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Bank Reconciliation Statement CA Foundation Notes

Bank Reconciliation Statement –

CA Foundation, CPT notes, PDF

What we will study in this chapter: We will study why & how the Bank Reconciliation Statement is prepared & what use it has for final accounts.

Bank Reconciliation Statement

Bank Reconciliation Statement

INTRODUCTION:

A bank a/c or bank book is maintained by us to record the transactions with the bank. Similarly, Bank maintains our a/c in their books. A copy of which is given to us known as Bank statement or passbook. All the transactions recorded by us will be recorded by bank also, therefore normally the balance shown by the two books must be same and should be the opposite balance. But practically this balances at a particular time (i.e. on a particular date) doesn’t tally because there is always some time gap between the recording of the same transaction by us and by bank.

To find out the causes of difference, we prepare a Bank Reconciliation Statement (BRS). The items which come in Reconciliation statement can be grouped in the following 4 categories.

(1)   Items recorded by the bank but not recorded in our books.

Ex.: a. Bank charges charged by Bank b. Interest credited by Bank

(2)   Recorded by us but not recorded by the bank. (Bank will record at a later date).

Ex. a. Cheque deposited but not yet realised b. Cheque issued but not yet paid by Bank

(3)   Errors committed in our books (i.e. in cash book – bank column).

Ex. a. Totalling, balancing error b. cheque deposited & returned dishonoured but not yet reversed.

(4)   Errors committed by the bank (i.e. in passbook).

Ex. a. Totalling, balancing error b. An item of some other person debited or credited to our a/c.

For the sake of convenience we will refer the above-explained items by number 1,2,3 and 4, in the later part of this chapter. But students must take a note that these are not any standard numbers and may not be used by others.

9.1  MEANING:

Bank Reconciliation Statement (BRS):

♦     is a statement

♦     on any particular date

♦     which reconciles (tallies) the cash book (bank column) balance & passbook (Bank statement) balance.

♦     by writing the items causing a difference between the two balances.

9.2       IS IT NECESSARY THAT CASH BOOK & PASSBOOK BALANCE WILL ALWAYS DIFFER?

♦     Definitely not. i.e. they may be same or may not be same at any particular point of time.

♦     Both the books, records (or should record)

■     same items therefore the balance of the two books must be same

■     but should be opposite because when we debit bank a/c, bank credits our a/c & vice versa.

♦     But in reality the two balances on any particular date may not be same because:

■     there may be time gap in recording the same transaction/item in these two books,

■     as also there may be error committed by one but not the other.

9.3 WHEN TO PREPARE BRS?

♦     It can he prepared am time, at any periodicity.

♦     Although enterprise t .in prepare it monthly or even at lesser interval depending on the volume of transactions.

♦     But at the end of financial year, BRS must be prepared

■     so that corrected hank balance will appear in Final accounts,

■     similarly it will confirm the recording of all transactions in financial statements

9.4 NATURE OF BALANCES IN THE CASH BOOK & PASSBOOK:

ParticularsNature of Balance
Wording UsedAs per Cash hookAs per Pass hook
(i) Deposits with Bank. Balance with Bank, Cash with Bank etc.Debit (Asset)Credit (Liability)
(ii) Overdraft balance, loan balance, Excess withdrawn etc.Credit (Liability)Debit (Asset)

♦ Wait and think for a moment that:

■     our deposit with bank is an Asset for us but a liability for Bank.

■     Similarly, loan/overdraft from the bank is a liability for us but an asset for Bank.

♦     Also, recall from what you have studied in 1st chapter that

■     all assets have a debit balance and all liabilities have credit balance.

9.5 IS THE BRS PREPARATION AN END IN ITSELF:

♦     Definitely not.

♦     BRS will only confirm the existence of all items causing the difference between cash book & passbook.

♦     Thereafter management must

■     pass entries in its books of account for those items which it has not yet recorded (i.e. item No. 1) &

■     should rectify the errors committed by it (i.e. item No. 3).

♦     Then only we will get corrected or final Bank balance.

♦     Thus BRS will be final, only when it contains items (2) & (4) only that in those items which are pending from the side of Bank.

9.6 BANK PASSBOOK/BANK STATEMENT:

Bank Pass Book or Bank statement is the

♦     Copy of our (customers) a/c maintained in the Banks account book.

♦     It is periodically given by the Bank to the customer.

♦     With this customer compares its own record & prepare BRS.

Format of Passbook/Bank Statement

DateParticularsWithdrawal

(Dr.)

Deposit

(Cr.)

Balance

9.7 CASH BOOK & BANK ACCOUNT IN THE CONTEXT OF BRS:

♦     When cash book is referred to in the context of BRS it means Bank column of cash book & not cash column.

♦     This Bank Column of cash book is nothing but a Bank account.

♦     Therefore those Bank accounts which are made in ledger will be similarly treated for BRS.

Format of Cashbook (bank Column) or Bank a/c
Dr.Cr.
DateParticulars (Deposit)AmountDateParticulars (withdrawn/payment)Amount

Mirror Image:

♦     When we deposit cash, Cheque, D.D. etc. we record on the debit side of Cash Book whereas Bank records it on the Credit Side of Passbook.

♦     Similarly when payment is made from Bank a/c we credit it in Cash Book whereas Bank debits in Passbook.

♦     Thus Cashbook & Passbook will have opposite effect for same item.

