CMA FOUNDATION : Fundamentals Of Accounting : May’ 2021

Chapter : Bank Reconciliation Statement

BANK RECONCILIATION STATEMENT

To reconcile means to reason or find out the difference between two and eliminating that difference.
Whenever we deposit or withdraws money from banks, it is always recorded at two places:-
1. Bank column of the cash book; and
2. Bank statement (pass book)
The cash book is maintained by the person having the bank account whereas the bank statement
is prepared by the bank. Therefore, the balance in both should be equal and opposite in nature.
But most of the times these two balances do not match. It is possible to eliminate this difference by
matching all the facts and figures of the two statements. The process of eliminating this difference
and bringing the two statements in line with each other is known as “Reconciliation” , and the
statement which reconciles the bank balance as per cash book with the balance as per the pass book
by showing all the causes of difference is known as “BANK RECONCILIATION STATEMENT”.

Following are the salient features of bank reconciliation statement:

(i) The reconciliation will bring out any errors that may have been committed either in the cash
book or in the pass book;
(ii) Any undue delay in the clearance of cheques will be shown up by the reconciliation;
(iii) A regular reconciliation discourages the accountant of the bank from embezzlement. There
have been many cases when the cashiers merely made entries in the cash book but never
deposited the cash in the bank; they were able to get away with it only because of lack of
reconciliation.
(iv) It helps in finding out the actual position of the bank balance.

CAUSES OF DIFFERENCE
The difference in the both balances (bank balance as per cash book and pass book) may arise
because of the following reasons:-
1. TIMING:- Sometimes a transaction is recorded at two different times in cash book and
the pass book. This may happen in the following cases:-
 Mr. A has issued a cheque to XYZ ltd., now it will be recorded in his cash book
immediately but the bank will recognize this transaction only when the same cheque will be
presented to it by XYZ ltd.
 Similarly for XYZ ltd. , entry in the cash book will be made immediately as the
cheque is received from Mr. A but the bank account will be credited when it collects money in
respect of that cheque.
2. TRANSACTIONS:- There are various transactions which the bank carries out by itself
without intimating the customer. For e.g.:- interest received on a savings bank account, it will
be credited by the bank immediately but the entry in the cash book will be made only when the
customer comes to know about it, which is usually at a later stage. Similar is the case with Bank
charges (which are debited from the customer account by bank).
3. ERRORS:- Mistakes or errors made in preparing the accounts either by the bank or the
customer can also result in disagreement of the two statements. For this reason rectification of errors
is required to be done in both the statements before preparing any Bank Reconciliation Statement.

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SOME OF THE ITEMS THAT FREQUENTLY CAUSE A DIFFERENCE:-

(i) Cheques issued but not presented for payment: The entry in the cash book is made
immediately on issue of cheque but naturally entry will be made by the bank only when the cheque
is presented for payment. There will thus be a gap of some days between the entry in the cash book
and in the pass book.
(ii) Cheques paid into the bank but not cleared: As soon as cheques are sent to the bank,
entries are made on the debit side of the bank column of the cash book. But usually banks credit
the customer’s account only when they have received the payment from the bank concerned- in
other words, when the cheques have been cleared. Again there will be some gap between the
depositing of the cheques and the credit given by the bank.
(iii) Interest allowed by bank : If the bank has allowed interest to the customer, the entry will
normally be made in the customer’s account and later shown in the pass book. The customer usually
comes to know the amount of the interest by pursuing the pass book and only then he makes relevant
entry in the cash book.
(iv) Interest and expenses charged by the bank: Like (iii) above, the interest charged by
the bank and the amount of the bank charges are entered in the customer account and later in the
pass book. The customer makes the required entries only after he sees the pass book. These are
debited to customer account by bank therefore till such entry is passed in cash book, bank balance
as per pass book is less than bank balance as per cash book.
(v) Interest and dividends collected by the bank: Sometimes investments are left with the
bank in the safe custody; the bank itself sees to it that the interest or the dividend is collected on
the due dates. Entries are made as indicated in (iii) above.
(vi) Direct payments by the bank: The bank may be given standing instructions for certain
payments such as for insurance premium. In this case also, the customer may come to know of
the payment only on seeing the pass book. The entries in the pass book and in the cash book may
thus be on different dates.
(ii) Direct payment into the bank by a customer: If such a payment is received by the bank, it
will be entered in the customer’s account and also in the pass book; the account holder may come to
know of the amount only when he sees the pass book.
(iii) Dishonour of a bill discounted with the bank: If the bankis not able toreceive
payment onpromissory notes discounted by it, it will debit the customer’s account together with
the charges it may have incurred. The customer will naturally make the entry only when he sees
the pass book.
(iv) Bills collected by the bank on behalf of the customer: If goods are sold, the documents
may be sent through the bank. If the bank is able to collect the amount, it will credit the
customer’s account. The customer may make the entry only on receiving the pass book.
All these timing differences will lead to difference in balances as shown by the cash book and the
pass book.
(vii) Errors: While recording the entries errors can occur both in the cash book and in the pass
book. A bank rarely makes any error but if does, the balance in the pass book will naturally differ
from cash book. Similarly if any error is committed in the cash book then it’s balance will be
different from that of the pass book.
Some of the errors include commission of entry, wrong recording of amount, recording of entry on
the wrong side of the book, wrong totalling of the account or wrong balancing of the book and
recording of transactions of other party.

