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Financial Accounting · Accounting Fundamentals

How to Prepare a Bank Reconciliation Statement

Updated 10 October 2026 · Fact-checked

A bank reconciliation statement (BRS) explains the difference between the cash book bank balance and the passbook balance. You start from one balance, add or deduct each item that appears in only one record, and arrive at the other balance. Timing differences and unrecorded items cause the gap.

Understand Bank Reconciliation Statement

Every business records its bank transactions in the cash book (bank column). The bank records the same transactions in its own statement, called the passbook or bank statement. Both should show the same balance. In practice they rarely do on a given date.

The gap arises for two reasons. First, timing differences: you record a cheque issued or deposited immediately, but the bank records it only when it is presented or cleared. Second, items the bank records first: interest, charges, direct credits, standing instructions and dishonoured cheques. You learn of these only when you see the statement.

A BRS does not change any ledger. It is a statement that proves the two balances differ only for known reasons. Items that need your own books corrected (bank charges, direct deposits, dishonour) require an adjusting entry in the cash book. Items that are only timing differences (cheques issued but not presented, cheques deposited but not yet credited) need no entry.

Watch the sign of the balance. A debit balance in the cash book means money in the bank. A credit balance means an overdraft. The passbook shows the opposite: a credit balance there means money in the bank, a debit balance means overdraft. Overdraft questions reverse the direction of every adjustment, so identify the sign first.

When the question gives an unadjusted cash book balance, you can either correct the cash book first or go straight to the BRS. Both give the same answer if you apply the rules consistently.

Key rules to remember

Starting from cash book (favourable balance)
Balance as per cash book + Cheques issued but not presented + Interest/dividend/direct deposits credited by bank − Cheques deposited but not collected − Bank charges/direct payments/dishonoured cheques debited by bank = Balance as per passbook
Use this when both balances show money in the bank (debit in the cash book, credit in the passbook). Reverse every sign if starting from the passbook.
Starting from cash book (overdraft)
Overdraft as per cash book − Cheques issued but not presented + Cheques deposited but not collected + Bank charges/dishonour not in cash book − Direct credits not in cash book = Overdraft as per passbook
This formula uses overdraft amounts as positive figures (magnitude terms). Items that increase money in the bank reduce the overdraft; items that reduce money in the bank increase it.
Adjusted cash book balance
Corrected cash book balance = Given cash book balance ± items that are not timing differences
Timing items (uncleared cheques) never change the cash book.

How to solve Bank Reconciliation Statement questions

Use this order for any BRS question, whatever the starting figure.

  1. 1Read the question and note the starting balance and whether it is favourable (money in bank) or an overdraft, and whether it is from the cash book or the passbook.
  2. 2Decide the direction: starting from cash book to reach passbook, or the reverse. Write the heading and the starting line first.
  3. 3Take each item in the question one by one. Ask: is it already in the cash book? Is it already in the passbook?
  4. 4For each item that appears in only one record, decide if it increases or decreases the bank balance in the record you start from, and place it as an addition or deduction.
  5. 5Ignore items that appear in both records and items that do not affect the bank (for example, cash deposited and credited on the same day).
  6. 6Total the statement and compare with the target balance. If asked, state the figure and label it clearly (as per passbook or as per cash book).
  7. 7If the question asks for the adjusted cash book, pass the corrections only for non-timing items and show the corrected balance before the BRS.

Quickest way: Plus-minus grid for uncleared items

When to use it: Use when the question lists many items and asks only for the missing balance.

  1. Write the known balance and mark it as a positive number if favourable, negative if overdraft.
  2. Next to each item, write who has not recorded it yet: Bank or Business.
  3. If you start from the cash book: add what makes the bank higher (cheques issued not presented, bank credits not in cash book) and subtract the opposite.
  4. If you start from the passbook, reverse every sign.
  5. Treat overdraft as negative and add or subtract algebraically. A final negative figure is an overdraft.
  6. Sanity check: when your result matches the given target balance, the items are all placed correctly.

Common mistakes in Bank Reconciliation Statement

  • Adding uncleared cheques deposited and deducting cheques issued, which reverses the rule.

    Students think of the cash book effect and not the effect on the passbook.

    Fix: Remember that cheques issued but not presented keep the passbook higher, so add them when going from cash book to passbook. Cheques deposited but not collected keep the passbook lower, so deduct them.

  • Ignoring that an overdraft reverses the signs.

    The favourable balance template is memorised without checking the balance type.

    Fix: Convert the overdraft to a negative figure and apply the same logic algebraically, or reverse each sign. Always label the final answer as overdraft.

  • Adjusting the cash book for cheques issued but not presented.

    Students confuse timing differences with errors.

    Fix: These items are already correctly recorded in the cash book. Only bank-initiated items and genuine errors need cash book entries.

  • Treating a dishonoured cheque as an uncleared cheque.

    Both involve a deposited cheque that is not in the bank balance.

