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Preparation of Bank Reconciliation Statement

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Bank Overdraft

Bank overdraft is an amount overdrawn from the bank. It is a loan facility provided by the bank to its customers by which they are entitled to draw more amount than what is in their account. On the amount of overdraft, the bank also charges some interest by debiting the customers’ account in the bank. Bank overdraft is a situation of negative bank balance, that is, debit balance of pass book.

Preparation of Bank Reconciliation Statement

The following procedures are followed while preparing the bank reconciliation statement:

  • Compare cash book and pass book items.
  • Give sign to all the items of cash book and pass book which are matched with each other.
  • Make a list of unmatched items found in the cash book and pass book.
.

  • Prepare bank reconciliation statement taking balance either from the cash book or pass book as a basis.
  • Adjust the items which cause the disagreement in the balances.
  • Add the items that have decreased the balance on the book with which reconciliation is to be made. On the contrary, subtract the amount of those items which have increased the balance.

If the causes of disagreement between the cash book and pass book balances are given, the bank reconciliation statement can be prepared either by taking the balance of cash book or pass book. The bank reconciliation statement can be prepared by using either of the following bases:

  • Debit balance shown by cash book
  • Credit balance shown by cash book (overdraft)
  • Credit balance shown by pass book
  • Debit balance shown by pass book (overdraft)

Debit balance shown by cash book

In this case, it is to be seen whether a particular item increases or decreases the favourable balance of the pass book. Those items which decrease the pass book balance are to be subtracted. The specimen of a bank reconciliation statement are as follows:

Bank Reconciliation Statement

As on ……………….

Particulars

Amount Rs.

Amount Rs.

Bank balance as per cash book

***

Add:

Cheque issued but not presented for payment

***

Interest allowed or credited by bank but not entered in cash book

***

Cheques deposited or paid into the bank but not recorded in cash book

***

Interest, dividend and other incomes collected by the bank but not entered in cash book

***

Bills receivable directly collected by the bank

***

Amount deposited by a customer directly into the bank

***

Cheque issued but returned dishonoured

***

Any amount wrongly credited by the bank

***

***

***

Less:

Cheque received and entered in the cash book but not yet sent to the bank for the collection

***

Cheque deposited or paid into the bank but not yet collected by the bank

***

Bank charges, commission and interest on overdraft charged by the bank

***

Insurance premium and other payments paid directly by bank understanding instructions but not entered in cash book

***

Cheques deposited for collection but returned dishonoured and no entry has been made in the cash book

***

Dishonor of bills discounted by the bank but not recorded in cash book

***

Any item wrongly debited by bank

***

***

Balance as per pass book

***

Overdraft balance (Credit Balance) shown by the cash book

In such a case, overdraft balance can be shown in the brackets for indicating, it is a ‘minus item’ and all items should be adjusted in the same way as presented below:

Bank Reconciliation Statement

As on ……………….

Particulars

Amount Rs.

Amount Rs.

Bank overdraft as per cash book

(***)

Add:

Cheque issued but not presented for payment

***

Interest allowed or credited by bank but not entered in cash book

***

Cheques deposited or paid into the bank but not recorded in cash book

***

Interest, dividend and other incomes collected by the bank but not entered in cash book

***

Bills receivable directly collected by the bank

***

Amount deposited by a customer directly into the bank

***

Cheque issued but returned dishonoured

***

Any amount wrongly credited by the bank

***

***

***

Less:

Cheque received and entered in the cash book but not yet sent to the bank for the collection

***

Cheque deposited or paid into the bank but not yet collected by the bank

***

Bank charges, commission and interest on overdraft charged by the bank

***

Insurance premium and other payments paid directly by bank understanding instructions but not entered in cash book

***

Cheques deposited for collection but returned dishonoured and no entry has been made in the cash book

***

Dishonor of bills discounted by the bank but not recorded in cash book

***

Any item wrongly debited by bank

***

***

Bank overdraft as per pass book

***

If the overdraft shown by the cash book is used with the (+) sign, the items which cause difference will be adjusted the other way, viz, the items which previously added will be subtracted and vice versa.

Bank Reconciliation Statement

As on ……….

Particulars

Amount Rs.

Amount Rs.

Bank overdraft as per cash book

***

Add:

Cheque received and entered in the cash book but not yet sent to the bank for the collection

***

Cheque deposited or paid into the bank but not yet collected by the bank

***

Bank charges, commission and interest on overdraft charged by the bank

***

Insurance premium and other payments paid directly by bank understanding instructions but not entered in cash book

***

Cheques deposited for collection but returned dishonoured and no entry has been made in the cash book

***

Dishonor of bills discounted by the bank but not recorded in cash book

***

Any item wrongly debited by bank

***

***

***

Less:

Cheque issued but not presented for payment

***

Interest allowed or credited by bank but not entered in cash book

***

Cheques deposited or paid into the bank but not recorded in cash book

***

Interest, dividend and other incomes collected by the bank but not entered in cash book

***

Bills receivable directly collected by the bank

***

Amount deposited by a customer directly into the bank

***

Cheque issued but returned dishonoured

***

Any amount wrongly credited by the bank

***

***

Bank overdraft as per pass book

***

Bank Balance (Credit Balance) shown by the pass book

If credit balance of the pass book is to be taken as a base, the effect of each item which causes the difference in the cash book balance is to be found out. Besides, it is to be seen whether a particular item increases or decreases the cash book balance.

After finding out the effect of each item, those items which increase the cash book balance are to be added and the items which decrease the cash book balance are to be subtracted. The specimen of the bank reconciliation is to be prepared on the basis of bank balance as per pass book is as follows:

Bank Reconciliation Statement

As on ………

Particulars

Amount Rs.

Amount Rs.

Bank Balance as per pass book

***

Add:

Cheque received and entered in the cash book but not yet sent to the bank for the collection

***

Cheque deposited or paid into the bank but not yet collected by the bank

***

Bank charges, commission, bank overdraft so then charges deposited by the bank but not entered in cash book

***

Cheques deposited for collection but returned dishonoured and no entry has been made in the cash book

***

Payment made by the bank directly on standing instruction

***

Discounted bills dishonoured but not recorded in cash book

***

Any amount wrongly debited by the bank

***

***

***

Less:

Cheques issued but not presented for payment

***

Interest allowed and credited by the bank but not entered in cash book

***

Cheques deposited and paid into the bank but not recorded in the cash book

***

Interest, dividend and other incomes collected by the bank but not entered in the cash book

***

Bills receivable directly collected by the bank

***

Amount deposited by a customer directly into the bank

***

Cheque issued but returned dishonoured

***

Any amount wrongly credited by the bank

***

***

Balance as per cash book

***

Bank overdraft (Debit Balance) shown by the pass book

When the bank pass book shows the debit balance (i.e. overdraft) that could be shown in the brackets for indicating (-) minus item and all the adjustments should be adjusted the same way as above. The specimen of the bank reconciliation statement to be prepared on the basis of overdraft balance as per pass book is as follows:

Bank Reconciliation Statement

As on ………

Particulars

Amount Rs.

Amount Rs.

Bank overdraft as per pass book

(***)

Add:

Cheque received and entered in the cash book but not yet sent to the bank for the collection

***

Cheque deposited or paid into the bank but not yet collected by the bank

***

Bank charges, commission, bank overdraft so then charges deposited by the bank but not entered in cash book

***

Payment made by the bank directly on standing instruction

***

Cheques deposited for collection but returned dishonoured and no entry has been made in the cash book

***

Dishonor of bills discounted by the bank but not recorded in cash book

***

Any amount wrongly debited by bank

***

***

***

Less:

Cheque issued but not presented for payment

***

Interest allowed or credited by bank but not entered in cash book

***

Cheques deposited or paid into the bank but not recorded in cash book

***

Interest, dividend and other incomes collected by the bank but not entered in cash book

***

Bills receivable directly collected by the bank

***

Amount deposited by a customer directly into the bank

***

Cheque issued but returned dishonoured

***

Any amount wrongly credited by the bank

***

***

Bank overdraft as per cash book

***

In this case also, if we don’t want to show the overdraft amount indicating the minus sign(-), the items added above are to be deducted and deducted item are to be added:

Bank Reconciliation Statement

As on ……………….

Particulars

Amount Rs.

Amount Rs.