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Causes of differences Favourable Unfavourable Favourable Unfavourable

balance (Dr.)
balance (Cr.)balance (Cr.)balance (Dr.)
as per cash-
as per cash-as per pass-as per pass-
book book book book
Cheque deposited but not cleared Subtract Add Add Subtract
Cheque issued but not presented to bank Add Subtract Subtract Add
Cheque directly deposited in bank by aAdd Subtract Subtract Add
customer
Income (e.g., interest from UTI) directlyAdd Subtract Subtract Add
received by bank
Expenses (e.g., telephone bills, InsuranceSubtract Add Add Subtract
charges) directly paid by bank on standing
instructions
Bank charges levied by bank Subtract Add Add Subtract
Locker rent levied by bank Subtract Add Add Subtract
Wrong debit in the cash book Subtract Add Add Subtract
Wrong credit in the cash book Add Subtract Subtract Add
Wrong debit in the pass book Subtract Add Add Subtract
Wrong credit in pass book Add Subtract Subtract Add
Undercasting of Dr. side of bank account inAdd Subtract Subtract Add
the cash book
Overcasting of Dr. side of bank account inSubtract Add Add Subtract
cash book
Undercasting of Cr. side of bank account inSubtract Add Add Subtract
cash book
Overcasting of Cr. side of bank accountAdd Subtract Subtract Add
incash book
Bill receivable collected directly by bankAdd Subtract Subtract Add
Interest on bank overdraft charged Subtract Add Add Subtract
Final Balance If answer is If answer is If answer is If answer is
positive then positive then positive then positive then
favourable Unfavourable favourable Unfavourable
balance (Cr.) balance (Dr.) balance (Dr.) balance (Cr.)
as per pass- as per pass- as per cash- as per cash-
book and if book and if book and if book and if
negative then negative then negative then negative then
unfavourable Favourable unfavourable Favourable
balance (Dr.) balance (Cr.) balance (Cr.) balance (Dr.)
as per pass-as per pass-as per cash-as per cash-
book. book book book

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When causes of differences are known then start reconciliation by taking any of the balance stated
above and proceed further with the causes. Given the causes of disagreement, the balance of the other
book can be either more or less on account of the said causes.
If the balance of the other book is more on account of the said causes then add the amount. If the
balance of the other book is less on account of the said causes then subtract the amount.
But if causes of differences are not known then one has to compare the debit entries of cash book
with the credit entries of the pass-book and vice-versa. The entries, which do not tally in the course,
are the causes of difference in the balances of both the books. Once the causes are located their
effects on both the books are analysed and then reconciliation statement is prepared to arrive at the
actual bank balance.
In this procedure one, should also take into care that whether opening balance of both the books
at particular point of time from where the books are compared, tallies or not. If opening balances are
not same then unticked items are divided into two categories i.e., one relating to reconciliation of
opening balance and other relating to reconciliation of closing balance.

In case the Bank Reconciliation Statement is required to be prepared at the end of an accounting
period, it is recommended that first, the Cash Book (with amended Bank column) should be
prepared in order to ascertain the correct Bank Balance as per Cash Book and then the Bank
Reconciliation Statement should be prepared to reconcile this correct Bank Balance as per Cash
Book with the balance as per Bank Pass Book. It may be noted that it is the adjusted Cash Book
Balance which is taken to the Balance Sheet. Now the question arises, "How to calculate the
adjusted Cash Book Balance?"
The adjusted Cash Book Balance can be ascertained by passing:

 Adjusting entries in respect of correct items which appear only in Pass Book (e.g. Bank
Charges, Interest charged on overdraft. Interest allowed by Bank, Dividend/ Interest/Bills
Receivable directly collected by Bank, Direct Payment by Bank understanding instructions of
customers).

 Rectifying entries in respect of errors committed in the Cash Book (e.g. cheque issued but
recorded in Cash Column/Discount Column, Cheques issued recorded in Bank-Column with
wrong amount, over/under cast of Bank Column, error in Balancing the Bank Column, error in
carry forward/brought forward of bank balance).
Note: Errors occurred in the Pass book one not to be adjusted in the cash book. All the adjustments
considered in the adjusted cash book are not carried again to the B₹
This adjusted cash book balance is taken to B₹

Adjusted cash book

When the balance in the cash book is first adjusted for certain adjustments before taking it to the
bank reconciliation statement, then it is known as adjusted cash book balance. Adjusting the cash-
book before preparing the bank reconciliation statement is completely optional, if reconciliation is
done during different months. But if reconciliation is done at the end of the accounting year or
financial year, the cash-book must be adjusted so as to reflect the correct bank balance in the balance
sheet.
While adjusting the cash-book the following adjustments are considered:-
1. All the errors (like wrong amount recorded in the cash-book, entry posted twice in the cash-
book, over/ undercasting of the balance etc.) and
2. omissions (like bank charges recorded in the pass-book only, interest debited by the bank,
direct receipt or payment by the bank, dishonour of cheques/bills etc.) by the cash-book

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are taken into care Only these transactions are considered for adjusting cash book, apart
from this delay in recording in the pass-book due to difference in timing (like cheque
issued but not presented for payment, cheque deposited but not collected) is taken to bank
reconciliation statement. This adjusted cash-book balance is taken to bank reconciliation
statement.

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QUESTIONS

Q.1
From the following particulars, prepare a Bank Reconciliation Statement for ABC Ltd.
(1) Balance as per cash book is ₹ 2,40,000
(2) Cheques issued but not presented in the bank amounts to ₹ 1,36,000.
(3) Cheques deposited in bank but not yet cleared amounts to ₹ 90,000.
(4) Bank charges amounts to ₹ 300.
(5) Interest credited by bank amounts to ₹ 1,250.
(6) The balance as per pass book is ₹ 2,86,950.

Q.2
On 31st March 2018, the Bank Pass Book of Aaisha showed a balance of ₹ 1,50,000 to her credit
while balance as per cash book was ₹ 1,12,050. On scrutiny of the two books, she ascertained the
following causes of difference:
i) She has issued cheques amounting to ₹ 80,000 out of which only ₹ 32,000 were presented
for payment.
ii) She received a cheque of ₹ 5,000 which she recorded in her cash book but forgot to deposit
in the bank.
iii) A cheque of ₹ 22,000 deposited by her has not been cleared yet.
iv) Mr. Ganpat deposited an amount of ₹ 15,700 in her bank which has not been recorded by
her in Cash Book yet.
v) Bank has credit an interest of ₹ 1,500 while charging ₹ 250 as bank charges.
Prepare a bank reconciliation statement.

