Bank Reconciliation Statement

Bank Reconciliation Statement CPT Section A- Fundamentals of Accounting

Chapter 3 CA. Pankaj Goel

Meaning

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Strictly speaking there should be no difference in Cash Book(Bank Column) and Pass book(BANK STATEMENT). .

However on a particular date it is possible that balances on both the books do not tally.

After finding the reasons for non agreement of the bank balances efforts are made to reconcile. This statement is prepared in the form of BRS.

Importance of BRS

Errors which may have been committed

Undue delay in clearance of cheques

Discourages staff from embezzlement

Reasons for Differences

• Timing differences –when time is different 1. Cheques issued but not presented-CASH

BOOK-Recorded When Cheque is Issued AND IN PASS BOOK when cheque is presented for payment

2. Cheques paid/deposited into bank but not presented/cleared/banked: -CASH BOOK-Recorded When Cheque is deposited/recived AND IN PASS BOOK when cheque is collected/credited

Reasons for Differences-Contd:

3. Interest and dividend collected by bank -CASH BOOK-Recorded When information from bank is received AND IN PASS BOOK when interest is credited by bank

4. Bills collected by bank on behalf of the customer /direct payment by bank- CASH BOOK-Recorded When information from bank is received AND IN PASS BOOK when amount is credited/added by bank

Reasons for Differences

• Due to errors in recording the entries like writing cash transaction in bank ,undercasting etc

Cash Book

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PASSBOOK STATEMENT is ISSUED BY BANK and it is copy of customer accounts in bank ledger/BOOKS

Pankaj Sir’s Principle

REMEMBER TWO PRINCIPLES OF PANKAJ SIR

1. IF CASH BOOK is GIVEN –THEN TAKE PASS BOOK -opposite AS GOD and Cash

Book as INSAAN

2. IF PASS BOOK IS GIVEN –THEN TAKE CASH BOOK opposite ISGOD and Pass

Book as INSAAN

Remember

• GOD never does wrong so do exactly same as done i.e if + then add, if – then subtract etc

• INSAAN-always make mistake, so do reverse, if done +, the u do -

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Pankaj Sir’s Principle-Revise

If balance as per CB-INSAAN is starting point

REVERSE THE ENTRY DONE BY INSAAN

PASS SAME ENTRIES DONE BY GOD/PASS BOOK

Uncollected cheques, cheque deposited not cleared, cheque recorded but omitted to be banked, over cast of bank column of cash book-SUBTRACT

Bank charges, direct payment by bank, dishonour of bill-SUBTRACT

Cheque issued not presented for payment, under cast of bank column of cash book-ADD

Bank interest, direct deposit by customer-ADD

IN CASE OF OVER DRAFT-TAKE GIVEN PART AS GOD AND OTHER AS INSAAN

Lets Understand Story

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PICTURE

12-07-2013

Story of Two Person-Customer and Bank

Debit Balance In Cash Book/Credit Balance In Pass Book

STORY- OF POSITIVE BALANCE

Need to Open an Account

Hi Johny I WANT TO

open a Saving Account?

Bipasha

Need to Open an Account

PassBook

I want to deposit

Rs.20,000/-

Bipasha

Pass Book Issued By Bank To Customer

Detailed Statement

31 • PASSBOOK STATEMENT is ISSUED BY BANK and it is copy of customer accounts in bank ledger

ok I got the idea what is Pass Book

Bipasha

CREDIT MEANS

Bipasha

IN MY BOOKS , IT WILL BE?

Bipasha

Lets Summarise

1. PASSBOOK – CREDIT MEANS BANK WILL GIVE/BANK BALANCE –GOOD

2. PASSBOOK – DEBIT MEANS BANK WILL TAKE –BAD SIGN- OVERDRAFT

3. CASH BOOK – CREDIT MEANS BANK WILL TAKE –BAD SIGN

4. CASH BOOK – DEBIT MEANS BANK WILL GIVE –GOOD SIGN

5. IN B/S, BALANCE AS PER AMENDED CASH BOOK IS SHOWN AND NOT AS

PER PASSBOOK

6. BRS IS PREPARED PERIODICALLY

Cash Book (bank column only)

Debit represents an increase Credit represents an decrease

Bank Statement/Pass Book

Dr Cr Balance

(represents decrease)

(represents increase)

(represents the amount owned to

the clients)

CASHBOOK PASSBOOK

IT IS JUST STATEMENT FOR

MATCHING BALANCE – NOT

PART OF ACCOUNTING

PROCESS

IT IS PREPARED WITH BANK STATEMENT

AND BANK COLUMN OF CASH BOOK

Thus, What is BRS-

Bank Reconciliation Statement (BRS)

This statement is prepared by CUSTOMER

at the end of specific intervals, may be daily or monthly or quarterly or annually , depending on the size and frequency of transactions of business.

The basic purpose of such statement is to reconcile the difference between cash book and pass book balances

After One Month

Johny I AM

WORRIED

Bipasha

I GOT PASSBOOK UPDATED IT SHOWED RS 24000? BUT I HAVE NOT DEPOSITED ANY CASH

Bipasha

KYA BHAGWAN/GOD NE ENTRY KARI

KYA INSAAN NE ENTRY KARI

REMEMBER-PANKAJ SIR’S TRICK • GOD never does wrong so do exactly same as done i.e

if + then add, if – then subtract etc • INSAAN-always make mistake, so do reverse, if done

+, the u do -

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Bank Reconciliation Statment

BANK RECONCILIATION STATMENT

BALANCE as per Cash Book 20000 •Interest Credited in Pass Book but not yet in Cash Book- (GOD-DIRECT) ADD 5000 •Bank payment to lic (GOD-DIRECT)-MINUS ( 3500) •Direct payment by Chintu-ADD(GOD-DIRECT) 2500 BALANCE AS PER PASS BOOK 24000

BIPASHA

CUSTOMER/ BUSINESS

/MANAGMENT

Who Prepares BRS

Practice 1

Illustration 1

From the following particulars ascertain the balance that would appear in the Bank Pass Book of A on 31st December, 2012.

(1) the bank BALANCE as per Cash Book on 31st December, 2012 Rs. 6,300.

(2) Interest on overdraft for 6 months ending 31st December, 2012 Rs. 160 is entered in Pass Book.

(3) Bank charges of Rs. 30 for the above paid are debited in the Pass Book.

(4) Cheques DEPOSITED BY CUSTOMER, amounted to Rs. 1,200.

REMEMBER-PANKAJ SIR’S TRICK • GOD never does wrong so do exactly same as done i.e

if + then add, if – then subtract etc • INSAAN-always make mistake, so do reverse, if done

+, the u do -

7/12/2013

BALANCE as per Cash Book 6300 •Interest debited in Pass Book but not yet in Cash Book- (GOD-DIRECT) MINUS (160) •Bank Charges (GOD-DIRECT)-MINUS ( 30) •Direct payment by Customer (GOD-DIRECT)-ADD 1200 BALANCE AS PER PASS BOOK 7310

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Bipasha

WHATS MY BALANCE?

Bipasha

BUT MY BOOKS SHOWED RS 25000?

Bipasha

YES TO ABHISHEK RS 10000? And I subtracted

Bipasha

Remember-Pankaj sir’s trick

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BALANCE as per Cash Book 25000 Cheques issued but not presented for payment(INSAN-REVERSED) ADD 10000 BALANCE AS PER PASS BOOK 35000

WHATS MY BALANCE?

Bipasha

After One Month

Johny I AM WORRIED?

Bipasha

BUT MY BOOKS SHOWED RS 35000?

Bipasha

YES from ABHISHEK RS 10000 and I added to my books

Bipasha

Remember-Pankaj Sir’s Trick

7/12/2013

BALANCE as per Cash Book 35000 Cheque deposited but not collected (INSAAN-REVERSED) MINUS (10000) BALANCE AS PER PASS BOOK 25000

Practice 2

Illustration

From the following particulars ascertain the balance that would appear in the Bank Pass Book of A on 31st December, 2006.

(1) the bank DEBIT BALANCE as per Cash Book on 31st December, 2006 Rs. 6,340.

(2) Interest on overdraft for 6 months ending 31st December, 2006 Rs. 160 is entered in Pass Book.

(3) Bank charges of Rs. 30 for the above paid are debited in the Pass Book.

(4) Cheques issued but not cashed prior to 31st December, 2006, amounted to Rs. 1,168.

(5) Cheques paid into bank but not cleared before 31st December, 2006 were for Rs. 2,170.

(6) Interest on investments collected by the bank and credited in the Pass Book Rs. 1,200.

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BALANCE as per Cash Book 6300 •Interest debited in Pass Book but not yet in Cash Book- (GOD-DIRECT) (160) •Interest credited in Pass Book but not yet in Cash Book- (GOD-DIRECT) 1200 •Bank Charges (GOD-DIRECT) ( 30) Cheque Issued but not presented(INSAAN-REVERSED) 1168 Cheques paid into bank but not cleared(INSAAN-REVERSED) (2170) BALANCE AS PER PASS BOOK 6348

Practice 3

Illustration 3 1.On 30th December, 2006 the bank column of A. Philip’s cash book showed a debit balance of Rs. 461. On examination of the cash book and bank statement you find that :

2.Cheques amounting to Rs. 630 which were issued to creditors and entered in the cash book before 30th December, 2006 were not presented for payment until that date.