Comment on above formats:

♦     Usually, customers of bank (i.e. the enterprise) prepares an account in T form i.e. debit on left side and credit on right side.

♦     But the above shown Dr., Cr., Balance format of account followed in passbook can be used by the customer as well.

♦     This ‘Dr, Cr, Balance’ format is more useful when the account balance is needed after every transaction.

Passbook as per bank’s record and bank account as per our record are personal accounts hence apply the rule: Debit the receiver and Credit the Giver.

9.8 PRESENTATION OF BRS: ADD-LESS PATTERN VS. DR.-CR. PATTERN :

♦     No particular form/pattern of BRS is necessary.

♦     In most of the textbook, it is presented in Add-less form.

♦     As in all other chapters, in BRS also I advise students to use their accounting knowledge.

♦     The whole accounting is in debit-credit, then why not BRS.

♦     When BRS is prepared in debit-credit form.

♦ this revises student’s accounting knowledge.

■     it gives a better understanding of why BRS is prepared &

■     how it is used ultimately for ascertaining correct/final bank balance.

♦     A debit-credit BRS can be easily changed to Add-less form also.

♦     Some illustration we have given in both forms to give comparative idea.

9.9 PROCEDURE FOR PREPARING BRS:

♦     Reconciliation statement can be started

■     either with our balance i.e. Cashbook balance or

■     with the balance is shown by bank i.e. passbook balance.

♦     Reconciliation statement can be prepared in debit-credit form or in add-less form.

♦     We will study the Bank Reconciliation in Debit-Credit form.

♦     The starting balance either as per cash book or as per Passbook should be first written correctly on Debit or Credit column as the case may be. (refer para 3.4)

♦     Then the lour type of items listed above in introduction should be given treatment as follows in the reconciliation statement.

(1)   For items as per No. (1) above, give the effect of recording that transaction in cash book.

(2)   For items as per No. (2), give the effect of recording that transaction in the passbook.

(3) For items No. (3), give the effect of correcting it or rectifying it in the cashbook.

(4) For items No. (4), give the effect of correcting it or rectifying it in the passbook.

♦     At the end we will get the balance as per the other book. (Other than the one whose balance is taken as starting point in Bank Reconciliation statement.)

Whatever is mentioned above is only effects considered on a statement, no entries are passed in books of account as yet.

9.10 INTERPRETATION WHILE PREPARING BRS:

♦     In preparing BRS what we are doing is arithmetically tallying the two balances hence give such treatment in BRS as if that it is recorded at both places or it is not recorded at either place.

♦     To decide such treatment it can be interpreted as:

■     all 1 to 4 items from our (customers) angle (point of view) or

■     all 1 to 4 items can be interpreted as per Bank or

■     1 & 3 items from our (customers) view & 2 & 4 from Banks side as done above. It is further explained below:

Items interpreted for treatment in BRS from the viewpoint of party (Customer or Bank) from whose side it is pending

Item No.Item’s natureInterpreted as perTreatment in BRS
1Recorded by bank not recorded by customerCustomerAs if the item is being entered by customer
2Recorded by customer not recorded by bankBankAs if the item is being entered by Bank.
3Errors committed by CustomerCustomerAs if error is being rectified by customer
4Errors committed by BankBankAs if the error is being rectified by Bank.

Note: Treatment in BRS for an item will be always same, in whichever way we interpret it.

The two balances will tally if either an item is correctly recorded in both the books or is nil at both the places. Keep this in mind while deciding effect to be given in BRS. So if it is recorded in cash book give the effect of recording in passbook also or the effect of reversing in Cashbook. Like this treat other items also.

9.11 BANK BALANCE IN BALANCE SHEET I.E. CORRECTED/ADJUSTED/FINAL BANK BALANCE :

♦     Sometimes corrected bank balance or balance to be shown in the balance sheet is asked.

♦     In the cash book balance as given, if we adjust (i.e. pass the entries in the books) for item Nos. (1) & (3) the resultant figure will be corrected balance.

♦     If Reconciliation statement is prepared to take this balance as the base then only 2nd & 4th Number items will come in it.

♦     Items (1) & (3) indicate that entry or correction is pending from our side (i.e. in cash book).

♦     Items (2) & (4) indicate that entry or correction is pending from Banks side (i.e. in Passbook).

♦     The Bank reconciliation is final only when it contains the item No. 2 &/or 4 only i.e. nothing should be pending from our side.

9.12 SANCTITY OF THOSE NUMBERS 1 TO 4 REFERRED ABOVE:

♦     Numbers 1 to 4 has been used only for the sake of Convenience to refer the same items again & again.

♦     One can use 1 to 4 in any other order or can use A, B, C, D etc.

♦     What is important is item 1 is those which are pending by customer & 3 is errors committed by the customer.

♦     Whereas item 2 is pending from Bank’s side &. item 4 is errors committed by Bank.

♦     On items 1 & 3 customer has to take action & on 2 & 4 Bank has to take action.

♦     By comparing each & every item of Cash Book with Pass Book of that period we get items (l) & (2).

♦     Those items which are recorded in both the books correctly in the same period will not come in BRS.

♦     During comparison & by checking totalling & balancing of cash book & passbook we come to know of items (3) & (4).

♦     These are the items which cause a difference between the two balances, hence by giving them appropriate treatment we prepare BRS.

9.13 NUMBER OF BRS:

♦     There will be as many BRS as the number of Bank accounts customer is having.

♦     Accounts can be Saving account, Current account (with or without overdraft) or Cash credit account.

