BANK RECONCILIATION STATEMENT (Favorable Balance)

 

Index 

 

S. No	Chapters	Pg. No
1	Introduction	3-4
2	Objective	5-6
3	Statement of the Problem	7
4	Analysis	8-9
5	Findings	10
6	Conclusion	11-12
7	Webliography	13

 

 

 

 

 

 

 

 

 

 

CHAPTER 1-INTRODUCTION

What is BRS?

BRS stands for Bank Reconciliation Statement, the business organizations keep a record of their cash and bank transactions in a cash book. The cash book also serves the purpose of both the cash account and the bank account and shows the balance of both at the end of the period. Once the cash book has been balanced, it is usual to check its details with the records of the firm’s bank transactions as recorded by the bank.

To enable this check, the cashier needs to ensure that the cash book is completely up to date and a recent bank statement (or a bank passbook) has been obtained from the bank. A bank statements or a bank passbook is a copy of a bank account as shown by the bank records. This enables the bank customers to check their funds in the bank regularly and update their own records of transactions that have occurred.

The amount of balance shown in the passbook or the bank statement must tally with the balance as shown in the cash book. But in practice, these are usually found to be different. Hence, we have to ascertain the causes for such difference. It will be observed that a bank statement/passbook shows all deposits in the credit column and withdrawals in the debit column. Thus, if deposits exceed withdrawals, it shows a credit balance and if withdrawals exceed deposits, it will show a debit balance (overdraft).

Need for Reconciliation

It is generally experienced that when a comparison is made between the bank

balance as shown in the firm’s cash book, the two balances do not tally.

Hence, we have to first ascertain the causes of difference thereof and then

reflect them in a statement called Bank Reconciliation Statement to reconcile

(tally) the two balances.

In order to prepare a bank reconciliation statement, we need to have a

bank balance as per the cash book and a bank statement as on a particular

day along with details of both the books. If the two balances differ, the entries

in both the books are compared and the items on account of which the

difference has arisen are ascertained with the respective amounts involved so

that the bank reconciliation statement may be prepared

Format for BRS

 

	Particulars	Amount Rs.
	Balance as per cash book	XXX
Add:	Cheques issued but not presented	XXX
	Interest credited by the bank	XXX
		XXX
Less:	Cheques deposited but not credited by the bank	XXX
	Bank charges not recorded in the cash book	XXX
	Balance as per the passbook	XXXX

 

It can also be prepared with two amount columns one showing additions

(+ column) and another showing deductions (-column).

 

	Particulars	Amount Rs. (+)	Amount Rs. (-)
	Balance as per cash book	XXX
	Cheques issued but not presented	XXX
	Interest credited by the bank	XXX
	Cheques deposited but not credited by the bank		XXX
	Bank charges not recorded in the cash book		XXX
	Balance as per the passbook		XXXX

 

Preparation of Bank Reconciliation Statement

After identifying the causes of difference, the reconciliation may be done in

the following two ways:

(a) Preparation of bank reconciliation statement without adjusting cash book

balance.

(b) Preparation of bank reconciliation statement after adjusting cash book

balance.

It may be noted that in practice, the bank reconciliation statement is

prepared after adjusting the cash book balance.

CHAPTER 2- OBJECTIVE

 

Objectives, Advantages and Importance of Bank Reconciliation Statement (BRS)

1. To know the accuracy of entries in the Cash Book and the Pass Book:

The basic object of preparing Bank Reconciliation Statement is to test the accuracy for causes of difference in the Cash Book and the Pass Book.

 

2. To know the errors in Cash Book and Pass Book:

Cash inflow and outflow must tally as per, Cash Book with the Bank Pass Book or, Bank Statement.

 

3. Knowledge of cheques deposited for collection:

Bank Reconciliation Statement gives information about the position of cheques deposited for collection e.g.,

(i) How many cheques were issued and not presented for payment up to the date of reconciliation?

(ii) How many cheques were not credited up to the reconciliation time or were dishonored,

(iii) Cause of delay, in clearance etc.

 

4. Check on the misappropriation of cash:

The continuous comparison of Cash Book with the Pass Book keeps check on, is accountant trying to misappropriation of funds. The cases of misappropriation of cash by accountant can be detected easily.

 

5. Verification of Bank Balance

 

6. Mechanism of Internal control: The preparation of Bank Reconciliation statement is an important mechanism of internal control on cash inflow and outflow. It checks misappropriation of cheques, bank drafts, malpractices of dishonest employees dealing with cash and bank etc.

 

7. Knowledge of interest allowed by bank or Commission and Interest charged by Bank:

 

8. Knowledge of Other Facts:

• The knowledge of wrong entries by bank;

• The correct position of cash and bank deposit;

• Dividend directly collected by bank;

• Direct deposit of cash or cheque by a debtor;

• Payment made by the bank on behalf of business as per standing instructions;

• Position of dishonor of bills receivable.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER-3 STATEMENT OF PROBLEM

Illustration 1

 

From the following particulars of Mr. Aiden, prepare bank reconciliation statement as on March 31, 2021.

