Revision Notes for Class 11 Accountancy

Chapter 5 – Bank Reconciliation Statement

1. Definition:
• Bank Reconciliation Statement (BRS) is a statement that is prepared by a firm to
reconcile the balances as per the cash book prepared by the firm and the balances as per
the passbook recorded by the bank.
• The need for bank reconciliation statements arises from the fact that many times there
is a difference in both balances.

2. Causes of Differences in Balance:

The differences in balances in Cash Book and Pass Book may arise due to:
a. Difference in timings for recording the transaction
b. Errors are made by the bank or firm while recording the transaction.

2.1. Difference in Timings for Recording the Transaction

There may be a difference in balance caused by the timing gap both for payment as well as
for receipts. Some of the factors responsible for these gaps are:
a. Cheques issued by banks are not yet presented for payments.
b. Cheques paid into the bank but not yet collected.
c. Direct debits are made by the bank on behalf of the customer.
d. Amounts directly deposited in the bank account.
e. Interest and dividends are collected by the bank.
f. Direct payments are made by the bank on behalf of the customers.
g. Cheques deposited/bills discounted dishonoured.

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 2.2. Errors Made by Bank or Firm While Recording the Transaction
Sometimes there may be an error while recording a transaction that can result in a
difference in balances. Such errors can be made both by banks or firms, hence they
are of two types:
Errors committed by the firm:
(i) Wrong amount debited or credited in the cash book.
(ii) Omission of any transaction.
(iii) Error in totalling or balancing the bank column of the Cashbook.
Errors committed by the bank:
(i) Wrong amount debited or credited in the passbook.
(ii) Omission of any transaction.
(iii) Error in totalling or balancing the bank column of the Passbook.

3. Benefits of Bank Reconciliation Statement:

a. Helps in tracking errors.
b. Helps terminate the risks of fraud.
c. Helps in tracking transaction status periodically.
d. Helps in achieving accurate balance.

4. Preparation of Bank Reconciliation Statement:

• A BRS is prepared by taking either the balance of the Passbook or the Cash Book as a
starting point.
• The bank records all the deposits on the credit and withdrawals on the debit side of the
Passbook.
• Tally the debit side of the cash book and the credit side of the pass book and vice-versa
and note the point of differences.

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 4.1. Method for Preparing Bank Reconciliation Statement:
The format for preparing BRS is given below:

Amount
Particulars
(in Rs.)

Balance as per Cash Book

Items Credit in the Pass Book but not recorded in the Cash Book. ……….
Add: Items are credited in the Cash Book but not recorded in the Pass ……….
Book. ……….

Less: ……….
……….
Items debited in the Cash Book but not recorded in the Pass Book.
Item debit in Pass Book but not recorded in Cash Book.

Balance as per the passbook ……….

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 There can be an alternative format for preparing BRS with one column showing additions
and another showing deductions:

Amount Amount
Particulars (in Rs.) (in Rs.)
(+) (-)

Balance as per Cash Book

Items Credit in the Pass Book but not recorded in the Cash ……….
Book.
……….
Items are credited in the Cash Book but not recorded in the
……….
Pass Book.
……….
Items debited in the Cash Book but not recorded in the Pass
Book. ……….
Item debit in Pass Book but not recorded in Cash Book.

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 Balance as per the passbook ……….

Points to Remember:
• If the BRS starts with Balance as per Cash Book it will give the Balance as per Pass
Book at the end and vice-versa.
• The Debit balance as per the Cash book or Credit balance as per the Pass Book is written
on the positive side. It denotes that the deposits of the firm are more than the
withdrawals and is considered to be a favourable situation.
• The Credit balance as per Cash Book or Debit Balance as per Pass Book is written on
the negative side. It denotes that the deposits of the firm are less than the withdrawals
and are considered to be an unfavourable situation or overdraft balance.
• The main concept behind adjustments is when the balance in a cash book is getting
unnecessarily deducted (i.e., items credited in the cash book not recorded in the
passbook or items credited in passbooks not recorded in the Cash Book) we increase
the balance in the Cash Book so we add in it.
• When the balance in the cash book is getting over-amounted (i.e., items debited in the
Passbook are not recorded in the cash book, or items debited in the Cashbook are not
recorded in the Passbook) we reduce the amount hence we subtract those items.