♦     For each Bank account whether with same Bank or with different Bank, there will be:

■     the separate account in customer’s books as well also

■     there will be separate passbook for each account and

■     BRS for each account will be prepared.

9.14     LIST OF THE CAUSES OF DIFFERENCE BETWEEN THE BALANCE SHOWN BY THE PASSBOOK AND THE CASH-BOOK:

The difference may arise on account of the following which will then figure in BRS.

(i) Interest allowed by bank

(ii)   Interest and expenses charged by the bank (iii) Interest and dividends collected by the bank

(iv)  Direct payments by the bank

(v)   Direct payment into the bank (deposit) by a customer

(vi)  Dishonour of a bill discounted with the bank or dishonour of a cheque deposited (vii) Bills collected by the bank on behalf of the customer (viii) Cheques issued but not yet presented for payment (Lx) Cheques paid into the bank but not yet cleared

(x)   An error committed by the customer.

(xi) An error committed by the bank.

(i)    to (vii) are item No.l, (viii) & (ix) are item No. 2, (x) is item No. 3 & (xi) is item No. 4

9.15     ACCOUNTING FOR CHEQUES RECEIVED & DEPOSITED:

♦     When a valid cheque is received

■     it should be credited to party a/c., and

■     debited to bank a/c if it is immediately deposited in Bank,

■     if it is not yet deposited in Bank then it can be debited to cheques in hand.

♦     If a cheque is returned by Bank then reversal entry will be passed.

(a)Cheque received & deposited (practically even if deposited in a day or two)
Bank a/c Dr.xx
To Party a/cxx
(b)Cheque received but not deposited
Cheques in hand a/c Dr.xx
To Party a/cxx
When above cheque is deposited in Bank
Bank a/c Dr.xx
To Cheques in hand a/cxx
(c)If cheque is returned dishonoured
Party a/c Dr.xx
To Bank a/cxx

If Post-dated cheque is received then in our opinion it should be neither debited to Bank a/c nor to cheques in hand a/c.

9.16     ACCOUNTING FOR CHEQUES PREPARED & ISSUED:

♦     When a cheque is prepared but not issued it should not be accounted.

♦     Entry should be passed only when a valid cheque is issued.

(a) When a cheque is prepared but not issued to Party
(b) When a valid cheque is issued to the party
Party a/c Dr.xx
To Bank a/cxx
(c) If cheque is returned unpaid by Bank
Bank a/c Dr.xx
To Party a/cxx

If a post-dated cheque is issued to party it should not be accounted.

BANK RECONCILIATION FORMAT : DR./CR. PATTERN

Starting balance may be either of the following:Dr.Cr.
a.Deposit balance as per cash book or
b.Overdraft balance as per cash book or
cDeposit balance as per passbook or
dOverdraft balance as per passbook
1. Items recorded by bank but not recorded by us
a.Deposit items like, Interest collected, Interest credited, Direct credit in Bank A/c etc.
b.Payment items like, Interest charged, Bank charges charged, Payment as per standing instruction, discounted bill dishonoured etc.
2. Items recorded by us but not recorded by bank
a.Deposit items like, Cheque deposited but not yet collected.
b.Payment items like, Cheque issued but not yet paid by the bank.
3. Errors committed in our book
CLExcess credit or short debit, cheque issued but dishonoured.
b.Excess debit or short credit cheque deposited but dishonoured
4. Errors committed by bank
a.Excess on payment side or short on deposit side
b.Excess on deposit side or short on the payment side
(i) After Balancing the above you will get passbook balance if, at starting, balance as per cash book was taken (i.e. case (a) & (b)).
(ii) Or you will get cashbook ball. if at starting, ball. as per passbook was taken (i.e. case (c) & (d))
TOTAL:

FORMAT IF BANK RECONCILIATION IS TO BE MADE BY ADD/LESS PATTERN

1 = 4 & 2 = 3

1. Deposit Bal as per cash book2. O. D Hal as per cash hook3. Deposit Bal. As per puss hook4. O.D. Bal. as per pass book
xxxxxxxxxxxx
Add:1(a)xxAdd1(b)xxAdd.1(b)xxAdd1(a)xx
2(b)xx2(a)xx2(a)xx2(b)xx
3(a)xx3(b)xx3(b)xx3(a)xx
4(b)xxxxx4(a)xxxxx4(a)xxxxx4(b)xxxxx
xxxxxxxxxxxx
Less:1(b)xxLess:1(a)xxLess:1(a)xxLess:1(b)xx
2(a)xx2(b)xx2(b)xx2(a)xx
3(b)xx3(a)xx3(a)xx3(b)xx
4(a)xxxxx4(b)xxxxx4(b)xxxxx4(a)xxxxx
Bal as per passbookxxxBal. as per passbookxxxBal. as per cash bookxxxBal. as per cash bookxxx

Remember debit-debit gets added, Credit-Credit gets added but debit-Credit gets Subtracted.

ILLUSTRATIONS

Illustration 9.1: From the following particulars prepare a Bank Reconciliation Statement as on 31st December, 2005:

(1)   On 31st December, 05 the Cash-book of a firm showed deposit with bank Dr. balance of Rs. 6,000.

(2)   Cheques had been issued for Rs. 5,000, out of which cheques worth Rs. 4,000 only were presented for payment.

(3)   Cheques worth Rs. 1,400 were deposited in the bank on 28th December, 2005 but had not been credited by the bank. In addition to this, one cheque for Rs. 500 was entered in the Cash-book on 30th December, 2005 but was banked on 3-1-2006.

(4)   A cheque from Susan for Rs. 400 was deposited in the bank on 26th December 2005 but was dishonoured and the advice was received on 2-1-2006.

(5)   Pass-book showed bank charges of Rs. 20 debited by the bank.

(6)   One of the debtors deposited a sum of Rs. 500 in the bank account of the firm on 20th December 2005 but the intimation in this respect was received from the bank on 2-1-2006.

(7)   Bank Pass-book showed a credit balance of Rs. 5,180 on 31st December 2005.

Solution :

Bank Reconciliation Statement as on 31.12.05

ParticularsDr.Cr.
Balance as per Cash Book (Dr.) (deposit)6,000
Cheque issued but not yet paid2)1,000
Cheque deposited but not yet realised2)1,400
Cheque received & entered but not yet deposited3)500
Cheque deposited and dishonoured3)400
Bank charges charged by the bank1)20
Cheque directly deposited in the bank1)500
Balance as per Pass Book (Cr.) (deposit)5,180
7,5007,500

Alternatively BRS in Add-less form can be presented

Balance as per Cash Book (deposit)6,000
Add:Cheques issued but not yet paid1,000
Cheques directly deposited in Bank5001.500
7.500
Less:Cheques deposited but not yet realized1,400
Cheques received & entered but not yet deposited500
Cheques deposited & dishonoured400
Bank charges charged by Bank202,320
Balance as per Passbook (deposit)5,180

NOTE:

  1. For conversation into add less form, the starting bell. is debit, hence add all debit item & deduct all credit item.
  2. The numbers (1) to (4) referred in solution anywhere is what is explained in earlier part of this chapter. It is only for explanation & help of the students. There is no need to write such numbers in exam.
NumberParticularsGive effect in BRS as if
Item No. 1 –Recorded by Bank i.e. not yet recorded In CashbookEntry is passed in Cashbook
Item No. 2 –Recorded in cash book i.e. not yet recorded in passbookEntry is passed in Passbook
Item No. 3 –Errors Committed in Cash BookRectified in Cashbook
Item No. 4 –Errors Committed in Pass BookRectified in Passbook

Illustration 9.2: The cash book of a firm showed an overdraft (Cr) of Rs. 30,000 on 31 st March, 2006. A comparison of the entries in the cash book and pass book revealed that –

(i) On 22nd March, 2006, cheques totalling Rs. 6,000 were sent to bankers for collection. Out of these, a cheque for Rs. 1,000 was wrongly recorded on the credit side of the cash book and cheques amounting to Rs. 300 could not be collected by the bank before 1st April 2006,

(ii) A cheque for Rs. 4,000 was issued to a supplier on 28th March 2006. The cheque was presented to bank on 4th April, 2006.

(iii) There were debits of Rs. 2,600 in the passbook for interest on overdraft and bank charges, but the same had not been recorded in the cash book.

(iv) A cheque for Rs. 1,000 was issued to a creditor on 27th March 2006 but by mistake, the same was not recorded in the cash book. The cheque was, however, duly encashed by 31st March, 2006.

(v) As per standing instructions, the banker collected a dividend of Rs. 500 on behalf of the firm and credited the same to its account by 31st March 2006. The fact was, however, intimated to the firm on 3rd April 2006.

You are required to prepare a bank reconciliation statement as on 31st March 2006.

Solution :

Bank Reconciliation Statement as on 31.3.06

ParticularsDr.Cr.
Balance as per Cash Book (Overdraft)30,000
Cheques deposited but not realised2)300
Cheques deposited wrongly credited in Cashbook3)2,000
Cheques issued but not yet paid2)4,000
Bank charges & interest charged by Bank1)2,600
Cheques issued but not recorded3)1,000
Dividend directly collected by Bank1)500
Balance as per Passbook (Overdraft)27,400
33,90033,900

Alternatively Bank Reconciliation Statement can be made in Add-Less form

Balance as per Cash Book (O.D.)30,000
Add:Cheque deposited but not realised300
Bank charges & interest charged by Bank2,600
Cheque issued but not recorded1,0003.900
33,900
Less:Cheque deposited but wrongly credited in cash book2.000
Cheques issued but not yet paid4.000
Dividend directly collected by Bank5006,500
Balance as per Passbook (O.D.)27,400

Note: While converting BKS in add-less form see that starting balance is credit hence add all credit items & deduct all debit items.

Illustration 9.3 : On 31st March, 2006 the Pass-book of a trailer showed a credit Balance (deposit) of Rs. 1,565, but the passbook balance was different for the following reasons from the Cash Book Balance.

(i) Cheques issued to ‘X’ for Rs. 600 and to ‘Y’ for Rs. 384 were not yet presented for payment.

(ii) Bank charged Rs. 35 for Bank charges and ‘Z’ directly deposited Rs. 816 into the Bank account, which was not entered in the Cash Book.

(iii) Two cheques one from ‘A’ for Rs. 515 and another from ‘B’ for Rs. 1 ,250 were collected in the first week of April 2006 although they were banked on 25-03-2006.

(iv) Interest allowed by Bank Rs. 45.

Prepare Bank Reconciliation Statement as on 31st March 2006.