1. Bank balance as per cash book Rs. 60,000.

2. Cheques issued but not presented for payment Rs. 7,000.

3. The bank had directly collected dividend of Rs. 9,000 and credited to bank account but was not entered in the cash book.

4. Bank charges of Rs. 800 were not entered in the cash book.

5. A cheques for Rs. 10,000 was deposited but not collected by the bank.

 

 

 

Illustration 2

 

From the following particulars of Aiden John & Co. prepare a bank reconciliation statement as on August 31, 2021.

1. Balance as per the cash book Rs. 64,000.

2. Rs. 200 bank incidental charges debited to Aiden John & Co. account, which is not recorded in cash book.

3. Cheques for Rs. 6,400 is deposited in the bank but not yet collected by the bank.

4. A cheque for Rs. 10,000 is issued by Aiden John & Co. not presented for payment.

 

 

 

 

 

 

 

 

 

CHAPTER-4 ANALYSIS

 

BRS Steps in Dealing with favorable balances

 

(i) The date on which the statement is prepared is written at the top, as

part of the heading.

(ii) The first item in the statement is generally the balance as shown by the cash book. Alternatively, the starting point can also be the balance as per passbook.

(iii) The cheques deposited but not yet collected are deducted.

(iv) All the cheques issued but not yet presented for payment, amounts

directly deposited in the bank account are added.

(v) All the items of charges such as interest on overdraft, payment by bank on standing instructions and debited by the bank in the passbook but not entered in cash book, bills and cheques dishonored etc. are deducted.

(vi) All the credits given by the bank such as interest on dividends collected, etc. and direct deposits in the bank are added.

(vii) Adjustment for errors is made according to the principles of rectification of errors.

(viii) Now the net balance shown by the statement should be same as shown by the passbook.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Solution to Ilustration-1

Bank Reconciliation Statement of Mr. Aiden as on March 31, 2021

 

	Particulars	(+) Amount Rs.	(–) Amount Rs.
1	Balance as per cash book	60000
2	Cheques issued but not presented for payment	7000
3	Dividends collected by the bank	9000
4	Cheque deposited but not credited by the bank		10000
5	Bank charges debited by the bank		800
6	Balance as per passbook		65200
		76000	76000

 

 

Solution to Ilustration-2

Bank Reconciliation Statement of Aiden John & Co. as on August 31, 2021

 

	Particulars	(+) Amount Rs.	(–) Amount Rs.
1	Balance as per cash book	64000
2	Cheques issued but not presented for payment	10000
3	Cheque deposited but not credited by the bank		6400
4	Bank incidental charges debited by the bank		200
5	Balance as per passbook		67400
		74000	74000

 

 

 

 

 

CHAPTER-5 FINDINGS

 

Findings of Illustration 1

Balance as per passbook of Mr. Aiden as on March 31, 2021 Rs.65,200

 

Things Added

v  Cheques issued but not presented for payment Rs. 7,000

v  Dividends collected by the bank directly Rs. 9,000

 

Things Subtracted

v  Cheques for Rs. 10,000 was deposited but not collected by the bank

v  Bank charges of Rs. 800 were not entered in the cash book

 

 

Findings of Illustration 2

Balance as per passbook of Aiden John & Co as August 31, 2021 Rs.67,400

 

Things Added

v  Cheque for Rs. 10,000 is issued by Aiden John & Co. not presented for payment.

 

Things Subtracted

v  Cheques for Rs. 6,400 is deposited in the bank but not yet collected by the bank

v  Rs. 200 bank incidental charges debited to Aiden John & Co. account, which is not recorded in cash book.

 

 

 

 

 

 

 

CHAPTER-6 CONCLUSION

The balance as per cash book or as per passbook is the starting item.

The debit balance as per the cash book means the balance of deposits held at the bank.

Such balance will be a credit balance as per the passbook.

Such balance exists when the deposits made by the firm are more than its withdrawals.

It indicates the favorable balance as per cash book or favorable balance as per the passbook.

Reconciliation of the cash book and the bank passbook balances amounts to an explanation of differences between them. The differences between the cash book and the bank passbook are caused by:

• Timing differences on recording of the transactions.

• Errors made by the business or by the bank.

Timing Differences

When a business compares the balance of its cash book with the balance shown by the bank passbook, there is often a difference, which is caused by the time gap in recording the transactions relating either to payments or receipts. The factors affecting time gap includes

(a) Cheques issued by the bank but not yet presented for

(b) Cheques paid into the bank but not yet

(c) Direct debits made by the bank on behalf of the

(d) Amounts directly deposited in the bank account

(e) Interest and dividends collected by the

(f) Direct payments made by the bank on behalf of the customers

(g) Cheques deposited/bills discounted dishonoured

 

Differences Caused by Errors

Sometimes the difference between the two balances may be accounted for by an error on the part of the bank or an error in the cash book of the business. This causes difference between the bank balance shown by the cash book and the balance shown by the bank statement

(a) Errors committed in recording transaction by the

(b) Errors committed in recording transactions by the bank