Exercise Solutions Available
Step-by-step answers for all textbook questions in this chapter
Chapter Overview — Bank Reconciliation Statement
A business maintains a Cash Book with a bank column to record all bank transactions. The bank maintains a Pass Book (or bank statement) from its own perspective. The balances shown by these two books often differ on the same date. The Bank Reconciliation Statement (BRS) explains the reasons for this difference and reconciles the two balances.
After studying this chapter, you will be able to:
- State the need and importance of preparing a Bank Reconciliation Statement
- Identify the causes of differences between Cash Book and Pass Book balances
- Prepare a Bank Reconciliation Statement starting from either balance
- Handle both favourable (positive) and unfavourable (overdraft) balances
- Detect errors and fraud through bank reconciliation
Need for Bank Reconciliation Statement
A Bank Reconciliation Statement is prepared for the following reasons:
1. To identify causes of differences — The Cash Book and Pass Book may show different balances for valid reasons. The BRS explains each reason. 2. To detect errors and omissions — Errors in either the Cash Book or the Pass Book (e.g., wrong amounts, omitted entries) are discovered during reconciliation. 3. To detect fraud — Unauthorised withdrawals or deposits by bank staff or others can be identified. 4. To ascertain the correct bank balance — The adjusted balance reflects the true position of the bank account. 5. To update the Cash Book — Entries that appear in the Pass Book first (bank charges, interest, direct deposits) can be recorded in the Cash Book after reconciliation. 6. To facilitate financial statement preparation — The correct bank balance is needed for the Balance Sheet.
Causes of Differences Between Cash Book and Pass Book Balances
The differences arise from three broad categories: timing differences, transactions initiated by the bank, and errors.
1. Timing Differences
These occur because a transaction is recorded in one book before it appears in the other.
| Cause | Effect on Cash Book | Effect on Pass Book |
|---|---|---|
| Cheque deposited but not yet collected by the bank | Cash Book balance increases immediately | Pass Book balance increases only after the bank collects the cheque |
| Cheque issued but not yet presented for payment | Cash Book balance decreases immediately | Pass Book balance decreases only when the cheque is presented |
| Direct deposits into bank by a third party | Not recorded in Cash Book until known | Pass Book balance increases immediately |
2. Transactions Initiated by the Bank
The bank may credit or debit the account without the business knowing until the Pass Book is checked.
| Cause | Effect on Cash Book | Effect on Pass Book |
|---|---|---|
| Interest credited by bank on bank balance | Not recorded in Cash Book until known | Pass Book balance increases |
| Bank charges debited by bank | Not recorded in Cash Book until known | Pass Book balance decreases |
| Interest debited by bank on overdraft | Not recorded in Cash Book until known | Pass Book balance decreases |
| Direct payment made by bank on standing instructions | Not recorded in Cash Book until known | Pass Book balance decreases |
| Direct deposit by a debtor into the bank | Not recorded in Cash Book until known | Pass Book balance increases |
| Dividend collected by bank | Not recorded in Cash Book until known | Pass Book balance increases |
3. Errors
| Type of Error | Effect |
|---|---|
| Error in the Cash Book (e.g., overcasting or undercasting of bank column) | Cash Book balance is incorrect |
| Error in the Pass Book (e.g., wrong amount entered by bank) | Pass Book balance is incorrect |
| Cheque deposited but recorded on the payment side of the Cash Book | Cash Book balance is understated |
| Cheque issued but recorded on the receipt side of the Cash Book | Cash Book balance is overstated |
Preparation of Bank Reconciliation Statement
The BRS can be prepared by starting with either the Cash Book balance or the Pass Book balance. The goal is to arrive at the other balance by adjusting for the causes of difference.