Solution

Bank Reconciliation Statement as on 31.3.2006

Particulars(Rs.) Dr.(Rs.)Cr.
Balance as per Passbook (deposit)1,565
Cheques issued but not yet presented for payment (600 + 384)2)984
Bank charges charged by Bank1)35
Direct deposit in Bank by a customer, not yet recorded in Cashbook1)816
Cheques deposited but not yet collected by Bank (515 + 1250)2)1,765
Interest credited by Bank1)45
Balance as per Cash Book (deposit)1,520
3,3653,365

Above BRS can be presented in Add-Less form as follows

Balance as per Pass Book (deposit)1,565
Add:Bank charges charged by Bank35
Cheques deposited but not yet realized1,7651,800
3,365
Less:Cheque issued but not yet paid984
Direct deposit in Bank816
Interest credited by Bank451,845
Balance as per Cash Book (deposit)1,520

Note: Starting Balance is credit hence add all credit items & deduct all debit items.

Illustration 9.4 : From the following particulars ascertain the balance that would appear in the Cash Book of B Bomanji, as at 31st December, 2005 before and after making the necessary adjustments :

(1)   Overdraft as per Pass Book (Dr.) (on 31st Dec.) Rs. 13,880

(2)   Interest on Overdraft for six months ending 31st Dec. 2005 (not yet entered in cash book) Rs. 240

(3)   Bank charges for the above period (not yet entered in cash book) Rs. 60

(4)   Cheques were drawn but not cashed by the recipients prior to 31st December Rs. 3,300

(5)   Cheques paid into the Bank but not cleared before 31st December Rs. 4,340

(6)   A Bill receivable (discounted with the Bank in Nov.) dishonoured on 31st December Rs. 1,000

Solution

Bank Reconciliation Statement as on 31.12.05

ParticularsRs. (Dr.)Rs. (Cr.)
Balance as per pass book (O.D.)13,880
Interest charged by the bank1)240
Bank charges charged by the bank1)60
Cheque issued but not yet cashed2)3,300
Cheque paid but not yet realised2)4,340
Discounted bill dishonoured & payment recovered by the bank1)1,000
Balance as per cash book (O.D.)11,540
17,18017,180

Note: Overdraft (O.D.) as per our book i.e. Cashbook is Credit & hence as per Passbook O. D. is Debit.

Cash Book (Bank Column)

ParticularsRs.(Dr)Rs. (Cr.)
By Balance before correction (O.D.)11,540
By Interest A/c240
By Bank charges A/c60
By Party A/c1,000
To Corrected/adjusted balance (O.D.)12,840
12,84012,840

Note: Item Nos. 1 & 3 has to be accounted in the cash book to get corrected balance.

Now Final BRS can be prepared taking O. D. Rs. 12840 as a starting balance.

Final BRS as on 31.12.05

Particulars(Rs.) Dr.(Rs.) Cr.
Balance as per Cash Book (Overdraft)12,840
Cheques issued but not yet paid2)3,300
Cheques deposited but not yet realised2)4,340
Balance as per Passbook (Overdraft)13,880
17,18017,180

Illustration 9.5: From the following particulars ascertain the balance by means of a statement, that would appear in the Pass Book of Mr Ramchandra as at 31st December 2005 :

(1)   Overdraft as per Cash Book (on 31st Dec.) Rs. 7,190

(2)   Interest on overdraft for 6 months ending 31st Dec. Rs. 160

(3)   Bank Charges for the above period Rs. 70

(4)   Cheques were drawn but not cashed by the customers prior to 31st December Rs. 1,270

(5)   Cheques paid into the Bank but not cleared before 31st December Rs. 2,210

(6)   A B/R (discounted with the Bank in November) dishonoured on 31st December Rs. 600 Also show the amount at the bank that will figure in the balance sheet.

Solution

Bank Reconciliation Statement as on 31.12.2005

ParticularsRs. (Dr.)Rs. (Cr.)
Balance as per cash book (O.D)7.190
Interest charges by bank1)160
Bank Charges charged by bank1)70
Cheque issued but not yet paid2)1,270
Cheque deposited but not yet realised2)2,210
Discounted bill dishonoured & payment recovered by bank1)600
Balance as per pass book (O.D.)8.960
10,23010,230

Cash Book (Bank Column)

ParticularsRs. (Dr)Rs. (Cr.)
By Balance as given (O.D.)7,190
By Interest A/c160
By Bank charges A/c70
By Party A/c600
To Corrected/adjusted balance (O.D.)8,020
8,0208,020

Final Hunk Reconciliation Statement

ParticularsRs. (Dr.)Rs.(Cr)
Corrected balance as per cash book (O.D)8,020
Cheque issued but not yet paid(2)1,270
Cheque deposited but not yet realised(2)2,210
Balance as per P.B. (O.D.)8,960
10,23010.230

Note: Bank Reconciliation Statement is the only a statement and not a part of books of account, for the sake of better understanding it is presented in Dr./Cr. Pattern. Alternatively, it can be presented in Add/Less pattern. But cash book is a part of books of account and is to be prepared by double entry principle.

Bank balance to be shown in the Balance sheet is Overdraft (Liability) Rs. 8020/-

Illustration 9.6 : From the following information (as on 31.3.2006), prepare a Bank Reconciliation Statement after making necessary amendments in the Cash-book:

Rs.
Bank balance as per Cash Book (Dr.)3,25,000
Cheques deposited, but not yet credited4,47,500
Cheques issued but, not yet presented for payment3,56,200
Bank charges debited by Bank but not recorded in Cashbook1,250
Dividend directly collected by bank12,500
Insurance premium paid by bank as per standing instruction not intimated15,900
Cash sales wrongly recorded in the bank column of the Cash-book25,500
Customer’s cheque dishonoured by the bank not recorded in Cash-book13,000
Wrong Credit given by the bank15,000
Also show the bank balance that will appear in the Trial Balance as on 31.3.2006.

