NCERT Solutions for Class 11 Accountancy Financial Accounting I Chapter 5: Bank Reconciliation Statement

Chapter at a glance

Quick guide (starting with a favourable cash book balance)

When starting from an overdraft, the same items are taken with opposite signs in the “Plus/Minus” columns because the overdraft is entered in the minus column.

Test Your Understanding

Question TYU – I

I. Read the following transactions and identify the cause of difference on the basis of time gap or errors made by business firm/bank:
1. Cheques issued to customers but not presented for payment. 2. Cheque amounting to ₹ 5,000 issued to M/s. XYZ but recorded as ₹ 500 in the cash book. 3. Interest credited by the bank but yet not recorded in the cash book. 4. Cheque deposited into the bank but not yet collected by the bank. 5. Bank charges debited to firm’s current account by the bank.
II. Fill in the blanks: (i) Passbook is a copy of …… as it appears in the ledger of the bank. (ii) When money is withdrawn from the bank, the bank …… the account of the customer. (iii) Normally, the cash book shows a debit balance, passbook shows …… balance. (iv) Favourable balance as per the cash book means …… balance in the bank column of the cash book. (v) If the cash book balance is taken as starting point the items which make the cash book balance smaller than the passbook must be …… for the purpose of reconciliation. (vi) If the passbook shows a favourable balance and if it is taken as the starting point for the purpose of bank reconciliation statement then cheques issued but not presented for payment should be …… to find out cash balance. (vii) When the cheques are not presented for payment, favourable balance as per the cash book is …… than that of the passbook. (viii) When a banker collects the bills and credits the account passbook overdraft shows …… balance. (ix) If the overdraft as per the passbook is taken as the starting point, the cheques issued but not presented are to be …… in the bank reconciliation statement. (x) When the passbook balance is taken as the starting point items which makes the passbook balance …… than the balance in the cash book must be deducted for the purpose of reconciliation.

Answer

I.

II. (i) the customer’s account (ii) debits (iii) credit (iv) debit (v) added (vi) deducted (vii) less (lower) (viii) less (smaller overdraft) (ix) added (x) higher (more)

Question TYU – II

Select the Correct Answer:
1. A bank reconciliation statement is prepared by: (a) Creditors (b) Bank (c) Account holder in a bank (d) Debtors
2. A bank reconciliation statement is prepared with the balance: (a) Passbook (b) Cash book (c) Both passbook and cash book (d) None of these
3. Passbook is a copy of: (a) Copy of customer Account (b) Bank column of cash book (c) Cash column of cash book (d) Copy of receipts and payments
4. Unfavourable bank balance means: (a) Credit balance in passbook (b) Credit balance in cash book (c) Debit balance in cash book (d) None of these
5. Favourable bank balance means: (a) Credit balance in the cash book (b) Credit balance in passbook (c) Debit balance in the cash book (d) Both (b) and (c)
6. A bank reconciliation statement is mainly prepared for: (a) Reconcile the cash balance of the cash book. (b) Reconcile the difference between the bank balance shown by the cash book and bank passbook (c) Both (a) and (b) (d) None of these

Answer

Question TYU – III

State whether each of the following statements is True or False
1. Passbook is the statement of account of the customer maintained by the bank. 2. A business firm periodically prepares a bank reconciliation statement to reconcile the bank balance as per the cash book with the passbook as these two show different balances for various reasons. 3. Cheques issued but not presented for payment will reduce the balance as per the passbook. 4. Cheques deposited but not collected will result in increasing the balance of the cash book when compared to passbook. 5. Overdraft as per the passbook is less than the overdraft as per cash book when there are cheques deposited but not collected by the banker. 6. The debit balance of the bank account as per the cash book should be equal to the credit balance of the account of the business in the books of the bank. 7. Favourable bank balance as per the cash book will be less than the bank passbook balance when there are unpresented cheques for payment. 8. Direct collections received by the bank on behalf of the customers would increase the balance as per the bank passbook when compared to the balance as per the cash book. 9. When payments made by the bank as per the standing instructions of the customer, the balance in the passbook will be more when compared to the cash book.

Answer

3: unpresented cheques reduce the cash book balance, not the passbook. 5: uncollected cheques make the passbook overdraft more. 9: standing-instruction payments make the passbook balance less.

Questions for Practice – Short Answers

Question SA – Q1

State the need for the preparation of bank reconciliation statement?

Answer

1. To find the reasons for the difference between the cash book and passbook balances.
2. To detect errors made by the firm or the bank and get them corrected.
3. To update the cash book for items recorded only by the bank (charges, interest, direct deposits).
4. To find the correct bank balance for the balance sheet.
5. To act as a check against fraud by staff handling cash and cheques.
6. To know about delays in collection or presentation of cheques.

Question SA – Q2

What is a bank overdraft?

Answer

A bank overdraft is a facility under which the bank allows a current-account holder to withdraw more than the balance in the account, up to an agreed limit. The excess withdrawn is a short-term loan on which interest is charged. It appears as a credit balance in the cash book (bank column) and a debit balance in the passbook.

Question SA – Q3

Briefly explain the statement ‘wrongly debited by the bank’ with the help of an example.

Answer

It means the bank has, by mistake, recorded a withdrawal or charge in the firm’s account that does not belong to it. For example, a cheque of ₹ 2,000 issued by another customer, Mr. A, is debited to the firm’s account. The passbook balance then becomes ₹ 2,000 less than the cash book. In the BRS (starting with the cash book balance) the amount is deducted to arrive at the passbook balance, and the bank is asked to correct the error.

Question SA – Q4

State the causes of difference occurred due to time lag.

Answer

1. Cheques issued but not yet presented for payment.
2. Cheques deposited but not yet collected/credited by the bank.
3. Direct deposits by customers into the bank not yet recorded in the cash book.
4. Interest, dividends or bills collected and credited by the bank but not yet entered in the cash book.
5. Bank charges, interest on overdraft and payments under standing instructions (insurance premium, loan instalments) debited by the bank but not yet entered.
6. Dishonour of cheques or bills recorded by the bank but not yet entered in the cash book.

Question SA – Q5

Briefly explain the term ‘favourable balance as per cash book’.

Answer

A favourable balance as per cash book is a debit balance in the bank column of the cash book. It shows that the firm has money deposited in the bank (the bank owes the firm). The passbook shows the corresponding balance as a credit balance.

Question SA – Q6

Enumerate the steps to ascertain the correct cash book balance.

Answer

1. Compare the cash book (bank column) with the passbook item by item.
2. Identify items appearing only in the passbook: bank charges, interest credited or debited, direct deposits, dishonoured cheques, payments under standing instructions, and errors in the cash book.
3. Make entries for these items in the cash book: debit for amounts credited by the bank, credit for amounts debited by the bank, and correct the errors.
4. Balance the amended cash book; this is the correct bank balance to be shown in the balance sheet.
5. Reconcile the amended balance with the passbook by adjusting only for cheques not presented, cheques not collected and bank errors.

Questions for Practice – Long Answers

Question LA – Q1

What is a bank reconciliation statement. Why is it prepared?

Answer

A bank reconciliation statement (BRS) is a statement prepared by the account holder, on a particular date, to reconcile (explain the difference between) the bank balance shown by the cash book and that shown by the passbook (bank statement). It lists all items causing the difference and starts from one balance to arrive at the other.

Why it is prepared

1. To explain the reasons for disagreement — mostly timing differences.
2. To detect and correct errors made by the business or the bank.
3. To bring the cash book up to date with charges, interest and direct receipts recorded by the bank.
4. To show the correct bank balance in the balance sheet.
5. To discourage fraud and misappropriation by staff.
6. To keep track of cheques not presented or not collected for long periods.

