Bank Reconciliation Statement Class 11 Notes Accountancy Chapter 5 - CBSE

Chapter : 5

What Are Bank Reconciliation Statement ?

Bank Reconciliation Statement (BRS) is a statement prepared by the account holder to reconcile the Bank Balance as per Cash Book with the Balance as per Bank Pass Book and showing all the causes of differences between the two.

Need and Importance of Bank Reconciliation Statement

  • Identifies errors in recording transactions.
  • Detects delays in check clearance and deposit processing.
  • Helps prevent and detect embezzlements and fraudulent activities.
  • Verifies the accuracy of cash book entries against bank records.
  • Tracks checks, drafts, and deposits with the bank for collection.
  • Ensures financial transparency and accountability.

Advantages of Bank Reconciliation Statement

  • Detecting Errors
  • Preventing Fraud
  • Identifying Unrecorded Transactions
  • Accurate Financial Reporting
  • Timely Information

Disadvantages of Bank Reconciliation Statement

  • Time-Consuming
  • Complexity
  • Errors in Reconciliation
  • Dependence on Bank Statements
  • Frequency

Procedure of Bank Reconciliation Statement

  • Collect Records
  • Compare Opening Balances
  • Identify Outstanding Transactions
  • Prepare the Adjusted Bank Balance
  • Identify Bank Errors
  • Prepare the Adjusted Cash Book Balance
  • Prepare the Reconciliation Statement
  • Reconcile Transactions
  • List Reconciling Items
  • Explain Remaining Difference
  • Finalize Reconciliation
  • Reconcile till Both Balances Match
  • Record Adjusting Entries
  • Completion

Causes Of Differences In The Balance As Per

Cash Book And Pass Book

The difference in the balances as per Cash Book and Pass Book may arise due to the following reasons:

  • Cheque issued but not yet presented for payment in the bank.
  • Cheques deposited into bank but not yet cleared or credited by the bank.
  • Cheques paid into bank for collection but dishonored by the bank.
  • Interest allowed (or credited) by the bank but not recorded in the Cash Book.
  • Bank charges and interest charged by bank but not recorded in the Cash Book
  • Interest and dividend collected by the bank.
  • Direct payments by bank as per standing instructions.
  • Direct deposits by customers into bank.
  • Bills collected by the bank on behalf of the customer.
  • Dishonors of a bill discounted with the bank.
  • Differences due to error in recording of transactions.
  • Dr. Balance as per Cash Book and Cr. Balance as per Pass Book indicates shows favourable balance, i.e. the account holder has so much balance of deposit at the bank.
  • Cr. Balance as per Cash Book and Dr. Balance as per Pass Book indicates shows unfavourable balance, i.e. the account holder has withdrawn in excess of the deposits.