3.Cheques amounting to Rs. 250 had been recorded in the cash book as having been paid into the bank on 30th December, 2006, but were entered in the bank statement on 1st January, 2007.

4 A dividend of Rs. 38, paid direct to the bank had not been recorded in the cash book..

5.. Bank interest and charges amounting to Rs. 42 had been charged in the bank statement but not entered in the cash book

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BALANCE as per Cash Book 461 •Interest credited in Pass Book but not yet in Cash Book- (GOD-DIRECT) 38 •Cheque Issued but not presented(INSAAN-REVERSED) 630 Cheques paid into bank but not cleared(INSAAN-REVERSED) (250) Charges debited in Pass Book but not yet in Cash Book- (GOD-DIRECT) (42) BALANCE AS PER PASS BOOK 837

Drawing Up A Bank Reconciliation Statement

• To reconcile the bank statement with the corrected cash book

Check the bank statement and the cash book to see the items which have been omitted.

Update the cash book with any omissions and errors made by the itself.

Prepare the bank reconciliation statement.

Next Story-overdraft

Debit Balance In Pass Book/Credit Balance In Cash Book

REMEMBER TWO PRINCIPLES OF PANKAJ SIR-OVERDRAFT

1. IF CASH BOOKGIVEN –THEN TAKE CASH BOOK AS GOD

2. IF PASS BOOK IS GIVEN –THEN TAKE

PASS BOOK AS GOD

JOHNY I HAVE current ACCOUNT IN UR BANK?

Bipasha

WHATS MY BALANCE?

Bipasha

After One Month

johnyI AM WORRIED?

Bipasha

I have issued cheque to ABHISHEK for RS 100000 and subtracted in my books? My book shows rs( 65000)

Bipasha

WHY 70000?

Bipasha

WHY 70000?

Bipasha

overdraft MEANS?

Bipasha

IN MY BOOKS , IT WILL BE?

Bipasha

7/12/2013

BALANCE as per Cash Book(OD) 65000 BANK CHARGES-REVERSE-ADD(INSAAN) 5000 OD as per Pass Book 70000

Next Story-Errors

Bipasha

WHATS MY BALANCE?

Bipasha

My cash book shows rs 20 000

Bipasha

let me check

Bipasha

Yes u were right I put less amount on debit side?- -undercast by 5000

Bipasha

7/12/2013

Bank Reconciliation Statement

BALANCE as per Cash Book 25000 •Undercast in Cash Book(INSAAN-REVERSED) 5000 BALANCE AS PER PASS BOOK 30000

Practice 4

Illustration

From the following information, prepare a Bank reconciliation

statement as at 31st December, 2006 for Messers New Steel Limited: Rs.

(1) Bank overdraft as per Cash Book on 31st December, 2006. 2,45,900 (2) Interest debited by Bank on 26th December, 2006 but no advice received 27,870 (3) Cheque issued before 31st December, 2006 but not yet presented to Bank 66,000 (4) Transport subsidy received from the State Government directly by the Bank but not advised to the company 42,000

Continued:

(5) Draft deposited in the Bank, but not credited till 31st December, 2006 13,500 (6) Bills for collection credited by the Bank till 31st December, 2006 but no advice received by the company 83,600 (7) Amount wrongly debited to company account by the Bank, for which no details are available 7,400

Answer 4

Solution

M/s. New Steel Ltd.

Bank Reconciliation Statement as on 31st Dec. 2006

Particulars Rs. Rs.

Overdraft as per Cash Book

Add: Interest charged by the bank

Draft deposited in bank but not yet credited

Wrong debit by the bank, under verification

Less: Cheque issued but not yet presented

Transport subsidy not yet recorded in the Cash Book

Bills for collection credited in the bank not yet entered in

the Cash book

27,870

13,500

66,000

42,000

83,600

2,45,900

48,770

2,94,670

1,92,100

1,02,570 107

Amended cash book- balance shown in b/s • Items which appears only in pass book like interest,

charge etc are shown in Amended cash book and rectification entries in cash book like CASH BALANCE RECORDED IN BANKetc

MCQ 1:When the balance as per Cash Book is the starting point, direct deposits by customers are :

a)added

b)subtracted;

c)not required to be adjusted

d)neither of the two

Answer: a

MCQ 2:A Bank Reconciliation Statement is a

a)part of Cash Book;

b)part of Bank Account;

c)part of financial statements,

d)none of the above.