Question LA – Q2

Explain the reasons where the balance shown by the bank passbook does not agree with the balance as shown by the bank column of the cash book.

Answer

A. Timing differences

1. Cheques issued but not presented — recorded in the cash book on issue, but the bank debits them only on presentation. Passbook balance is higher.
2. Cheques deposited but not collected — recorded in the cash book on deposit, but credited by the bank only after collection. Passbook balance is lower.
3. Direct deposits by customers — credited by the bank, unknown to the firm. Passbook higher.
4. Interest, dividends, bills collected credited by the bank. Passbook higher.
5. Bank charges, interest on overdraft debited by the bank. Passbook lower.
6. Payments under standing instructions (insurance premium, EMI, telephone bills). Passbook lower.
7. Dishonour of cheques/bills debited by the bank. Passbook lower.

B. Errors

1. By the firm — wrong amounts, omission, double recording, wrong casting of the cash book.
2. By the bank — wrong debit or credit of another customer’s transaction, wrong amounts.

Question LA – Q3

Explain the process of preparing bank reconciliation statement with amended cash balance.

Answer

When the cash book contains errors and omissions, the cash book is first corrected and then reconciled:

Step 1 — Amend the cash book. Record in the bank column all items that appear only in the passbook and are the firm’s own items:

• Debit: interest/dividend credited, direct deposits, bills collected, errors understating the balance.
• Credit: bank charges, interest on overdraft, standing-instruction payments, dishonoured cheques, errors overstating the balance.

Balance it to obtain the amended (correct) cash book balance.

Step 2 — Prepare the BRS starting with the amended balance and adjusting only for items not yet recorded by the bank and for bank errors:

The result is the balance as per the passbook. The amended balance is shown in the balance sheet.

Questions for Practice – Numerical Questions

Question Num – Q1

From the following particulars, prepare a bank reconciliation statement as at March 31, 2017. (i) Balance as per cash book ₹ 3,200 (ii) Cheque issued but not presented for payment ₹ 1,800 (iii) Cheque deposited but not collected upto March 31, 2017 ₹ 2,000 (iv) Bank charges debited by bank ₹ 150

Answer

Bank Reconciliation Statement as on March 31, 2017

Balance as per Passbook = ₹ 2,850

Question Num – Q2

On March 31, 2017 the cash book showed a balance of ₹ 3,700 as cash at bank, but the bank passbook made up to same date showed that cheques for ₹ 700, ₹ 300 and ₹ 180 respectively had not presented for payment. Also, a cheque amounting to ₹ 1,200 deposited into the account had not been credited. Prepare a bank reconciliation statement.

Answer

Bank Reconciliation Statement as on March 31, 2017

Balance as per Passbook = ₹ 3,680

Question Num – Q3

The cash book shows a bank balance of ₹ 7,800. On comparing the cash book with passbook the following discrepancies were noted: (a) Cheque deposited in bank but not credited ₹ 3,000 (b) Cheque issued but not yet presented for payment ₹ 1,500 (c) Insurance premium paid by the bank ₹ 2,000 (d) Bank interest credited by the bank ₹ 400 (e) Bank charges ₹ 100 (f) Directly deposited by a customer ₹ 4,000

Answer

Bank Reconciliation Statement as on the given date

Balance as per Passbook = ₹ 8,600

Question Num – Q4

Bank balance of ₹ 40,000 showed by the cash book of Atul on December 31, 2016. It was found that three cheques of ₹ 2,000, ₹ 5,000 and ₹ 8,000 deposited during the month of December were not credited in the passbook till January 02, 2017. Two cheques of ₹ 7,000 and ₹ 8,000 issued on December 28, were not presented for payment till January 03, 2017. In addition to it bank had credited Atul for ₹ 325 as interest and had debited him with ₹ 50 as bank charges for which there were no corresponding entries in the cash book. Prepare a bank reconciliation statement as on December 31, 2016.