Method 1: Starting from Cash Book Balance
When you start with the balance as per Cash Book, adjust as follows:
| Particulars | Add (Rs) | Deduct (Rs) |
|---|---|---|
| Balance as per Cash Book (Dr. balance = favourable) | XXX | |
| Cheques deposited but not yet collected | XXX | |
| Cheques issued but not yet presented | XXX | |
| Bank charges debited in Pass Book only | XXX | |
| Interest credited by bank only | XXX | |
| Interest debited by bank on overdraft | XXX | |
| Direct deposit by a third party into bank | XXX | |
| Direct payment by bank (standing instructions) | XXX | |
| Dividend collected by bank | XXX | |
| Error in Cash Book (excess debit) | XXX | |
| Error in Cash Book (short debit) | XXX | |
| Balance as per Pass Book | XXX | XXX |
Memory aid: When starting from Cash Book balance:
- Add items that make the Pass Book balance higher than Cash Book
- Deduct items that make the Pass Book balance lower than Cash Book
Method 2: Starting from Pass Book Balance
When you start with the balance as per Pass Book, the adjustments are the reverse:
| Particulars | Add (Rs) | Deduct (Rs) |
|---|---|---|
| Balance as per Pass Book | XXX | |
| Cheques deposited but not yet collected | XXX | |
| Cheques issued but not yet presented | XXX | |
| Bank charges debited in Pass Book | XXX | |
| Interest credited by bank | XXX | |
| Direct deposit by a third party | XXX | |
| Direct payment by bank | XXX | |
| Balance as per Cash Book | XXX | XXX |
Worked Examples
Example 1: Starting from Cash Book (Favourable Balance)
Problem: On 31st March 2025, the Cash Book of M/s Gupta Traders showed a bank balance of Rs 25,000. On comparing with the Pass Book, the following differences were found:
1. Cheques deposited but not yet collected: Rs 4,000 2. Cheques issued but not yet presented: Rs 6,500 3. Bank charges debited in Pass Book: Rs 200 4. Interest credited by bank: Rs 800 5. Direct deposit by a customer (Mr. Rao): Rs 3,000
Bank Reconciliation Statement of M/s Gupta Traders as on 31st March 2025
| Particulars | Plus (Rs) | Minus (Rs) |
|---|---|---|
| Balance as per Cash Book | 25,000 | |
| Add: Cheques issued but not yet presented | 6,500 | |
| Add: Interest credited by bank | 800 | |
| Add: Direct deposit by Mr. Rao | 3,000 | |
| Less: Cheques deposited but not yet collected | 4,000 | |
| Less: Bank charges | 200 | |
| Balance as per Pass Book | 35,300 | 4,200 |
Balance as per Pass Book = 35,300 - 4,200 = Rs 31,100
Example 2: Starting from Pass Book Balance
Problem: The Pass Book of M/s Reddy & Co. showed a credit balance of Rs 40,000 on 30th June 2025. On comparing with the Cash Book, the following differences were found:
1. Cheques deposited but not collected: Rs 5,000 2. Cheques issued but not presented: Rs 8,000 3. Bank charges: Rs 300 4. Interest on deposit credited by bank: Rs 1,200 5. Insurance premium paid by bank (standing instruction): Rs 2,500
Bank Reconciliation Statement of M/s Reddy & Co. as on 30th June 2025
| Particulars | Plus (Rs) | Minus (Rs) |
|---|---|---|
| Balance as per Pass Book | 40,000 | |
| Add: Cheques issued but not yet presented | 8,000 | |
| Add: Interest on deposit credited by bank | 1,200 | |
| Less: Cheques deposited but not yet collected | 5,000 | |
| Less: Bank charges | 300 | |
| Less: Insurance premium paid by bank | 2,500 | |
| Balance as per Cash Book | 49,200 | 7,800 |
Balance as per Cash Book = 49,200 - 7,800 = Rs 41,400
Example 3: With Errors
Problem: The bank balance as per Cash Book of M/s Patel Brothers on 31st December 2025 was Rs 18,000 (Dr.). The following differences were identified:
1. Cheques deposited into bank Rs 3,500 not yet collected 2. Cheques issued Rs 5,200 not yet presented 3. Bank charges Rs 150 not entered in Cash Book 4. A cheque of Rs 2,000 received from Kumar was dishonoured; no entry made in Cash Book 5. The Cash Book was overcast by Rs 500 on the debit side
Bank Reconciliation Statement of M/s Patel Brothers as on 31st December 2025
| Particulars | Plus (Rs) | Minus (Rs) |
|---|---|---|
| Balance as per Cash Book | 18,000 | |
| Add: Cheques issued but not yet presented | 5,200 | |
| Less: Cheques deposited but not yet collected | 3,500 | |
| Less: Bank charges | 150 | |
| Less: Dishonour of Kumar's cheque | 2,000 | |
| Less: Overcasting of Cash Book (excess debit) | 500 | |
| Balance as per Pass Book | 23,200 | 6,150 |
Balance as per Pass Book = 23,200 - 6,150 = Rs 17,050
Treatment of Unfavourable (Overdraft) Balance
When the bank balance is an overdraft (credit balance in Cash Book), the rules for adjustment are reversed compared to a favourable balance.
Key Points for Overdraft Balance
- Cash Book shows a credit balance (Cr.) = unfavourable balance / overdraft
- Pass Book shows a debit balance (Dr.) = unfavourable balance / overdraft
When Starting from Overdraft Balance as per Cash Book (Credit Balance)
| Item | Effect |
|---|---|
| Cheques deposited but not collected | Deduct (overdraft increases in Pass Book) |
| Cheques issued but not presented | Add (overdraft decreases in Pass Book) |
| Bank charges | Deduct (overdraft increases) |
| Interest credited by bank | Add (overdraft decreases) |
| Direct deposit by third party | Add (overdraft decreases) |
| Direct payment by bank | Deduct (overdraft increases) |
Example: Overdraft Balance
Problem: On 31st January 2025, the Cash Book of M/s Sharma & Sons showed an overdraft balance of Rs 12,000. The following differences were noted:
1. Cheques deposited but not yet collected: Rs 3,500 2. Cheques issued but not yet presented: Rs 4,200 3. Bank charges debited in Pass Book: Rs 100 4. Interest credited by bank: Rs 500 5. Direct deposit by a customer: Rs 2,000
Bank Reconciliation Statement as on 31st January 2025
| Particulars | Plus (Rs) | Minus (Rs) |
|---|---|---|
| Overdraft balance as per Cash Book | 12,000 | |
| Add: Cheques issued but not yet presented | 4,200 | |
| Add: Interest credited by bank | 500 | |
| Add: Direct deposit by customer | 2,000 | |
| Less: Cheques deposited but not collected | 3,500 | |
| Less: Bank charges | 100 | |
| Overdraft balance as per Pass Book | 6,700 | 15,600 |
Overdraft as per Pass Book = 15,600 - 6,700 = Rs 8,900
Common Mistakes to Avoid
1. Adding and deducting in the wrong direction — When starting from Cash Book, items that increase the Pass Book balance are added, not deducted. Double-check each item.