    Fix: A dishonoured cheque was credited and then debited by the bank. It is a bank debit not yet in the cash book, so it reduces the cash book balance.

  • Writing the wrong error sign for items recorded wrongly in the cash book, such as a wrong total or transposed figure.

    Students correct the sign without checking whether the cash book was overstated or understated.

    Fix: Work out the correct amount, compare it with the amount recorded and adjust only the difference in the right direction.

  • Leaving out the heading, direction and label of the final balance.

    Students rush to the arithmetic.

    Fix: Write the heading as 'Bank Reconciliation Statement as on [date]' and label the starting and final lines. These earn presentation marks.

Worked examples

Example 1

On 31 March, the cash book of Sharma Traders showed a bank balance of ₹48,500 (debit). The following were found: (a) cheques issued of ₹12,000 not yet presented; (b) cheques deposited of ₹7,500 not yet credited by the bank; (c) bank charges of ₹300 debited by the bank, not in cash book; (d) interest of ₹1,200 credited by the bank, not in cash book. Prepare a BRS to find the passbook balance.

Show the solution
  1. Start with the balance as per cash book: ₹48,500 (favourable).
  2. Add cheques issued but not presented: ₹12,000. Total ₹60,500.
  3. Add interest credited by bank, not in cash book: ₹1,200. Total ₹61,700.
  4. Deduct cheques deposited but not yet credited: ₹7,500. Total ₹54,200.
  5. Deduct bank charges not in cash book: ₹300. Total ₹53,900.
  6. Check using the adjusted cash book: ₹48,500 + ₹1,200 − ₹300 = ₹49,400. Then the uncleared items: ₹49,400 + ₹12,000 − ₹7,500 = ₹53,900. This agrees.

Answer: Balance as per passbook is ₹53,900 (credit, money in bank).

Example 2

The cash book of Mehta & Co. on 31 December showed a bank overdraft of ₹25,000. The following were found: (a) cheques issued of ₹9,000 not yet presented; (b) cheques deposited of ₹14,000 not yet collected; (c) a customer's cheque of ₹2,000 deposited earlier was dishonoured, shown only in the passbook; (d) the bank credited ₹6,000 received directly from a debtor, not in cash book. Prepare a BRS to find the overdraft as per passbook.

Show the solution
  1. Treat the cash book overdraft as negative: −₹25,000.
  2. Cheques issued but not presented: ₹9,000. The bank has not yet paid them, so the passbook is better. Add: −₹25,000 + ₹9,000 = −₹16,000.
  3. Cheques deposited but not collected: ₹14,000. The bank has not yet credited them, so the passbook is worse. Deduct: −₹16,000 − ₹14,000 = −₹30,000.
  4. Dishonoured cheque ₹2,000 debited by the bank, not in cash book. Deduct: −₹30,000 − ₹2,000 = −₹32,000.
  5. Direct deposit from debtor ₹6,000 credited by the bank, not in cash book. Add: −₹32,000 + ₹6,000 = −₹26,000.
  6. Check: adjusted cash book = −₹25,000 − ₹2,000 + ₹6,000 = −₹21,000. Then uncleared items: −₹21,000 + ₹9,000 − ₹14,000 = −₹26,000. This agrees.

Answer: Overdraft as per passbook is ₹26,000.

Exam tips

  • Start every answer by writing whether the given balance is favourable or an overdraft, and from which record. Most lost marks come from sign errors.
  • In MCQs, use the quick check: adjust only for non-timing items, then apply the uncleared items. If two options differ by exactly twice an item, you have probably reversed that item's sign.
  • In longer questions, show the adjusted cash book first when several items need correction, then the BRS. This earns step marks even if a later figure goes wrong.
  • If a question gives the passbook balance and asks for the cash book balance, reverse the sign of every item rather than learning a second set of rules.
  • Label the final line precisely, for example 'Overdraft as per passbook', and write the date in the heading.

Practice questions from Accounting Fundamentals

Bank Reconciliation Statement in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Bank Reconciliation Statement: frequently asked questions

Why does the cash book balance differ from the passbook balance?

The two are kept by different parties and recorded at different times. Cheques issued or deposited take time to clear, and the bank records charges, interest, direct credits and dishonours that you learn about later. Errors in either record can also cause a difference.

Do I need to pass journal entries for a bank reconciliation statement?

Not for the statement itself. You only pass entries in the cash book for items that are not timing differences, such as bank charges, interest and direct deposits, to bring the cash book up to date.

How do I handle an overdraft in a BRS?

Treat the overdraft as a negative balance and apply each item algebraically. An item that increases money in the bank reduces the overdraft, and an item that reduces money in the bank increases it. Label the final figure as an overdraft.

What is the difference between a cheque issued not presented and a cheque deposited not collected?

A cheque issued but not presented is a payment you recorded that the bank has not yet paid. A cheque deposited but not collected is a receipt you recorded that the bank has not yet credited. They move the reconciliation in opposite directions.