Answer

Bank Reconciliation Statement as on December 31, 2016

Balance as per Passbook = ₹ 40,275

Question Num – Q5

On comparing the cash book with passbook of Naman it is found that on March 31, 2017, bank balance of ₹ 40,960 showed by the cash book differs from the bank balance with regard to the following: (a) Bank charges ₹ 100 on March 31, 2017, are not entered in the cash book. (b) On March 21, 2017, a debtor paid ₹ 2,000 into the company’s bank in settlement of his account, but no entry was made in the cash book of the company in respect of this. (c) Cheques totaling ₹ 12,980 were issued by the company and duly recorded in the cash book before March 31, 2017, but had not been presented at the bank for payment until after that date. (d) A bill for ₹ 6,900 discounted with the bank is entered in the cash book without recording the discount charge of ₹ 800. (e) ₹ 3,520 is entered in the cash book as paid into bank on March 31st, 2017, but not credited by the bank until the following day. (f) No entry has been made in the cash book to record the dishonour on March 15, 2017 of a cheque for ₹ 650 received from Bhanu. Prepare a reconciliation statement as on March 31, 2017.

Answer

Bank Reconciliation Statement as on March 31, 2017

Balance as per Passbook = ₹ 50,870

Question Num – Q6

Prepare bank reconciliation statement as on December 31, 2017. This day the passbook of Mr. Himanshu showed a balance of ₹ 7,000. (a) Cheques of ₹ 1,000 directly deposited by a customer. (b) The bank has credited Mr. Himanshu for ₹ 700 as interest. (c) Cheques for ₹ 3,000 were issued during the month of December but of these cheques for ₹ 1,000 were not presented during the month of December.

Answer

Bank Reconciliation Statement as on December 31, 2017

Balance as per Cash Book = ₹ 4,300

Note: With the given data the cash book balance is ₹ 4,300 (7,000 – 1,000 – 700 – 1,000). The textbook answer of ₹ 3,300 would need a further deduction of ₹ 1,000 that the question does not give.

Question Num – Q7

From the following particulars prepare a bank reconciliation statement showing the balance as per cash book on December 31, 2016. (a) Two cheques of ₹ 2,000 and ₹ 5,000 were paid into bank in October, 2016 but were not credited by the bank in the month of December. (b) A cheque of ₹ 800 which was received from a customer was entered in the bank column of the cash book in December 2016 but was omitted to be banked in December, 2016. (c) Cheques for ₹ 10,000 were issued in November 2016 but not presented to the bank till December 31, 2016. (d) Interest on investment ₹ 1,000 collected by bank appeared in the passbook. Balance as per Passbook was ₹ 50,000

Answer

Item (c) is read as cheques issued but not yet presented for payment.

Bank Reconciliation Statement as on December 31, 2016

Balance as per Cash Book = ₹ 46,800

Note: This gives ₹ 46,800. The textbook answer of ₹ 47,800 leaves out the deduction of the ₹ 1,000 interest.

Question Num – Q8

Balance as per passbook of Mr. Kumar is ₹ 3,000. (a) Cheque paid into bank but not yet cleared: Ram Kumar ₹ 1,000, Kishore Kumar ₹ 500 (b) Bank Charges ₹ 300 (c) Cheque issued but not presented: Hameed ₹ 2,000, Kapoor ₹ 500 (d) Interest entered in the passbook but not entered in the cash book ₹ 100. Prepare a bank reconciliation statement.

Answer

Bank Reconciliation Statement as on the given date

Balance as per Cash Book = ₹ 2,200

Question Num – Q9

The passbook of Mr. Mohit current account showed a credit Balance of ₹ 20,000 on dated December 31, 2016. Prepare a Bank Reconciliation Statement with the following information. (i) A cheque of ₹ 400 drawn on his saving account has been shown on current account. (ii) He issued two cheques of ₹ 300 and ₹ 500 on December 25, but only the Ist cheque was presented for payment. (iii) One cheque issued by Mr. Mohit of ₹ 500 on December 25, but it was not presented for payment whereas it was recorded twice in the cash book.