Bank overdraft as per pass book

***

Add:

Cheque issued but not presented for payment

***

Interest allowed or credited by bank but not entered in cash book

***

Cheques deposited or paid into the bank but not recorded in cash book

***

Interest, dividend and other incomes collected by the bank but not entered in cash book

***

Bills receivable directly collected by the bank

***

Amount deposited by a customer directly into the bank

***

Cheque issued but returned dishonoured

***

Any amount wrongly credited by the bank

***

***

***

Less:

Cheque received and entered in the cash book but not yet sent to the bank for the collection

***

Cheque deposited or paid into the bank but not yet collected by the bank

***

Bank charges, commission, bank overdraft so then charges deposited by the bank but not entered in cash book

***

Payment made by the bank directly on standing instruction

***

Cheques deposited for collection but returned dishonoured and no entry has been made in the cash book

***

Dishonor of bills discounted by the bank but not recorded in cash book

***

Any amount wrongly debited by bank

***

***

Bank overdraft as per cash book

***



  • Those items which decrease the passbook balance are to be subtracted.
  • Overdraft balance can be shown in the brackets for indicating, it is a ‘minus item’.
  • If credit balance of the passbook is to be taken as a base, the effect of each item which causes the difference in the cash book balance is to be found out. 
.

Very Short Questions

Solution:

Bank Reconciliation Statement

Particulars

Amount (in Rs.)

Details

Total

Bank balance as per cash book

8,000

Add:

Cheques issued but not presented for payment

5,000

Amount wrongly credited in the pass book

900

Amount of interest collected and credited by pass book only

100

6,000

Less:

14,000

Cheques sent for collection but not yet credited by the bank

25,000

25,000

Overdraft as per pass book

11,000

Solution:

Bank Reconciliation Statement

As on 30th Falgun, 2072

Particulars

Amount (in Rs.)

Details

Total

Balance as per pass book

20,000

Add:

Cheque deposited into the bank but not yet credited by the bank

10,000

Bank charge debited in the pass book only

1,000

Insurance premium paid by the bank but not shown in the cash book

1,500

A cheque debited in the cash book but not yet sent for collection

3,000

15,500

Less:

Cheque issued but not presented for payment

2,000

Amount directly deposited by the customer into the bank

5,000

(7,000)

Balance as per cash book

8,500

Bank Reconciliation Statement

Particulars

Amount (in Rs.)

Details

Total

Bank overdraft as per pass book

(10,000)

Add:

Cheque deposited into the bank but not collected by the bank

3,000

3,000

(7,000)

Less:

A cheque deposited into the bank but not recorded in the cash book

1,000

Bank charges recorded twice in the cash book

100

Bills collected by the bank but not recorded in the cash book

4,000

(5,100)

Overdraft as per cash book

(12,100)

Bank Reconciliation Statement

As on 30th Ashadh, 2070

Particulars

Amount (in Rs.)

Details

Total

Overdraft as per pass book

(9,000)

Add:

Cheques issued but not yet presented for payment

7,000

7,000

Less:

(2,000)

Cheques deposited into the bank but not yet collected by the bank

470

Interest on overdraft debited in the pass book only

150

Cheque debited in the cash book but not yet sent for collection

135

755

Overdraft as per pass book

(1,245)

0%
  • Which one of them is the first step for the preparation of Bank Reconciliation Statement?

    Prepare bank reconciliation statement taking balance either from the cashbook or passbook as a basis.
    Give sign to all the items of cashbook and passbook which are matched with each other.
    Make a list of unmatched items found in cash book and passbook.
    Compare cashbook and passbook items.
  • Those items which decrease the passbook balance are to be ______. 

    added
    divided
    subtracted
    multiplied
  • The bank reconciliation statement can be prepared by which of the following bases?

    All the options are correct
    Credit balance shown by cash book (overdraft)
    Debit balance shown by cash book
    Credit balance shown by passbook
  • Overdraft balance can be shown in the brackets for indicating, it is a  ______ .

    minus item
    divisible item
    multiplicative item
    sum tem
  • If the causes of disagreement between the cashbook and passbook balances are given, the ______ can be prepared either by taking the balance of cashbook or passbook.

    cost sheet
    cash reconciliation statement
    bank sheet
    bank reconciliation statement
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