Definition: Statement prepared by customer to explain reasons for difference between Cash Book (bank column) balance and Pass Book (Bank Statement) balance on a given date.
Need/Objectives: Identify causes of difference, know correct bank balance, detect errors/frauds, prevent unnecessary overdraft, verify bank's records.
CAUSES OF DIFFERENCE
A. Timing Differences:
- Cheques issued but not presented (CB lower).
- Cheques deposited but not credited (CB higher).
- Interest/dividend collected by bank (PB higher).
- Bank charges/interest on overdraft (PB lower).
- Direct deposit by customer (PB higher).
- Direct payment by bank (insurance, etc.) (PB lower).
- Dishonour of cheque/bill (PB lower).
PREPARATION RULES
| When Starting from Cash Book (Favourable) | Add (+) | Deduct (–) |
|---|---|---|
| Cheques issued not presented, Interest credited, Direct deposit, Dividend collected | Cheques deposited not credited, Bank charges, Interest on OD, Direct payment, Dishonour | |
| When Starting from Pass Book (Favourable) | Add (+) | Deduct (–) |
| Cheques deposited not credited, Bank charges, Interest on OD, Direct payment, Dishonour | Cheques issued not presented, Interest credited, Direct deposit, Dividend collected | |
| When Starting from Overdraft (Cash Book Cr.) | Add (+) | Deduct (–) |
| Items that increase overdraft (Bank charges, Interest on OD, Cheques deposited not credited, Dishonour, Direct payment) | Items that decrease overdraft (Cheques issued not presented, Direct deposit, Interest credited, Dividend) |
PREPARATION METHODS
1. Starting from Cash Book Balance (Favourable):
Balance as per Cash Book xxx
Add: (Items that increase PB) xxx
Less: (Items that decrease PB) xxx
Balance as per Pass Book = xxx
2. Starting from Pass Book Balance (Favourable):
Balance as per Pass Book xxx
Add: (Items that decrease CB) xxx
Less: (Items that increase CB) xxx
Balance as per Cash Book = xxx
3. Starting from Overdraft Balance:
Overdraft as per Cash Book xxx
Add: (Items that increase overdraft) xxx
Less: (Items that decrease overdraft) xxx
Overdraft/Favourable as per Pass Book = xxx
ADJUSTED / AMENDED CASH BOOK
When errors are found in cash book, first correct the cash book balance, then prepare BRS. Adjust for bank charges, interest, direct payments, dishonour, etc.
IMPORTANT EXAM QUESTIONS
1. What is Bank Reconciliation Statement? Explain its need (2 marks).
2. State any five causes of difference between Cash Book and Pass Book balances (5 marks – 2021 IMP).
3. List any two items that increase overdraft as per Pass Book (2 marks – 2020 IMP).
4. Prepare BRS from given data starting from Cash Book balance (8 marks).
5. Prepare BRS from given data starting from Pass Book balance (8 marks).
6. Prepare BRS when overdraft is given (8 marks).
7. Find odd one: Direct payment by bank, Bank charges, Interest allowed by bank, Dishonour of bill (Answer: Interest allowed).
8. Overdraft means ______ balance of Cash book (Credit).
9. The reason for difference is revealed by? (Bank Reconciliation Statement).