A statement showing all the items of difference between the bank column of the Cash Book and the bank balance depicted in the Pass Book on a particular date and for a particular period of time is called Bank Reconciliation Statement. It is a statement prepared on a particular date to reconcile the bank balance of the Cash Book with the balance as per the Pass Book or vice-versa.

There are a number of differences that occur in the cash book balance and passbook balance due to various reasons. Thus, it is recommended to record these items in the cash book first and then find out the adjusted balance, also known as the amended balance, and then prepare the bank reconciliation statement. This will ensure that the number of items gets reduced, the differences also get reduced and the amount of balance in the balance sheet is thus correctly recorded.

Preparation of Bank Reconciliation Statement:

Steps Involved in the Preparation of Amended Cash Book

Step 1: Amended Cash Book is prepared with the bank column only and the balance of the cash book is transferred to Amended Cash Book.

Step 2: Necessary entries in the amended cash book will be made as follows:

A. Amount recorded in the passbook but not yet recorded in the cash book such as:

1. Interest allowed by the bank.
2. Interest charged by the bank on the overdraft balance.
3. Dividend directly collected by the bank.
4. Bank charges debited by the bank.
5. Payment made by the bank as per standing order.
6. Dishonor of cheques and bills receivables not yet recorded in the cash book.

B. All errors that have taken place in the cash book such as:

1. Overcasting in the debit/credit column of the cash book.
2. Undercasting in the debit/credit column of the cash book.
3. Double entry of any amount of the cash book.
4. Wrong entry of any amount in the cash book.
5. Amount omitted to be recorded in the cash book.

Step 3: After making all the above adjustments, the revised balance is calculated by balancing the amended cash book.

Step 4: Bank reconciliation statement is then prepared with the amended balance of the cash book by leaving all those items that are already adjusted in the amended cash book. It should be noted that the following items must not be recorded in the amended cash book:

1. Cheque was issued but not yet presented in the bank for payment.
2. Cheque was deposited but not yet credited by the bank.
3. Any wrong entry in the passbook.

Illustration 1:

On 31st December 2022, the cash book of GG Ltd. showed a Dr. balance of ₹7,928.  All receipts are banked, and payments are made by cheques. The following differences were noted:

1. Bank charges of ₹1,550 entered in the bank statement have not been entered in the cash book.

2. Cheques drawn amounting to ₹2,975 have not been presented to the bank for payment.

3. Cheques received totaling ₹5,840 have been entered in the cashbook and deposited in the bank, but have not been credited by the bank until January 2023.

4. A cheque for ₹248 has been entered as a receipt in the cash book instead of as payment.

5. A cheque for ₹592 has been debited by the bank in error.

6. A cheque received for ₹815 has been deposited by the bank but dishonored, no adjustment had been made in the cash book.

7. All dividends receivable are credited directly to the bank account. During December, an amount of ₹780 was credited by the bank and no entry is made in the cash book.

8. A cheque drawn for ₹659 has been incorrectly entered in the cash book as ₹695

9. Casting error in the bank column of cash book (excess credit) amounting to ₹639.

Prepare Bank Reconciliation Statement after preparing the Amended Cash Book.

Solution:

Illustration 2:

 The bank overdraft of Vijay on December 31, 2022, as per the cash book is ₹20,000. Prepare Bank Reconciliation Statement by taking the following into consideration: –

1. Cheques not presented for payment of ₹9,000

2. Uncleared cheques ₹2,500

3. Bank interest debited in the passbook only ₹500

4. Bills collected and credited in the passbook only ₹1,800

5. Cheque of Haris Brothers dishonored ₹2,000

6. Cheque issued to Birla Ltd. has not been yet entered in the cashbook ₹520.

Solution: