Bank Reconciliation Statement (BRS)
Let's Reconcile The Differences

   All cash transactions are recorded in Cash Book and Bank transactions in bank column of the Cash Book. For reconciling the bank balances as per bank column of the cash book and bank statement a reconciliation statement is prepared known as Bank Reconciliation Statement (BRS).

   Transactions that involve Cash and Bank are normally taken into consideration while preparing Bank Reconciliation Statement.

   Here the first thing that should be noted that any amount cash/cheque that is not directly deposited into bank is first recorded into the Cash column of the Cash Book with the date of receipt. Then, at the date of deposit, the same cheque is deducted from the cash column of the Cash Book and added to the bank column of the Cash Book.

   It is also to be noted that while preparing Bank Reconciliation Statement, any adjustments that needs to be done has to be incorporated into the Cash Book, as the authority to pass entry in the Pass Book is vested with the Banker/ bank personnel.

   Here it is to be noted that though Cash Book and Pass Book reflects the financial position of the firm, but the entries passed are normally opposite of each other. This is because Cash Book shows the position of cash in hand (Current Asset) as on a date and also the ownership of the money remains with the owner.

   But Pass Book; though it reflects the balance of cash at bank (Current Asset) as on a date but the ownership of the money remains with the owner and not with the bank as because money is deposited with the bank for safe custody and to facilitate trade. For the banker, it is liability for the simple reason that the banker has to honour a valid cheque or has to make payment as and required and instructed. Because of this reason a Cash Book normally shows 'Debit Balance' and a Pass Book normally shows 'Credit Balance' and as such the entries between the two moves in the opposite direction.

Note:

  1. Balance as per Cash Book (Dr.) = Asset
  2. Balance as per Cash Book (Cr.) = Liability
  3. Overdraft balance as per Pass Book (Dr.) = Liability
  4. Balance as per Pass Book (Cr.)= Assets

   It can be seen that the balance as per Cash Book (Dr.) and balance as per Cash Book (Cr.) are opposite of each other and the overdraft balance as per Pass Book (Dr.) and overdraft balance as per Pass Book (Cr.) are also opposite of each other.

   A Bank Reconciliation Statement may normally start with any of the four Opening Balance:

  1. Balance as per Cash Book (Dr.)
  2. Balance as per Pass Book (Cr.)
  3. Overdraft as per Cash Book (Cr.)
  4. Overdraft as per Pass Book (Dr.)

Here it is to be noted that the first two balances 1 and 2 denotes Assets and the next two balances 3 and 4 denotes Liability.

Here it is to be noted that Cash or Bank is treated as Assets for any person or commercial organization and is shown on the debit side of the Cash Book, if the balance is positive one. This is because the ownership of the money is vested to whom it belongs to. But when the same cash is deposited with the Bank, the banker treats it as their liability, as because the ownership of the money deposited lies with the customer of the bank and not with the banker. The banker simply acts as the custodian of the cash reserves. It is for this reason that when the money is deposited with the bank, it is credited by the bank and is also shown on the credit side of the Bank Pass Book.

The entry between the Cash Book and Pass Book moves in the opposite directions – Debit of Cash Book will be shown on the credit of Bank Pass book and vice versa.

When a Bank Reconciliation Statement starts with a debit (positive) balance as per Cash Book, any amount that is added will increase the positive balance and any amount that is deducted will decrease the positive balance and vice versa.

When a Bank Reconciliation Statement starts with a credit (positive) balance as per Pass Book, any amount that is deposited into bank will increase the positive balance and any amount that is deducted from the bank will decrease the positive balance and vice versa.

Description Of The Types of Opening Balance:

1. Opening Balance as per Cash Book (Dr.)

When a Bank Reconciliation Statement starts with a debit balance of Cash Book, it denotes the position of current Asset of the firm.

Here all entries that increase the position of Cash in hand and which are not recorded in the Cash book will have to be added in the Cash Book.

And all entries that decrease the position of Cash in hand and which are not recorded in the Cash book will have to be deducted in the Cash Book.

2. Opening Overdraft Balance as per Cash Book (Cr.)

When a Bank Reconciliation Statement starts with an Overdraft balance of Cash Book (Cr.), it denotes the position of Bank Balance (Current Liability) of the firm.

Here all entries that increase the overdraft position or liability of the firm and which are not recorded in the cash book will be added in the Cash Book and thereby increasing the overdraft balance of the firm. Here increase in overdraft (liability) indirectly means decrease the cash or bank balance (Assets) of the concern.

And all entries that decreases the overdraft position or liability of the firm and which are not recorded in the cash book will be deducted in the Cash Book and thereby deducting the overdraft balance (liability) of the firm. Here decrease in overdraft (liability) indirectly means increase the Cash or Bank balance (Assets) of the concern.

