Fundamentals of Accounting · Accounting Process

Bank Reconciliation Statement: How to Prepare It

Updated 11 October 2026 · Fact-checked

A bank reconciliation statement (BRS) lists the items that explain why the cash book bank balance and the pass book balance differ. To solve it, start from one balance, add or subtract each unmatched item with the correct sign, and reach the other balance. Both must then agree.

Understand Bank Reconciliation Statement

Your business records its bank dealings in the cash book (bank column). The bank records the same dealings in your account, and sends you a pass book or bank statement. Both show a balance on the same date. Often the two balances are not equal.

The difference does not always mean a mistake. Mostly it is timing. You write a cheque today, but the customer takes days to deposit it. You deposit a cheque today, but the bank credits it only after it clears. The bank also does things you do not know about until the statement arrives, such as charging fees or collecting interest.

A bank reconciliation statement is a statement prepared on a given date to explain the difference between the two balances. It is not a ledger account. It does not change the books by itself. It only matches the two records item by item.

The main reasons for the difference are:

Cheques issued but not yet presented for payment.
Cheques deposited but not yet collected (not yet credited by the bank).
Items the bank has recorded but you have not: bank charges, interest on deposits, interest or dividend collected, direct deposits by customers, standing instructions paid.
Errors in the cash book or the pass book.

The key skill is knowing which way each item moves the balance. Once you know the sign rules, any question becomes mechanical.

Key rules to remember

Favourable balance (debit in cash book): Cash book shows a debit balance = Cash at bank (asset). Pass book shows a credit balance for the same money.; The bank treats your deposit as a liability to you, so the pass book is the mirror image of the cash book.
Overdraft: Overdraft: cash book shows a credit balance; pass book shows a debit balance.; Read the question carefully for words like 'overdraft' or 'bank overdraft as per cash book'.
Starting from a favourable cash book balance: Pass book balance = Cash book balance + cheques issued but not presented + direct credits by bank not in cash book − cheques deposited but not collected − direct debits by bank not in cash book; Reverse the same items to go from the pass book to the cash book.
Starting from a favourable pass book balance: Cash book balance = Pass book balance + cheques deposited but not collected + direct debits by bank not in cash book − cheques issued but not presented − direct credits by bank not in cash book; Each item has the opposite sign to the cash book method.
Overdraft rule: If you start from an overdraft balance, the signs of all items reverse.; Safest approach: treat overdraft as a negative amount, then use the same formula.

How to solve Bank Reconciliation Statement questions

Use this method for any BRS question. It works whether the question gives the cash book balance or the pass book balance.

1Read the question and note the date, which balance is given, and whether it is a favourable balance or an overdraft.
2Write the heading: Bank Reconciliation Statement as on (date). Put the starting balance on the first line and say if it is as per cash book or pass book.
3Go through every item and ask: is it already in the cash book? Is it already in the pass book? Only items missing from one side go in the BRS.
4Decide the sign of each item using the formulas above. Add items that raise the starting balance and deduct items that lower it.
5Treat errors as separate items. Ask which book is wrong, then correct that book's balance accordingly.
6Total the statement to get the other book's balance. Check it equals the figure the question gives or implies.
7If the question asks for a revised cash book, pass book or adjusted balance, prepare it separately from the items in the BRS.

Quickest way: The three-question shortcut

When to use it: Use it when time is short and the list has many items, as in a typical 8 to 12 mark question.

For each item ask: does it change the cash book, the pass book, or both? Only one side should be affected.
If you start from the cash book, change it by what the bank has done that you have not recorded, and pass-book-side timing items in reverse. Your answer is the pass book balance.
Mentally draw two columns: items that increase the pass book (cheques issued not presented) and items that decrease it (cheques deposited not cleared). Add the signs for the cash book starting point as in the formula.
If the sum looks wrong, check an overdraft sign, a transposed figure or an item that was already in the cash book.
Keep a tick against every item so none is skipped or counted twice.