2. Confusing favourable and unfavourable balance adjustments — The adjustments for an overdraft balance are the reverse of those for a favourable balance. Always identify the nature of the balance first.
3. Forgetting to adjust for dishonoured cheques — When a deposited cheque is dishonoured, the bank reduces the Pass Book balance, but the Cash Book may not have the entry yet. Deduct this from the Cash Book balance.
4. Treating "cheques deposited" and "cheques issued" identically — Deposited but not collected means the bank has not added the amount yet (Pass Book is lower). Issued but not presented means the bank has not deducted the amount yet (Pass Book is higher).
5. Not adjusting for Cash Book errors — If the Cash Book has an error (overcast, undercast, wrong entry), the BRS must adjust for it. Errors in the Pass Book should be reported to the bank, not adjusted in BRS (though some exam problems may ask you to adjust).
6. Ignoring standing instructions — Payments made by the bank on standing instructions (insurance premium, rent, loan EMI) reduce the Pass Book balance but may not be recorded in the Cash Book yet.
7. Incorrect format — Always use a proper BRS format with "Plus" and "Minus" columns (or "Add" and "Deduct"). Examiners award marks for the correct format.
Exam Tips
1. Identify the starting balance first — Clearly state whether you are starting from the Cash Book balance or Pass Book balance, and whether it is favourable or an overdraft.
2. Use proper format — The standard BRS format with two amount columns (Add/Deduct or Plus/Minus) is essential for full marks.
3. Read the problem carefully — Some problems give the Cash Book balance, some give the Pass Book balance. Some ask you to find one from the other. Pay attention to which balance is given.
4. Handle overdraft problems separately — When the balance is an overdraft, reverse all the adjustments. Practise at least 2-3 overdraft problems before the exam.
5. Show the final answer clearly — Write "Balance as per Pass Book = Rs XXX" or "Overdraft as per Pass Book = Rs XXX" as the last line.
6. Watch for "trick" items — Common traps: (a) cash purchases recorded in the Cash Book but not relevant to bank reconciliation, (b) a wrong entry in the Cash Book that needs correction, (c) dishonoured cheques.
7. Practise numerical variety — BRS problems can start from Cash Book, Pass Book, overdraft in Cash Book, or overdraft in Pass Book. Be prepared for all four types.
8. Time allocation — A standard BRS numerical takes 10-15 minutes in the exam. Do not over-spend on a single problem.
Quick Revision Notes
- Bank Reconciliation Statement reconciles the difference between the bank balance as per Cash Book and as per Pass Book
- Three causes of difference: Timing differences, bank-initiated transactions, errors
- Timing differences: Cheques deposited but not collected (Pass Book lower), cheques issued but not presented (Pass Book higher)
- Bank-initiated: Bank charges, interest, standing instruction payments, direct deposits by third parties
- Starting from Cash Book balance (favourable): Add items that increase Pass Book balance; deduct items that decrease it
- Starting from Pass Book balance (favourable): Reverse of above
- Overdraft adjustments: Reverse of favourable balance adjustments
- Cash Book errors are adjusted in BRS; Pass Book errors are reported to the bank
- Dishonoured cheques reduce the Pass Book balance but may not yet be in the Cash Book
- Format: Always use proper two-column format with clear headings
- Purpose of BRS: Detect errors, prevent fraud, ascertain correct balance, update Cash Book
Further Reading
- [Chapter 4 — Recording of Transactions II](/school/cbse/class/11/accountancy/cbse-recording-transactions-2)
- [Chapter 6 — Depreciation, Provisions and Reserves](/school/cbse/class/11/accountancy/cbse-depreciation-provisions-reserves)
- [Bank Reconciliation Statement — NCERT Exercise Solutions](/school/cbse/class/11/accountancy/solutions/cbse-bank-reconciliation-statement-exercise-solutions)
- [All Class 11 Accountancy Solutions](/school/cbse/class/11/accountancy/solutions)
- [Class 11 Accountancy Subject Guide](/school/cbse/class/11/accountancy)