3. Opening Balance as per Pass Book (Cr.)

When a Bank Reconciliation Statement starts with a credit balance of Pass Book, it denotes the position of Bank Balance (Current Asset) of the firm.

Here all entries that increase Bank Balance or the position of Cash at Bank and which are not recorded in the Bank Column of the Cash Book will have to be added in the Bank Column of the Cash Book.

And all entries that decrease Bank Balance or the position of Cash at Bank and which are not recorded in the Bank Column of the Cash Book will have to be deducted from the Bank Column of the Cash Book.

4. Opening Overdraft Balance as per Pass Book (Dr.)

When a Bank Reconciliation Statement starts with an Overdraft balance of Pass Book (Dr.), it denotes the position of Bank Overdraft Balance (Current Liability) of the firm.

Here all entries that increase the bank overdraft balance or the position of current liability of the firm and which are not recorded in the Bank Column of the Cash Book will have to be added in the Bank Column of the Cash Book and thereby increasing the overdraft bank balance of the firm. Here increase in overdraft (liability) indirectly means decrease the Cash or Bank Balance (Assets) of the concern.

And all entries that decrease the bank overdraft balance or the position of current liability of the firm and which are not recorded in the Bank Column of the Cash Book will have to be deducted from the Bank Column of the Cash Book and thereby decreasing the overdraft bank balance of the firm. Here decrease in overdraft (liability) indirectly means increase the cash or bank balance (Assets) of the concern.

Preparation of Bank Reconciliation Statement:

A Preparation of Bank Reconciliation Statement can be prepared either from Cash Book or Pass Book balance

  1. If it is prepared from Cash Book balance, all items that increases Pass Book balance will be added and like wise, items that decreases Pass Book balance will be deducted
  2. If it is prepared from Pass Book balance, all items that increases Cash Book balance will be added and like wise, items that decreases Cash Book balance will be deducted
From the following particulars prepare Bank Reconciliation Statement as on 31st December 2010

  1. Balance as per Cash Book Rs. 18,000.00
  2. Cheque paid into bank but credited by the Bank on 5th January next Rs.2,000.00
  3. Cheque paid into Bank and credited in the Pass Book but omitted to be recorded in the Cash Book Rs.2,000.00
  4. Cheque issued but were debited by the Bank after 31st December Rs. 2,500.00
  5. The Bank Pass Book showed a credit of Rs. 30 and a debit of Rs 40.00 but no entry were made in theCash Book.
  6. Noting charge on dishonor of discount on bill discounted debited in the Pass Book but not recorded in the Cash Book Rs. 150.00
  7. Cheque paid into Bank and debited in the Cash Book but not collected by the Bank before the close of the period Rs 5,000.00
  8. Direct deposit of cheque by customer into Bank but omitted to be recorded in the Cash Book Rs 3,000.00

Bank Reconciliation Statement of----------------------------------------
for the year ended 31st December 2010

Particulars

Balance as per Cash Book. --------------------------------------------------------------Dr.

Add:Cheque credited in the Pass Book but not entered in the Cash Book
Add:Cheque issued but debited by the Bank after 31st December
Add:Interest on Deposit credited by the bank not recorded in the Cash Book.
Add:Direct deposit credited in the Pass Book not recorded in the Cash Book.

Less:Cheque paid into Bank but credited in the Pass Book after 7th January next
Less:Bank charges debited in the Pass Book but not credited in the Cash Book.
Less:Noting charges debited in the Pass Book but not credited in the Cash Book.
Less:Cheque debited in the Cash Book but not credited in the Pass Book before the close of the period.
Balance as per Pass Book (Cr.)



2,000.00
2,500.00
30.00
3,000.00

2,000.00
40.00
150.00
5,000.00

18,000.00




7,530.00
27,530.00



7,190.00

20,340.00
Explanations:
Cheque deposited into bank and credited in the Pass Book but not entered in the Cash Book:
       When a cheque is deposited into bank, the bank balance increases to extent of the amount of deposit made. But if no entry is made in the Cash Book for the amount so deposited, the Cash Book balance will be lesser than the Pass Book balance. Now, to reconcile this difference, it is to be added in the Cash Book.
Cheque issued but debited by the Bank after 31st December:
       When a cheque is issued, the amount of cheque is normally deducted from the Bank column Cash Book with the expectation that the person to whom the cheque is issued will encash (withdraw) the amount from the bank before the end of the accounting period. But if the amount is not withdrawn from the Bank, the cheque that was deducted earlier from the Bank column of the Cash book while issuing will have to be added back and thus make the balance of both Cash Book and Bank Pass Book same as on that date.

Interest on Deposit credited by the bank but not recorded in the Cash Book:
       When interest is provided by the bank and is credited in Pass Book, the bank balance gets increased and is reflected in the balance of Pass Book. But if the corresponding entry is not made in the Cash Book, the Cash Book balance will remain the same (lesser than the Pass Book).So it is to be added in the Cash Book.