Common mistakes in Bank Reconciliation Statement

Adding cheques deposited but not collected to the cash book balance.
Students think a deposit always increases money.
Fix: The cash book already has it. The bank has not. So from cash book to pass book, deduct it.
Ignoring that the balance is an overdraft.
The words 'as per cash book' are read quickly and the sign is missed.
Fix: Circle the word overdraft. Write the balance with a minus sign and apply the same formula.
Adjusting for items already recorded in both books.
Students include every item in the question without checking.
Fix: Ask for each item if it is already in the book you are starting from. If yes, it does not appear in the BRS.
Using the wrong sign for bank charges and interest.
The bank's debit and credit are mixed up with the cash book's.
Fix: Bank charges reduce your money, so they reduce the cash book balance when you record them. Interest earned increases it. Then apply the formula for the starting point.
Forgetting to correct errors in the right book.
An error looks like any other item.
Fix: Find out whether the cash book or the pass book made the error, then reverse its effect on that balance.
Not writing the starting point in the heading.
Students rush to the figures.
Fix: Always write 'Balance as per cash book' or 'Balance as per pass book' on the first line. It earns marks and prevents sign mistakes.

Worked examples

Example 1

On 31 March, the cash book of Sharma Traders shows a bank balance of ₹48,500 (debit). Cheques issued for ₹6,000 have not been presented. Cheques deposited for ₹9,500 have not been collected. The bank has charged ₹300 as charges, and a customer has paid ₹4,000 directly into the bank. Neither of these two is in the cash book. Prepare a BRS to find the pass book balance.

Show the solution

Start with balance as per cash book: ₹48,500.
Cheques issued but not presented: the bank has not paid them, so add ₹6,000. Total: ₹54,500.
Cheques deposited but not collected: the bank has not credited them, so deduct ₹9,500. Total: ₹45,000.
Bank charges ₹300: the bank has deducted them but the cash book has not, so deduct ₹300. Total: ₹44,700.
Direct deposit by customer ₹4,000: the bank has credited it but the cash book has not, so add ₹4,000. Total: ₹48,700.

Answer: Balance as per pass book on 31 March is ₹48,700 (credit).

Example 2

On 30 June, the pass book of Mehta & Sons shows a balance of ₹72,000 (credit). Cheques issued for ₹11,000 have not been presented. Cheques deposited for ₹15,000 have not yet been credited. The bank has credited ₹2,500 as interest on the deposit, not in the cash book. The bank has debited ₹800 for a standing instruction for insurance premium, not in the cash book. Find the balance as per cash book.

Show the solution

Start with balance as per pass book: ₹72,000.
Cheques issued but not presented: the cash book has already reduced for them, so deduct ₹11,000. Total: ₹61,000.
Cheques deposited but not credited: the cash book has already added them, so add ₹15,000. Total: ₹76,000.
Interest credited by the bank ₹2,500 is not in the cash book, so deduct it to reach the cash book. Total: ₹73,500.
Standing instruction debited by the bank ₹800 is not in the cash book, so add it back. Total: ₹74,300.

Answer: Balance as per cash book on 30 June is ₹74,300 (debit).

Exam tips

Write the full heading with the date and the starting balance. These earn marks even when the figures go wrong.
Show each item on its own line with a short label, such as 'Cheques issued but not presented'. Examiners award marks per item.
If the question has both timing items and errors, keep them in separate groups so you can check them.
For a quick check, repeat the statement from the other side. You should get the figure given or implied by the question.
Do not spend time on the theory. Questions are mostly numeric, so practise two or three statements with different starting points.

Practice questions from Accounting Process

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 bank balance differ from the pass book balance?

Mostly because of timing. Cheques issued or deposited take time to clear. The bank may also record charges, interest or direct payments that you have not yet entered in your cash book. Errors in either book can also cause a difference.

Is a bank reconciliation statement part of the ledger?

No. It is a separate statement prepared on a given date to explain the difference between two balances. It does not replace the cash book. Entries are needed in the cash book only for items that the bank recorded and you did not.

How do I decide whether to add or deduct an item?

Ask which book is missing the item. Then ask how that item would change the balance of the book you are heading to. Practise with the formulas until the signs become automatic.

What changes if the balance is an overdraft?

All signs reverse. The safest method is to treat the overdraft as a negative figure and use the usual formula. Always read the question for the word overdraft.