statement of Mr. Randhir as on March 31, 2017

Particulars	Amount (₹)
Overdraft as per Passbook	40,950
Add:
Cheques issued but not yet presented for payment	3,000
	43,950
Less:
Interest collected by bank, not in cash book	(3,800)
Cheques deposited but not yet collected	(3,800)
Dishonoured cheque not yet recorded in cash book	(780)
Overdraft as per Cash Book	35,570