Direct Deposited Credited in the Pass Book but not recorded in the Cash Book:
       When any amount is deposited into the bank directly and no corresponding entry is passed in the Cash for the amount of deposit so made, the Bank Balance (balance as per Pass Book) will be higher than the Cash Book balance. So it is to be added in the Cash Book.

Cheque Paid into Bank but credited in the Pass Book after 7th January next:
       When a Cheque is paid into bank (deposited), it is first added in the Cash Book and than sent to the Bank for the deposited to be made. It is added in the Cash Bok before hand with the expectation that the amount of cheque will be collected by the bank and be credited into the account before the close of the accounting period. But if the cheque is not credited into the account before the close of the accounting period, the amount of cheque that was added in the Cash Book earlier has to be deducted again so as to make the balance of both the Cash Book and the Pass Book same as on that date.

Bank charges/Noting Charges debited in the Pass Book but not credited in the Cash Book:
       When any charges are debited in the Pass Book, it is treated as expenditure for the concern and the balance of the Bank comes down to extent of the amount debited by the bank. If no corresponding entry is made in the Cash Book for the amount of debit made in the Pass Book, the amount of deduction shown in the Pass Book is to be deducted in the Cash Book. Only than the Cash Book balance and the Pass Book balance will be same.

Cheque debited in the Cash Book but not credited in the Pass Book before the close of the period:
       When cheque is debited in the Cash Book, the balance of Cash Book gets increased to the amount of the deposit made. But if the same is not credited in the Pass Book before the close of the period, the deposited earlier made in the Cash Book has to be deducted. Only than the Cash Book balance and the Pass Book balance will be same.

From the following particulars prepare Bank Reconciliation Statement as on 31st March 2009

  1. On 3ist March 2009, the Bank Pass showed a credit balance of Rs. 25,000.00.
  2. Before that date, cheques amounting to Rs. 3,000.00 out of which 1200.00 have so far been presented for payment.
  3. A cheque of Rs. 8,000.00 paid into Bank but not credited in the Pass Book before the end of 31st March.
  4. A cheque of Rs 1,500.00 received and entered in the Bank column of the Cash Book but omitted to be paid into Bank.
  5. On 31st March, a cheque of Rs. 750.00 received was paid into Bank and credited in the Pass Book but omitted to be recorded in the Cash Book.
  6. The bank Pass book had a credit of 250.00 and a debit of 550.00.

Bank Reconciliation Statement of----------------------------------------
for the year ended 31st March 2009

Particulars

Balance as per Pass Book. --------------------------------------------------------------Cr.

Add:Cheque issued but not presented to the Bank for payment
Add:Cheque credited by the Bank but not recorded in the Cash Book
Add:Interest on Deposit credited by the bank but not recorded in the Cash Book.

Less:Cheque paid into Bank but not credited in the Pass Book
Less:Cheque recorded in the Bank Column of the Cash Book but not credited in the Pass Book.
Less:Noting charges debited in the Pass Book but not credited in the Cash Book.

Balance as per Cash Book (Dr.)



1,800.00
750.00
250.00

8000.00
1,500.00
550.00

25,000.00



2,800.00
27,800.00



10,050.00

17,750.00
Explanations:
Pass Book is opposite of Cash Book and vice versa. So the easiest way of solving this kind of problem will be to try getting the answer considering the opening balance as balance as per cash Book and after getting the answer, writing down the opposite of the ultimate answer. This will give the answer of balance as per Pass Book (Cr.)
       It is easier to find out the answer when the balance is as per Cash Book.

Cheque issued but not presented to the Bank for payment:
       When any cheque is issued, the bank column of the Cash book is deducted with the expectation that the cheque issued will be presented to the bank for payment. But if the cheque is not presented to the bank for payment, the Pass Book balance will remain the same whereas the bank column of the Cash Book will show a figure less than the Pass book balance.        Now to make the balance of the Bank column of the cash Book and the Pass Bok balance same, the cheque should be added back into the Cash Book.

Cheque/Interest credited by the Bank but not recorded in the Cash Book:
       When any cheque or interest is credited or deposited by the Bank, the bank balance gets increased. Now, if the same is not recorded into the Cash Book, the Cash Book balance will remain the same; so it is to be added in the Cash Book and thus make the balance of Cash Book and Pass Book same.
       Here, we find that the opposite of "credit" is "Debit". So when the Pass Book is credited, the Cash Book should be debited and to debit the cash book, it should be added.

Cheque paid into Bank but not credited in the Pass Book:
       When any cheque is paid into bank, the bank column of the Cash Book is added with the expectation that the cheque will be credited in the Pass Book. But, if the same is not credited within the accounting year, the cheque should be written back or deducted in the Cash Book.

