Bank Reconciliation Statement: formula sheet

Key formulas

Meaning of BRS

BRS = statement reconciling Cash Book (bank column) balance with Pass Book balance on a given date

Prepared by the business, not by the bank. It is usually prepared at the end of a month or period.

Debit and credit view

Cash book debit balance = bank balance in hand | Pass book credit balance = bank holds money for you

The two books are mirror images. What is a debit in your cash book is a credit in the bank's books for you.

Reconciliation idea

Balance as per Cash Book ± reconciling items = Balance as per Pass Book

Reconciling items are the transactions recorded in one book but not yet in the other, plus errors.

Overdraft case

Cash book credit balance = Overdraft | Pass book debit balance = Overdraft

Signs reverse when the account is overdrawn. Read the balance carefully before you add or subtract.

Cheque issued but not presented

Cash book: credited (payment). Pass book: not yet debited.

Pass book balance is higher than the cash book balance because of this item.

Cheque deposited but not cleared

Cash book: debited (receipt). Pass book: not yet credited.

Pass book balance is lower than the cash book balance because of this item.

Bank charges, interest on overdraft, standing instructions paid

Pass book: debited. Cash book: not yet credited.

Cash book balance is higher until you record them.

Interest or dividend credited by bank, direct deposit by customer

Pass book: credited. Cash book: not yet debited.

Cash book balance is lower until you record them.

Dishonoured cheque (deposited earlier)

Pass book: debited when returned. Cash book: not yet credited.

You had debited the cash book on deposit, so you must now reverse it.

Favourable cash book balance: items to ADD

Add: cheques issued but not yet presented; interest or dividend collected by bank and not yet in cash book; direct deposits by customers

These make the bank balance higher than the cash book balance.

Favourable cash book balance: items to DEDUCT

Deduct: cheques deposited but not yet collected; bank charges; interest on overdraft; direct payments by bank (standing instructions, premium); dishonoured cheques

These make the bank balance lower than the cash book balance.

Favourable balance result

Balance as per cash book + additions − deductions = Balance as per pass book

The final figure is the credit balance in the pass book.

Overdraft per cash book: items to ADD

Add: cheques deposited but not yet collected; bank charges; interest on overdraft; direct payments by bank; dishonoured cheques

These increase the overdraft shown by the bank.

Overdraft per cash book: items to DEDUCT

Deduct: cheques issued but not yet presented; interest or dividend collected by bank; direct deposits by customers

These reduce the overdraft shown by the bank.

Overdraft result

Overdraft as per cash book + additions − deductions = Overdraft as per pass book

Label the final figure as an overdraft.

Favourable pass book balance: items to add

Add: cheques deposited but not yet credited by the bank; interest, dividend or direct deposits credited by the bank but not yet entered in the cash book

A cheque you deposited is already in your cash book but not in the pass book, so the pass book figure is lower than your cash book and you add it. Credits made by the bank on its own increase your cash book once entered, so you add them too.

Favourable pass book balance: items to deduct

Deduct: cheques issued but not yet presented for payment; bank charges, interest on overdraft, standing instruction payments and dishonoured cheques debited by the bank but not yet entered in the cash book

A cheque you issued is already in your cash book but not in the pass book, so the pass book figure is higher than your cash book and you deduct it. Debits made by the bank reduce your cash book once entered, so you deduct them too.

Bank charges and direct items by the bank

Bank credits not in the cash book: add. Bank debits not in the cash book: deduct.

Use one test: what will this item do to the cash book when I enter it? If it raises the balance, add it. If it lowers the balance, deduct it.

Overdraft as per pass book: start negative

Overdraft as per pass book = a negative starting figure. Use the same add and deduct rules as above.

Do not flip any sign. Deducting a cheque issued makes the overdraft larger. Adding a cheque deposited makes it smaller.

Result

Balance as per cash book = Pass book balance ± reconciling items

For an overdraft, the result is an overdraft as per the cash book if the final figure is negative. If it turns positive, it is a favourable balance.

Adjusted cash book (debit balance)

Adjusted balance = Old cash book balance + items increasing the bank balance − items decreasing the bank balance

Add direct deposits, interest and dividend collected by the bank. Subtract bank charges, interest charged, dishonoured customer cheques and direct payments. If a payment was under-recorded in the cash book, subtract the difference. If a payment was over-recorded, add the difference.

Which items go where

Pass book items missing in cash book and cash book errors → adjust cash book. Timing items and bank errors → BRS only

This split decides every question.

BRS from adjusted cash book (favourable balance)

Pass book balance = Adjusted cash book balance + cheques issued not presented − cheques deposited not credited − amount wrongly debited by bank + amount wrongly credited by bank

Use this when the adjusted cash book balance is known and the pass book balance is asked.

BRS from pass book (credit balance)

Adjusted cash book balance = Pass book balance − cheques issued not presented + cheques deposited not credited + amount wrongly debited by bank − amount wrongly credited by bank

Use this when the pass book balance is given and the cash book balance is asked.

Quick revision

• A BRS is prepared to reconcile the cash book bank balance with the pass book balance on a given date.
• It is not part of the ledger. It is a statement for checking and does not change any account.
• A debit balance in the cash book means money in the bank. In the pass book the same position appears as a credit balance.
• Cheque issued but not yet presented: the pass book is higher, so the cash book balance is lower than the pass book.
• Cheque deposited but not yet cleared: the pass book is lower than the cash book.
• Bank charges and interest on overdraft are in the pass book first, so they reduce the cash book balance.
• Interest or dividend collected directly by the bank increases the cash book balance once you record it.
• Dishonour of a cheque deposited by you reduces the cash book balance.
• Overdraft reverses the logic: the same item gets the opposite sign, so check the type of balance first.
• Both methods must give the same final answer, so use one to check the other.
• In an adjusted cash book, pass the corrections in the cash book and then reconcile the remaining items.

Common mistakes

• Saying the BRS is an account in the ledger. Fix: Remember it is only a statement. Entries are passed in the cash book only for items such as bank charges, not for the BRS itself.
• Saying the cash book and pass book should always agree. Fix: Say they may differ because of timing, bank-only items and errors. The BRS explains the difference.
• Treating a cheque issued but not presented as an item in the pass book only. Fix: You issued the cheque, so your cash book already has it. The pass book will show it only after the payee presents it.
• Saying deposit in cash book is a credit. Fix: In your cash book, bank receipts are debits. In the pass book they are credits. The two books are mirror images.
• Using the favourable-balance signs when the cash book shows an overdraft Fix: Underline the words 'overdraft' or 'credit balance' in the question before you start. If you see them, flip every sign.
• Treating cheques issued but not presented as a deduction in a favourable balance Fix: Remember that the cash book is ahead of the bank on this item. Add it back to reach the bank's higher figure.
• Using the cash book rules for adding and deducting without reversing the cheque items. Fix: Remember that the rules for cheques issued and cheques deposited are exactly opposite when you start from the pass book. Before you begin, note down the starting point and the direction of the walk.
• Treating an overdraft as a favourable balance, or flipping every sign for an overdraft. Fix: Underline overdraft in the question. Write the opening figure as negative, use the same signs as for a favourable balance, and state the final answer as overdraft if it remains negative.
• Putting bank charges or dishonoured cheques in the BRS instead of the adjusted cash book. Fix: If the bank has recorded it and you have not, record it in the cash book. It is not a timing difference.
• Correcting a cash book error with the full amount instead of the difference. Fix: Use only the difference. If a payment of ₹2,700 was entered as ₹2,070, the correction is ₹630.

Exam tips

• For a 'meaning and objectives' question, always give a definition, a reason for differences and at least three objectives.
• In the difference-between-books question, include the debit and credit point. Many students miss it.
• Use a short example in your answer, such as an uncleared cheque, to show you understand why balances differ.
• Write the phrase 'on a given date' in your definition. A BRS is always prepared as at a date.
• If a numerical BRS follows in the same paper, read the opening balance carefully to see whether it is a favourable balance or an overdraft.
• Write the cause, the book that has the entry and the effect on the balance for each item. Examiners give marks for the reason, not just the figure.
• In short answers, group causes under three heads: timing differences, bank-only items and errors.
• Always state that cheques not presented or not cleared need no cash book entry.