Items which Increase the Pass Book Balance or Decrease the Cash Book Balance
a. Cheques issued but not yet presented.
b. Credits made by the bank for interest.
c. Amount directly deposited by the customers directly into the bank account.
d. Interest and dividends are collected by the bank.
e. Cheques paid into the bank but omitted to be recorded in the Cash – Book

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 Items which Decrease the Pass Book Balance or Increase the Cash Book Balance
1. Cheques were sent to the bank for collection but have not yet been credited by the bank.
2. Cheques paid or bills discounted in the bank but dishonoured.
3. Direct payments are made by the bank.
4. Bank charges, commissions etc. debited by the bank.
5. Cheques issued but omitted to be recorded in the Cash Book.

Illustration:1
From the following particulars prepare the Bank reconciliation statement of Arun Ltd. as of
31st March 2021:
a. Balance as per Pass Book was Rs. 14,000.
b. The bank collected a cheque of Rs. 500 on behalf of Arun Ltd. but forgot to
record it in the Pass Book.
c. The bank deposits a cash deposit of Rs. 2,589 as Rs. 2,598.
d. The payment of a cheque of Rs. 700 was recorded twice in the Pass Book.
e. The dividend collected by the bank is Rs. 450.
f. Bank charges Rs. 250 debited by the bank.

Ans: In the books of Arun Ltd

Bank Reconciliation Statement
as of 31st March, 2021

Amount
Particulars
(in Rs.)

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 Balance as per Pass Book 14000
Add:
The cheque omitted to be recorded 500
Cheque recorded twice 700
Bank charges debited by the bank 250
Less:
Excess Credit for Cash Deposit (9)
Dividend collected by bank (450)

Balance as per the Cash book 14,991

Explanation:
1. We start with Balance as per Pass Book as the starting point to arrive at Cash Book
Balance.
2. When the bank collected the cheque on behalf of Arun Ltd. and omitted to record it in
the passbook the balance was undermasted and hence it should be added to tally it with
the cash balance.
3. The bank recorded an error of Rs. 9 in excess and hence it must be brought down.
Therefore, it should be subtracted.

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 4. When the payment is recorded twice it will reduce the balance of the passbook by twice
the amount ( Rs. 1400) but the balance in the cash book is reduced only once (Rs. 700)
and hence it must be added back.
5. Dividends collected by the bank will increase the balance in the Passbook but the
Cashbook balance is unchanged and hence it is deducted.
6. Bank charges paid by the bank will reduce the passbook balance and hence it must be
added back to reconcile it with the Cashbook.
Note: These explanations are just for better understanding, students are not required
to write this from an examination point of view.

Types of Differences Caused by the Time Gap

The time gap in recording transactions causes the following differences:
1) If the cheques are issued and not presented in the bank for effecting payment.
2) If the cheques are deposited or paid into the bank for assortment but not credited by the
bank till the date.
3) If the cheques are dishonoured by the bank after deposition of the same.
4) Amount of interest granted by the bank authorities.
5) If the bank charges interest on an overdraft, commission etc.
6) If the customers deposit directly to the bank.
7) The amount collected by the bank in the shape of interest, dividend etc.

Types of Differences Caused by Miscalculations Committed in Recording

Transactions:
These types of miscalculations are divided into two categories:
a) Miscalculations committed by the firm:
1) If the cheques issued to some creditors are omitted to keep a record in the Cash Book or
double recording
2) If the cheques deposited into the banks are omitted keep a record in the Cash Book or
double recording.

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 3) Mistakes in the aggregate bank column of the Cash Book.
b) Miscalculations committed by the bank:
Often wrong entries are made by the banks in the customers’ accounts which is the reason
behind the difference in the two balances.
Significance of Bank Reconciliation Statement
Chapter 5 Accounts Class 11 notes perfectly illustrate the significance of the Bank
Reconciliation Statement. These are noted in the following:
• The errors and miscalculations either by the firm or by the bank are identified by the
statement.
• It gives satisfaction to the customers.
• Minimises the probability of fraud by the employee of the firm or bank.
• The cheques deposited for collection can be tracked by this.

Process of Preparing Bank Reconciliation Statement

Bank Reconciliation Statement class 11 notes clarify that BRS is made at the time we get
the duly filled Pass Book from the bank. At the time of receiving the Cash Book:
a) Debit side entries of the Cash Book are tallied with the credit side entries of the Pass Book
and vice versa.
b) The items appearing in the Cash Book and Pass Book must be ticked properly.
c) The items remaining unmarked will be the points of difference.
d) Lastly, the Bank Reconciliation Statement should be prepared by taking into account
either the amount shown in the Cash Book or Pass Book as a beginning point.

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