Cheque recorded in the Bank Column of the Cash Book but not credited in the Pass Book:
       Here it is to be noted that whenever any cheque is received, it is normally recorded in the Cash column of the Cash Book if the cheque is not sent to the bank for collection the same day.        Now, when the cheque is sent to the bank for collection, it is deducted from the cash column of the Cash Book and is added into the Bank column of the Cash Book with the expectation that the cheque will be credited into the Pass Book within the accounting period. But if the same cheque is not credited into the Pass Book, the value of cheque that was added earlier into the Bank Column of the Cash Book while sending it to the Bank has to be deducted.        This is necessary inorder to make the balance of the Cash Book and the Pass Book same. Without such treatment, the Cash Book balance will be higher than the Pass Book balance.

Noting charges debited in the Pass Book but not credited in the Cash Book:
       Whenever any kind of service charge or noting charge is debited or deducted in the Pass Book, the Pass Book balance will show a figure lower than the bank column of the Cash Book if the same amount of charge is not deducted or debited in the Cash Book.        Thus, to make the balance of both the Pass Book and Cash Book same, the amount of charge deducted in the Pass Book has also be deducted from the Bank column of the Cash Book.

From the following particulars prepare Bank Reconciliation Statement as on 31st December 2010
  1. On 31st December 2010, the Cash Book showed an Overdraft of 98,700.00, on going through the Bank Pass, the following discrepancies were found:
  2. Out of the cheques drawn on December 2010, those for 7,400.00 were cashed by the bankers in the month of January and a crossed cheque of 1,500.00 given to Rahim was returned by him and a bearer one was issued to him in lieu in the month of October.
  3. Cash and cheque amounting to Rs. 6,800.000 were deposited into Bank on 28th December but cheques worth Rs. 2,600.00 were cleared by the banker on 5th January and one cheque of Rs. 500.00 was returned dishonoured.
  4. As per the standing instruction, the bank paid Rs.2160.00 to the creditors but no entry was made in the Cash book.
  5. The Bank also debited Rs. 550.00 as locker charge and was omitted to be recorded in the Cash Book.
  6. The Bank received Rs. 300.00 as dividend on shares but was ignorant of the receipt.
  7. The Bank charges and commission being Rs. 30.00 not adjusted into Cash book
  8. A wrong credit was posted in the Pass Book Rs. 1,000.00 that was not adjusted
  9. A wrong debit was posted in the Pass Book Rs. 600.00 that needs to be considered.

Bank Reconciliation Statement of----------------------------------------
for the year ended 31st December 2010

Particulars

Overdraft as per Cash Book. --------------------------------------------------------------Cr.

Add:Cheques deposited but not cleared by the banker
Add:Payment made but not recorded in the Cash Book
Add:Locker charge debited by the bank but not credited in the Cash Book
Add:Bank charges and commission not recorded into Cash Book
Add:Amount wrongly debited by the Bank

Less:Cheques issued but not presented to the bank for payment
Less:Dividend deposited into bank but not recorded in the Cash Book
Less:Amount wrongly credited by the Bank

Overdraft as per Pass Book (Dr.)



3,100.00
2,160.00
550.00
30.00
600.00

8,900.00
1,000.00
550.00

98,700.00





6,440.00
1,05,140.00


10,450.00

94,690.00


From the following particulars prepare Bank Reconciliation Statement as on 31st March 2009
  1. On 31 March 2009 the Pass Book showed an overdraft of Rs. 19,000.00.
  2. Cheques of Rs. 9,000.00 were paid into bank on 28th March and Rs. 4,000.00 has been credited in the pass Book on 4th of April 2009.
  3. Cheques amounting to Rs. 16,000.00 were issued in the month of March but only 7,000.00 have been encashed for payment, Rs 5,000.00 has been encashed the next month and the rest has not been presented at all.
  4. The Banker has given a wrong credit of Rs. 2,000.00
  5. Interest on overdraft of Rs. 1,000.00 charged in the Pass Book on 1st November has been entered in the Cash Book on 31st October.
  6. Interest on securities of Rs. 1,200.00 directly deposited into bank not recorded in the Cash Book.

Bank Reconciliation Statement of----------------------------------------
for the year ended 31st March 2009

Particulars

Overdraft as per Pass Book.. --------------------------------------------------------------Dr.

Add:Cheques issued but not presented to the bank for payment
Add:Interest on overdraft entered by the bank on 1st April
Add:Interest on Securities collected by the bank not recorded in the Cash Book

Less:Cheques issued but not credited by the Bank
Less:Cheque wrongly credited into Bank
Less:Amount wrongly credited by the Bank

Overdraft as per Cash Book (Cr.)



9,000.00
1,000.00
1,200.00

9,000.00
2,000.00
550.00

19,000.00



11,200.00
30,200.00


11,550.00

18,650.00
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