Answer

Bank Reconciliation Statement as on December 31, 2016

Balance as per Cash Book = ₹ 18,900

Question Num – Q10

On Ist January 2017, Rakesh had an overdraft of ₹ 8,000 as showed by his cash book. Cheques amounting to ₹ 2,000 had been paid in by him but were not collected by the bank by January 01, 2017. He issued cheques of ₹ 800 which were not presented to the bank for payment up to that day. There was a debit in his passbook of ₹ 60 for interest and ₹ 100 for bank charges. Prepare bank reconciliation statement for comparing both the balance.

Answer

Bank Reconciliation Statement as on January 1, 2017

Overdraft as per Passbook = ₹ 9,360

Question Num – Q11

Prepare bank reconciliation statement. (i) Overdraft shown as per cash book on December 31, 2017 ₹ 10,000. (ii) Bank charges for the above period also debited in the passbook ₹ 100. (iii) Interest on overdraft for six months ending December 31, 2017 ₹ 380 debited in the passbook. (iv) Cheques issued but not encashed prior to December 31, 2017 amounted to ₹ 2,150. (v) Interest on Investment collected by the bank and credited in the passbook ₹ 600. (vi) Cheques paid into bank but not cleared before December 31, 2017 were ₹ 1,100.

Answer

Bank Reconciliation Statement as on December 31, 2017

Overdraft as per Passbook = ₹ 8,830

Question Num – Q12

Kumar find that the bank balance shown by his cash book on December 31, 2017 is ₹ 90,600 (Credit) but the passbook shows a difference due to the following reason: A cheque (post dated) for ₹ 1,000 has been debited in the bank column of the cash book but not presented for payment. Also, a cheque for ₹ 8,000 drawn in favour of Manohar has not yet been presented for payment. Cheques totaling ₹ 1,500 deposited in the bank have not yet been collected and cheque for ₹ 5,000 has been dishonoured.

Answer

Bank Reconciliation Statement as on December 31, 2017

Overdraft as per Passbook = ₹ 90,100

Question Num – Q13

On December 31, 2017, the cash book of Mittal Bros. Showed an overdraft of ₹ 6,920. From the following particulars prepare a Bank Reconciliation Statement and ascertain the balance as per passbook. (1) Debited by bank for ₹ 200 on account of Interest on overdraft and ₹ 50 on account of charges for collecting bills. (2) Cheques drawn but not encashed before December 31, 2017 for ₹ 4,000. (3) The bank has collected interest and has credited ₹ 600 in passbook. (4) A bill receivable for ₹ 700 previously discounted with the bank had been dishonoured and debited in the passbook. (5) Cheques paid into bank but not collected and credited before December 31, 2017 amounted ₹ 6,000.

Answer

Bank Reconciliation Statement as on December 31, 2017

Overdraft as per Passbook = ₹ 9,270

Note: The arithmetic gives ₹ 9,270; the textbook answer of ₹ 9,170 is ₹ 100 short.

Question Num – Q14

Prepare bank reconciliation statement of Shri Bhandari as on March 31, 2017. (i) The Payment of a cheque for ₹ 550 was recorded twice in the passbook. (ii) Withdrawal column of the passbook under cast by ₹ 200 (iii) A Cheque of ₹ 200 has been debited in the bank column of the Cash Book but it was not sent to bank at all. (iv) A Cheque of ₹ 300 debited to Bank column of the cash book was not sent to the bank. (v) ₹ 500 in respect of dishonoured cheque were entered in the passbook but not in the cash book. Overdraft as per passbook is ₹ 20,000.

Answer

Each item is judged by asking whether the cash book shows a larger or smaller overdraft than the passbook.

Bank Reconciliation Statement as on March 31, 2017

Overdraft as per Cash Book = ₹ 18,650

Note: The textbook answer (overdraft ₹ 21,350) takes every item with the opposite sign. For example, a payment recorded twice in the passbook makes the passbook overdraft too large, so the cash-book overdraft is smaller, not larger.