Q.3
From the following particulars of M/s Raina enterprises, prepare a Bank reconciliation statement:
(1) Bank overdraft as per Pass Book as on 31st March 2020 was ₹ 8,800
(2) Cheques deposited in Bank for ₹ 5,800 but only ₹ 2,000 were cleared till 31st March
(3) Cheques issued were ₹ 2,500, ₹ 3,800 and ₹ 2,000 during the month. The cheque of ₹ 5,800 is
still with supplier.
(4) Dividend collected by Bank ₹ 1,250 was wrongly entered as ₹ 1,520 in Cash Book.
(5) Amount transferred from fixed deposit A/c into the current A/c ₹ 2,000 appeared only in Pass
Book
(6) Interest on overdraft ₹ 930 was debited by Bank in Pass Book and the information was received
only on 3rd April 2020.
(7) Direct deposit by M/s Rajesh Traders ₹ 400 not entered in Cash Book.
(8) Corporation tax ₹ 1,200 paid by Bank as per standing instruction appears in PB only

Q.4
On 31.12.20, Mr. Rohan’s Bank Balance as shown by the Cash Book was ₹ 75,000. On receipt of
Bank Statement it was found that:
(i) Three cheques of ₹ 3,000, ₹ 4,000 and ₹ 1,500 drawn in favour of suppliers respectively on 28th,
29th and 30th December, 2020 had been debited in the Bank Statement on 2nd January 2021.
(ii) The Bank had credited ₹ 8,000 on 30th December, 2020, in respect of collection made by Bank
directly from a customer, the intimation not having yet been received.

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(iii) Two cheques of ₹ 5,000 and ₹ 6,000 were deposited into Bank on 30th December, 2020 had
been credited in the Bank statement on 4th January, 2021.
(iv) The Bank had debited ₹ 30 as incidental charges on 30th December, 2020 but not entered in
the Cash Book.
Show the reconciliation of the Bank Balance as per Cash Book with the Bank Balance as per Bank
Statement as on 31st December, 2020.

Q.5
The Bank Pass Book of Mr. Anil showed an overdraft of ₹ 6,000 on 31.12.2020. Prepare the Bank
Reconciliation Statement based on the following details:
(1) Cheques issued but not presented upto 31.12.2020, ₹ 5,500
(2) Cheques deposited but not credited upto 31.12.2020, ₹ 9,000
(3) Bank commission ₹ 30 was entered only in the Pass Book.
(4) A cheque for ₹ 6,500 issued in settlement of a debt was encashed on 28.12.2020 but entered in
the Cash Book as ₹ 8,500.

Adjusted Cash Book :

Q.6
The Bank Column of the Cash Book showed an Overdraft of ₹ 5,000 on 31.3.2020, whereas per
Bank Statement the overdraft is ₹ 4,200. The following differences were noticed between the two
records:
(a) Cheques of ₹ 2,400 issued but not encashed by customers
(b) Cheques deposited but not cleared ₹ 1,200
(c) Collection charges debited by Bank not recorded in CB ₹ 100
(d) Bank interest charged by the Bank not recorded in CB ₹ 300
(e) Cheques dishonoured debited by Bank not in CB ₹ 400
(f) Interest directly received by Bank not entered in CB ₹ 400
Prepare Bank reconciliation statement after amending the CB.

SELF EVALUATION

Q.7
Prepare a bank reconciliation statement from the following particulars on 31st March, 2018:
Particulars ₹
Debit balance as per bank column of the cash book 37,20,000
Cheque issued to creditors but not yet presented to the bank for payment 7,20,000
Dividend received by the bank but not yet entered in the cash book 5,00,000
Interest allowed by the bank 12,500
Cheques deposited into bank for collection but not collected by bank up to this date. 15,40,000
Bank charges 2,000
A cheque deposited into bank was dishonoured, but no intimation received 3,20,000
Bank paid house tax on our behalf, but no information received from bank in this 3,50,000
connection.

Solution :
Bank Reconciliation Statement as on 31st March, 2018

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₹ ₹
Debit balance as per cash book 37,20,000
Add: Cheque issued but not yet presented to bank for payment 7,20,000
Dividend received by bank not entered in cash book 5,00,000
Interest allowed by bank 12,500 12,32,500
49,52,500
Less: Cheques deposited into bank but not yet collected 15,40,000
Bank charges 2,000
A cheque deposited into bank was dishonoured 3,20,000
House tax paid by bank 3,50,000 (22,12,000)
Credit balance as per pass book 27,40,500

Q.8
From the following information (as on 31.3.2017), prepare a bank reconciliation statement after
making necessary amendments in the cash book:

Particulars ₹
Bank balances as per the cash book (Dr.) 32,50,000
Cheques deposited, but not yet credited 44,75,000
Cheques issued but not yet presented for payment 35,62,000
Bank charges debited by bank but not recorded in the cash-book 12,500
Dividend directly collected by the bank 1,25,000
Insurance premium paid by bank as per standing instruction not intimated 15,900
Cash sales wrongly recorded in the Bank column of the cash-book 2,55,000
Customer’s cheque dishonoured by bank not recorded in the cash-book 1,30,000
Wrong credit given by the bank 1,50,000
Also show the bank balance that will appear in the trial balance as on 31.3.2017.

SOLUTION
Cash Book as on 31.3.2017
(After making necessary amendments)
Dr. Cr.
Particulars Amount ₹ Particulars Amount ₹
To Balance b/d 32,50,000 By Bank charges 12,500
To Dividend 1,25,000 By Insurance premium 15,900
By Trade receivables (cheque dishonoured) 1,30,000
By Cash A/c (wrongly recorded cash sales) 2,55,000
By Balance c/d 29,61,600
33,75,000 33,75,000

Bank Reconciliation Statement as on 31.3.2017

Particulars Details Amount ₹
Bank balance as per the cash book 29,61,600

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Add: Cheques issued but not yet presented for payment 35,62,000
Wrong credit given by bank 1,50,000 37,12,000
66,73,600
Less: Cheques deposited but not yet credited by bank (44,75,000)
Balance as per the pass book 21,98,600

The bank balance of ₹ 29,61,600 will appear in the trial balance as on 31st March, 2017.
Note: Cash sales should have been recorded by passing the following entry:
Cash A/c Dr 2,55,000
To Sales A/c 2,55,000
But it has been wrongly debited to Bank A/c, so following rectification entry has been
passed:
Cash A/c Dr 2,55,000
To Bank A/c 2,55,000

Q.9
From the following information, prepare a Bank reconciliation statement as at 31st December, 2018
for Vedanta Metal Ltd. :
₹
(1) Bank overdraft as per Cash Book on 31st December, 2018 22,45,900
(2) Interest debited by Bank on 26th December, 2018 but no advice received 2,78,700
(3) Cheque issued before 31st December, 2018 but not yet presented to Bank 6,60,000
(4) Transport subsidy received from the State Government directly by the Bank 14,25,000
but not advised to the company
(5) Draft deposited in the Bank, but not credited till 31st December, 2018 13,50,000
(6) Bills for collection credited by the Bank till 31st December, 2018 but no advice 8,36,000
received by the company
(7) Amount wrongly debited to company account by the Bank, for which no details 7,40,000
are available

Bank Reconciliation Statement of M/s. New Steel Limited

Particulars + 
Balance as per cash book  22,45,900
Interest debited by bank  2,78,700
Cheque issued but not presented 6,60,000 
Transport Subsidy received directly 14,25,000 
Draft deposited but not cleared  13,50,000
Bills for collection 8,36,000 
Amount wrongly debited by bank  7,40,000

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Balance as per pass book 16,93,600 

46,74,000 46,74,000

Q.10
From the following particulars ascertain the balance that would appear in the Bank Pass Book of
Ballu on 31st March, 2018.
(1) The bank overdraft as per Cash Book on 31st March, 2018 ₹ 6,340.
(2) Interest on overdraft for 6 months ending 31st March, 2018 ₹ 160 is entered in Pass Book.
(3) Bank charges of ₹ 400 are debited in the Pass Book only.
(4) Cheques issued but not cashed prior to 31st March, 2018, amounted to ₹ 11,68,000.
(5) Cheques paid into bank but not cleared before 31st March, 2018 were for ₹ 22,17,000.
(6) Interest on investments collected by the bank and credited in the Pass Book ₹ 12,00,000.

Bank Reconciliation Statement as on 31.12.2017

Particulars + 
Balance as per cash book  6,340
Interest on BOD  160
Bank charges  400
Cheques issued but not cashed 11,68,000 
Cheques deposited but not cleared  22,17,000
Interest on investments 12,00,000 
Balance as per Pass Book  1,44,000
23,68,000 23,68,000

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