Solution

Cash Book as on 31.3.2006 (Bank Column)

(after making necessary amendments)

Dr.Cr.
ParticularsRs.ParticularsRs.
To Balance b/d3,25,000By Bank charges a/cU50
To Dividend income a/c12,500By Insurance premium a/c15.900
By Cash Sales (wrongly recorded) a/c25,500
By Debtors (cheque dishonoured) a/c13,000
By Balance c/d (corrected/final balance)2,81,850
3,37,5003,37,500

Bank Reconciliation Statement as on 31.3.2006

ParticularsRs. (Dr)Rs. (Cr.)
Bank balance as per Cash Book (deposit balance)2,81,850
Add:Cheques issued, not yet presented for payment3,56,200
Wrong credit given by bank15,0003,71.200
6.53.050
Less: Cheques deposited, not yet credited by bank4,47,500
Balance as per Pass Book2,05,550

Note: The bank balance of Rs. 2,81,850 will appear in the trial balance as on 31st March, 2006 & consequently in Balance sheet.

Final BRS as on 31.3.2006

ParticularsDr.Cr.
Corrected Balance as per Cash Book (Deposit)281850
Cheques deposited by not yet realised by bank2)447500
Cheques issued but not yet paid by Bank2)356200
Wrong Credit is given by Bank4)15000
Balance as per Passbook (deposit)205550
653050653050

Illustration 9.7 : Perfect Pvt. Ltd., has two accounts with Ever Bank Ltd. The account were known as ‘Account-!’ and ‘Account-IT. As at December, 31, 2005 the balance as per A/c. books reflected the following :

Account-1 Rs. 1,25,000 Regular balance. Account-II Rs. 1,11,250 Overdraft balance.

The accountant failed to tally the balance with the Pass Book and the following information was available:

  1. The Bank has charged Interest on Account-II, Rs. 11,375 and credited Interest on Account-I, Rs. 1,250. These were not recorded by the accountant.
  2. Rs. 12,500 drawn on Dec. 10, 2005, from Account-I was recorded in the books of Account-II.
  3. Bank charges of Rs. 150 and Rs. 1,125 for Account-I and Account-II were not recorded in the books.
  4. A deposit of Rs. 17,500 in Account-I was wrongly entered in Account-II in the books.
  5. Two cheques of Rs. 12,500 and Rs. 13,750 deposited in Account-I, but entered in Account-II in books, were dishonoured. The entries for dishonoured cheques were entered correctly in Account-II.
  6. Cheques issued for Rs. 1,50,000 and Rs. 15,000 from Accounts-I and II respectively, were not presented till 5th January 2006.
  7. Cheques deposited Rs. 1,25,000 and Rs. 1,17,500 in Accounts-I and II respectively, were credited by bank only on February, 2, 2006.

You are required to prepare the Bank Reconciliation Statement for Accounts-I and II.

Solution

Bank Reconciliation Statement : Account – I

ParticularsAmountAmount
(Dr.)(Cr.)
Balance as per cash book (Deposit)1,25,000
Interest credited by bank1)1,250
Withdrawal from bank not yet recorded by us1)12,500
Bank charges charged by bank1)150
Cheque deposited but not yet entered in our book1)17,500
Cheque issued but not yet paid2)1,50,000
Cheque deposited but not yet realised2)1,25,500
Balance as per pass book (Deposit)1,56,100
2,93,7502,93,750

Bank Reconciliation Statement: Account – II

ParticularsAmountAmount
(Dr.)(Cr.)
Balance as per cash book (O.D.)1,11,250
Interest charged by bank1)11,375
Withdrawal from A/c-I wrongly recorded in Ac – II3)12,500
Bank charges charged by bank1)1,125
Deposit in A/c – I is wrongly entered in A/c – II3)17,500
Cheque issued but not yet paid2)15,000
Cheque deposited but not yet realised2)1,17.500
Balance as per pass book (O.D.)2.31,250
2,58,7502,58,750

Note: In both the BRS no effect has come for item (e) because entry for deposit as well as its dishonour both has come in A c-H. That means it has nil effect everywhere.

Entry in our books for items (b) & (d) will be as follows, at the time of finalization :

Entry for (b)Entry for (d)
Bank a/c II a/c Dr.12500Bank a/c I a/c Dr.17500
To Bank a/c I a/c12500To Bank a/c II a/c17500

Illustration 9.8 : Based on the following extracts from the Cash Book and the Pass Book for the month of January 2006. prepare the Bank Reconciliation Statements as on 31st Jan. 2006.