Answer:d

MCQ 3: When balance as per Pass Book is the starting point, interest allowed by Bank is

a)added

b)subtracted

c)not required to be adjusted

d)None of the above.

Answer:b

MCQ 4:A Bank Reconciliation statement is prepared with the help of:

a) Bank statement and bank column of the Cash Book.

b) Bank statement and cash column of the Cash Book.

c) Bank column of the Cash Book and cash column of the Cash Book

d) None of the above.

Answer:a

5.Debit balance as per Cash Book of ABC Enterprises as on 31.3.2006 is Rs. 1,500. Cheques deposited but not cleared amounts to Rs. 100 and Cheques issued but not presented of Rs. 150. The bank allowed interest amounting Rs. 50 and collected dividend Rs. 50 on behalf of ABC Enterprises. Balance as per pass book should be

• a) 1,600. • b) 1,450. • c) 1,850. • d) 1,650.

Answer: d 1500-100+150+50+50=1650

6.The cash book showed an overdraft of Rs. 1,500 as cash at bank, but the pass book made up to the same date showed that cheques of Rs. 100, Rs. 50 and Rs. 125 respectively had not been presented for payments; and the cheque of Rs. 400 paid into account had not been cleared. The balance as per the cash book will be

• a) Rs. 1,100. • b) Rs. 2,175. • c) Rs. 1,625. • d) Rs. 1,375.

Answer: c 1500-100-50-125+400=1625

MCQ. 7.When drawing up a Bank Reconciliation Statement, if you start with a debit balance as per the Bank Statement, the unpresented cheques should be:

a)Added;

b)Deducted;

c)Not required to be adjusted.

d)None of the above.

Answer:a

MCQ 8:A debit balance in the depositor’s Cash Book will be shown as:

a) a debit balance on the Bank Statement.

b) a credit balance on the Bank Statement.

c) an overdrawn balance on Bank Statement.

d) None of the above.

Answer:b

9.When preparing a Bank Reconciliation Statement, if you start with a debit balance as per the Cash Book, cheques issued but not presented within the period should be: • a) Added; • b)Deducted; • c)not required to be adjusted • d)None of the above.

Answer :a

MCQ 10. When the balance as per Pass Book is the starting point, direct payment by bank are:

a) added in the bank reconciliation statement

b) subtracted in the bank reconciliation statement

c) Not required to be adjusted in the bank reconciliation statement.

d) Neither of the above.

Answer:a

MCQ 11. When balance as per Cash Book is the starting point, uncollected cheques are:

c) ‘Not required to be adjusted in the bank reconciliation statement

d) nether of the above.

Answer:b

MCQ 12; A Bank Reconciliation Statement is prepared to know the causes for the difference between:

a) the balances as per cash column of Cash Book and the Pass Book.

b) the balance as per bank column of Cash Book and the Pass Book.

c) the balance as per bank column of Cash Book and balances as per cash column of Cash Book

d) Neither of the above.

Answer:b

MCQ 13. When the balance as per Pass Book is the starting point, uncollected cheques are:

c) not required to be adjusted in the bank reconciliation statement.

d) neither of the above.

Answer: a

MCQ 14: When balance as per Cash Book is the starting point, interest charged by Bank is:

a) Added in the bank reconciliation statement

b) subtracted in the bank reconciliation statement.

c) not required to be adjusted in the bank reconciliation statement

d) neither of the above.

Answer:b

MCQ 15: Match the following items from column A with column B

S.No 1.

Column A Debit Balance in the Cash Book means A Bank Reconciliation is prepared by: A Bank Statement is a copy of:

Credit Balance in the cash book means

Column B (a) Account holders

(b) Overdraft as per Pass Book (c) Credit balance as per Pass Book (d) A customers account in the Bank’s book

Answer 15

S.No 1.

Column A Debit Balance in the Cash Book means A Bank Reconciliation is prepared by: A Bank Statement is a copy of: Credit Balance in the cash book means

Column B (c) Credit balance as per Pass Book (a) Account holders

(d) A customers account in the Bank’s book (b) Overdraft as per Pass Book

MCQ 16:Direct payment to the third party on behalf of the account holder is entered in

a)the cash-book when the amount is paid by the bank

b)the cash-book when the entry is posted in the pass-book

c)the pass-book when the amount is paid by the bank

d) the pass-book when the entry is posted in the pass-book

Answer:c

MCQ 17:Payment done by the account holder through issuing a cheque is entered in a)the pass-book at the time of issuing the cheque

b)the cash-book at the time of presenting the cheque to the bank for payment

c)the pass-book at the time of presenting the cheque to the bank for payment

d) the cash-book at the time of issuing the cheque

Answer;d

THE END Bank Reconciliation Statement

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