Question Num – Q15

Overdraft shown by the passbook of Mr. Murli is ₹ 20,000. Prepare bank reconciliation statement on dated March 31, 2017. (i) Bank charges debited as per passbook ₹ 500. (ii) Cheques recorded in the cash book but not sent to the bank for collection ₹ 2,500. (iii) Received a payment directly from customer ₹ 4,600. (iv) Cheque issued but not presented for payment ₹ 6,980. (v) Interest credited by the bank ₹ 100. (vi) LIC paid by bank ₹ 2,500. (vii) Cheques deposited with the bank but not collected ₹ 3,500.

Answer

Bank Reconciliation Statement as on March 31, 2017

Overdraft as per Cash Book = ₹ 22,680

Question Num – Q16

Raghav & Co. have two bank accounts. Account No. I and Account No. II. From the following particulars relating to Account No. I, find out the balance on that account of March 31, 2017 according to the cash book of the firm. (i) Cheques paid into bank prior to March 31, 2017, but not credited for ₹ 10,000. (ii) Transfer of funds from account No. II to account no. I recorded by the bank on March 31, 2017 but entered in the cash book after that date for ₹ 8,000. (iii) Cheques issued prior to March 31, 2017 but not presented until after that date for ₹ 7,429. (iv) Bank charges debited by bank not entered in the cash book for ₹ 200. (v) Interest Debited by the bank not entered in the cash book ₹ 580. (vi) Overdraft as per Passbook ₹ 18,990.

Answer

Bank Reconciliation Statement as on March 31, 2017

Overdraft as per Cash Book = ₹ 23,639

Question Num – Q17

Prepare a bank reconciliation statement from the following particulars and show the balance as per cash book. (i) Balance as per passbook on March 31, 2017 overdrawn ₹ 20,000. (ii) Interest on bank overdraft not entered in the cash book ₹ 2,000. (iii) ₹ 200 insurance premium paid by bank has not been entered in the cash book. (iv) Cheques drawn in the last week of March 2017, but not cleared till date for ₹ 3,000 and ₹ 3,500. (v) Cheques deposited into bank on February 2017, but yet to be credited on dated March 31, 2017 ₹ 6,000. (vi) Wrongly debited by bank ₹ 500.

Answer

Bank Reconciliation Statement as on March 31, 2017

Overdraft as per Cash Book = ₹ 17,800

Question Num – Q18

The passbook of Mr. Randhir showed an overdraft of ₹ 40,950 on March 31, 2017. Prepare bank reconciliation statement on March 31, 2017. (i) Out of cheques amounting to ₹ 8,000 drawn by Mr. Randhir on March 27 a cheque for ₹ 3,000 was encashed on April 2017. (ii) Credited by bank with ₹ 3,800 for interest collected by them, but the amount is not entered in the cash book. (iii) ₹ 10,900 paid in by Mr. Randhir in cash and by cheques on March 31, cheques amounting to ₹ 3,800 were collected on April 07. (iv) A Cheque of ₹ 780 credited in the passbook on March 28 being dishonoured is debited again in the passbook on April 01, 2017. There was no entry in the cash book about the dishonour of the cheque until April 15.

Answer

Item (iv): the dishonour was debited by the bank on 1 April and entered in the cash book on 15 April, so on 31 March neither book reflects it — no adjustment is needed.

Bank Reconciliation Statement as on March 31, 2017

Overdraft as per Cash Book = ₹ 43,950

Note: The textbook answer (₹ 43,170) also deducts ₹ 780 for the dishonour, which happened only after 31 March.

Topic checklist

• Meaning of passbook, favourable balance and overdraft
• Causes of difference: timing differences and errors
• Preparing a BRS from the cash book or the passbook balance
• Handling overdraft balances
• Amended cash book before reconciliation

Total questions answered: 30 of 30