Cash Book (Bank Columns Only)

DateParticularsRs.DateParticularsRs.
20062006
Jan 3To Cash300Jan 1By Balance b/d5,000
Jan 4To Ram1,300Jan 16By Cash300
Jan 5To Shyam250Jan 17By BharatU50
Jan 6To Krishna500Jan 18By Charat500
Jan 10To Bill of Exchange (Discount of Rs. 100)1,900
Jan 31To Balance c/d.2,900
7,1507,150

Pass Book

DaleParticularsWithdrawalDepositsDr./Cr.Balance
2006Rs.Rs.Rs.
Jan 1To Balance b/dDr.5,000
Jan 3By Cash300Dr.4,700
Jan 8By Shyam250Dr.4,450
Jan 9By Krishna. —500Dr.3,950
Jan 10To Krishna’s Cheque Dishonoured500Dr4,450
By Bills of Exchange (Discounted)1002,000Dr2,550
To Bills of Exchange (Dishonoured)2,000Dr4,550
Jan 16To Cash300Dr4,850
Jan 18To Charat500Dr5,350
Jan 31To Bank Charges20Dr5,370
Jan 31To Life Insurance premium as per instruction250Dr5,620
Jan 31By Dividend and interest collected as per instruction1,050Dr4,570

Solution

Bank R from Hint Inn Statement As on 31 at January, 2006

ParticularsDr. Rs.Cr. Rs.
(A) Overdraft as per Cash Book2,900
(B) Less: (a) Cheques issued but not yet presented for payment (To Bharat)1350
(B) Dividend and Interest Collected by Bank1,050
(C) Add (a) Cheques deposited but not yet cleared (From Ram)1,300
(b) Bank Charges debited20
(c) Insurance Premium as per instruction250
(d) Cheques dishonoured not entered in cash book500
(e) Bill of Exchange dishonoured2,000
2,4006,970
(D) Overdraft as per Pass Book4,570
69706970

Alternatively BRS can be presented in add-less form. Bal. as per A) + Items in C) – Items in B) = Bal. as per D).

Preparation of BRS when Cashbook and Passbook is given

♦     In the above question instead of giving the items relevant for reconciliation, the Cashbook and Passbook has been given.

♦     Compare each item of cash book with that in passbook and

♦     Identify the items recorded by one but not by the other, show such items i.e. items 1 & 2 in BRS.

♦     Items which are found correctly recorded in both the books are not relevant for BRS.

♦     If BRS does not agree then check the totalling and balancing of cash book & passbook to identify items 3 & 4 and show them in BRS, then BRS must tally.

♦     In this case the opening balance of the two books is the same, otherwise opening date’s that is previous months BRS is required. Because items from this BRS may have been recorded in the books in which it was pending in the last month.

Important Hints while preparing BRS

  1. While writing starting balance in BRS or interpreting the end (resulting) balance, remember deposit balance as per cash book is debit but as per pass book it is credit, similarly, Overdraft balance as per Cashbook is credit but as per passbook it is debit.
  2. In case of deposits into Bank a/c we debit the Bank a/c whereas Bank credits out account i.e. deposits are debited in cash book whereas credited in Passbook. Similarly payments/withdrawal from Bank a/c is credited in Cash Book whereas the same is debited in Passbook.
  3. BRS is prepared as on a particular date. Those items which are recorded in cash book, as well as passbook up to that dale, will not come in BRS because these are not causing difference in the two balances.
  4. Items which are in one book but not in other book upto that date will only come in BRS. While deciding effect for such item in BRS remember that some items are pending in Cashbook (items (1) & (3)) & some are pending in Passbook [items (2) & (4)]. Give effect in such a way as if it is recorded in both books or nullified (i.e. nil) in both the books, (irrespective of your starting balance)
  5. For finding out amended/corrected/final balance i.e. balance which will appear in the Balance sheet, record items pending from our side in cash book i.e. items (1) & (3).
  6. When Pinal BRS is prepared taking corrected balance as the base then only items pending from Bank comes in it i.e. items (2) & (4) only.

PRACTICE PROBLEMS

(Answers & Hints given at the end of the Chapter)

P.1: On 31 st March 2011, the cash book of Kabul showed a bank deposit of Rs. 15,000 On the same date, Rahul received the bank statement. On perusal of the statement, Rahul ascertained the billowing information:

Rs.
(i) Cheques deposited but not credited by the bank40,000
(ii) Interest on securities collected by the bank, but not recorded in the cash book1,400
(iii) Cheques issued, but not presented for payment35,000
(iv) Bank charges not recorded in the cash book400

From the above information, you are required to prepare the bank reconciliation statement to ascertain the balance as per bank statement.

P.2 : On 31st March 2011, Manish received a bank statement which showed a credit balance of Rs. 14,000. An examination

of the cash book and bank statement revealed the following:

(i) Cheques for Rs. 11,400 deposited with the bank for collection were credited by the bank on 3.4.2011.

(ii) Cheques issued, but not presented for payment up to 31st March 2011 totalled Rs. 37,600.

(iii) A payment by cheque for Rs. 1,600 has been entered twice in the cash book.

(iv)  On 30th March, 2011, the bank credited Rs. 20,000 to Manish by mistake.

(v)   A bill of exchange for Rs. 10,000 was discounted by Manish with the bank. The bill was dishonoured on the due date, but no entry had been made in the cash book till 31st March, 2011.

(vi)  Bank charges amounting to Rs. 580 had not been entered in the cash book.

Prepare a bank reconciliation statement.

P.3 : The Bank Balance as per Bank Statement of Sen & Co. as on 31 st March, 2011 shows a Credit Balance of Rs. 19,500. On comparison with the Cash Book the following points were noted:

(a)   Cheques of Rs. 15,500 deposited on 29.03.2011 but cheque of Rs. 9,500 credited by the Bank on 3.4.2011.

(b)   Cheque of Rs. 5,900 deposited with the Bank on 24.3.2011 but not recorded in the Cash Book.

(c)   As per our standing order Bank paid on our Account Telephone Bill Rs. 2,500 and Electric Bill of Rs. 1,200, intimation for the same came on 2.4.2011.

(d)   Cheque of Rs. 16,000 issued to creditors by 31.3.2011 but cheque of Rs. 6,000 was presented by 31.3.2011.

(e)   Bank has debited our account Rs. 500 for issuing cheque books from time to time but not recorded in the Cash Book.

(f)    Bank has credited our Account by Rs. 1,200 on account of interest on Fixed Deposit but not recorded in the Cash Book.

Make necessary corrections in the Cash Book and prepare Bank Reconciliation Statement.

P.4 : In respect of Bank Account No. 1, on 30th September 2011 my Cash Book showed a Bank Overdraft of Rs. 98,700. Ongoing through the Bank Statement for reconciliation the Balance, I find the following:

Out of cheques drawn on 26th September 2011 those for Rs. 7,400 were cashed by the bankers on 2nd October 2011

Cash and cheques amounting to Rs. 6,800 were deposited in Bank on 29th September 2011, but cheques worth Rs. 2,800 were cleared by the Bank on 1st October 2011 and one cheque for Rs. 500 was returned by them as dishonoured on the latter date.

According to my standing order, the bankers have on 30th September 2011 paid Rs. 1,600 as interest to my Creditors, and paid the quarterly premium on my policy amounting to Rs. 600. They have also received Rs. 1,300 as a dividend on my shares, their charges and commission on the above being Rs. 30.

My bankers seem to have given to me a wrong credit for Rs. 1,000 paid in by me in No. 2 account and a wrong debit in respect of a cheque for Rs. 600 drawn against my No. 2 account.

Prepare the Reconciliation Statement of Bank Account No. 1, as on 30th September 2011.

P.5 : Mr. Jones is having Accounts (A and B) with the Central Bank of India.

On 31.12.2010, his ledger shows a balance of Rs. 5,000 in Account A and an overdraft of Rs. 2,250 in A/c B. On verifying the ledger entries with the respective Bank Statements, the following mistakes were noticed:

(i) A deposit of Rs. 1,500 made into “A’ on 20.12.10 has been entered in the ledger in account ‘B’.

(ii) A withdrawal of Rs. 500 from Account A on 20.11.10 has been entered in the ledger in Account B.

(iii) Cheques of Rs. 1,500 deposited in Account A on 1.12.10 (and entered in the books in Account B) have been dishonoured by the bankers. The entries for the dishonour of these cheques have been entered in the books in Account B.

(iv) In the Account A and B Mr. Jones has issued on 29.12.10 cheques for Rs. 10,000 and Rs.1000 respectively and those have not been cashed till 31.12.2010.

(v)   Incidental charges of Rs. 10 and Rs. 25 charged in the Account A and B respectively have not been entered in the books.

(vi)  The bank credited an interest of Rs. 50 for Account A and has charged interest of Rs. 275 for Account B which have not been recorded in books.

(vii) The deposits of Rs. 5,000 and Rs. 3,500 made into the Accounts A and B on 30.12.10 have not been given credit by the bank till 31.12.10.

Draw the Bank Reconciliation Statements for the above two accounts.

P.6 : You are given the following information extracted from the records of B. Webb:

BANK ACCOUNT

Date Dec.ParticularsDr. Rs.Date Dec.ParticularsCheque No.Cr. Rs.
1Balance b/f16,4911Alexander782857
2Able Ltd.9626Burgess783221
2Baker Ltd.1,10314Barry784511
10Charlie Ltd.2,31217Cook78597
14Delta & Co.41924Hay786343
21Echo Ltd.32729Rent787260
23Cash sales to Bank529
30George11931Balance c/d19,973
22,26222,262

MARRODS BANK LTD.

Bank Statement – B. Webb

Date Dec.ParticularsPayments (Rs.)Receipts (Rs.)Balance (Rs.)
1Balance b/f.17,478
283678042617,052
2Remittance17617,228
583678216,371
5Charges85716,324
68367814715,587
6Counter Credit7372,06517,652
10Standing order17,515
1183678313717,303
13Remittance2122,31219,615
1783678419,104
17Counter Credit51141919,523
23Remittance32719,850
24Counter Credit52820,378
2883678634320,035
3031092329719,738

BRS as on 30th November

ParticularsDr.Cr.
Balance as per Cash Book (Deposit)16,491
Cheques deposited but not yet realised by bank176
Cheques issued but not yet paid by Bank426
Balance as per Pass book (deposit)7371,16317,478
17,65417,654

From the above data prepare a bank reconciliation as at 31st December.

ANSWERS AND HINTS FOR

Practice Problems

P. No.Answers & Hints
1.Deposit balance as per Bank Passbook Rs. 11,000
2.Overdraft balance as per Cash Book Rs. 23,220
3.Final BRS – Deposit balance as per Cashbook Rs. 19,000 (corrected balance) Cashbook deposit balance before correction Rs. 16,100
4.Overdraft balance as per Passbook Rs. 95,130
5.Passbook balance Account A – Deposit Rs. 11,040 Passbook balance Account B – Overdraft Rs. 6,050
6.Cashbook balance Rs. 19,973 will get reconciled with Passbook balance Rs. 19,738.

 

 

*This article contains all topics about the Bank Reconciliation Statement.

For notes on all CA foundation topics, you can visit this article CA foundation note

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