RBSE Class 11 Accountancy Notes Chapter 5 Bank Reconciliation Statement

These comprehensive RBSE Class 11 Accountancy Notes Chapter 5 Bank Reconciliation Statement will give a brief overview of all the concepts.

RBSE Class 11 Accountancy Chapter 5 Notes Bank Reconciliation Statement

Concept, Meaning and Need:
Concept : The bank balance as shown in the bank statement must tally with the balance as shown in the bank column of cash book, but in reality, it does not so happen. To tally the balance of bank in both books, reasons thereof are found and a statement is prepared to reconcile such balances. The statement so prepared known as bank reconciliation statement.

Meaning: A statement prepared at the end of each month showing the items of difference between the bank statement and the bank column of Cash Book is known as Bank Reconciliation Statement.

Need of Preparing Bank Reconciliation Statement

• Helps in locating errors: it helps in locating and rectifying errors committed by bank or business.
• Credibility of information: Customers become sure of the bank balance as shown in the cash book.
• Facilitation in preparing amended cash book: With the help of bank reconciliatioh statement, corrected/amended cash book can be prepared easily.
• Reduction in embezzlement of cash: It helps in detecting financial frauds done by the staff members.
• Check on movement of Cheques: Through bank reconciliation statement, a status of Cheques clearance and payments can easily be known.
• Avoidance of errors: Through bank reconciliation statement, business firms come to know about the errors and can prepare well for the future.

Preparation of Bank Reconciliation Statement (without correcting balance)
Bank reconciliation statement is prepared at the end of a specific period, generally at the end of each month. Following procedure may be adopted:
(a) Prepare format with particular column with plus and minus columns.

(b) Find out balance of passbook or cash book at the end of such period.
(c) Write the balance of either book in plus column, if it is favourable balance or in minus column if it is unfavourable balance.
Favourable Balance: Dr. balance as per cash book or credit balance as per passbook.
Unfavorable Balance: Cr. balance as per cash book or debit balance (overdraft) as per passbook.
(d) See how the cause of difference has affected the balance of cash book or pass book, such cause may increase or decrease the balance.
(e) If the cause of difference has increased the balance of book taken, then show the effect in the negative column.
(f) If the cause of difference has decreased the balance of book taken, then show the effect in the positive column.
(g) If the cause of difference has increased the balance of other book, then show the effect in the positive column.
(h) If the cause of difference has decreased the balance of other book, then show the effect in the negative column.
(i) Make total of greater side and find the difference on the short side which should be equal to the balance of other book. It means if the statement is started with cash book balance, the statement will end with bank balance and vice-versa.

Causes of Difference
The causes of difference in the pass book balance and cash book balance may be classified into two categories:
(a) Difference due to timing of transactions

(b) Difference due to errors committed either by bank or business

Amended Cash Book:
Bank reconciliation statement is prepared at the end of each month but when it is prepared at the end of the financial year, we need to show correct bank balance in the balance sheet. The bank balance as given in the cash book needs to be corrected. Correct bank balance in the cash book may be obtained by taking following steps:

• Step 1: Take closing balance as given in the cash book.
• Step 2: Add those transactions which appear on the credit side of pass book but not in cash book.
• Step 3: Deduct those transactions which appear on the debit side of pass book but not in the cash book.
• Step 4: Add/less errors took place in the cash book.
• Step 5: Find out correct bank balance which may be taken in the balance sheet.
• Step 6: Prepare Bank Reconciliation Statement with the help of adjusted bank balance.
• Step 7: Deduct Cheques deposited in the bank but not collected by bank;
• Step 8: Add Cheques issued but not presented for payment.
• Step 9: Deduct any wrong credit given by bank, if any.
• Step 10: Add any wrong debit charged by bank, if any.

Prepare BRS with the help of those transactions in the adjusted Bank Balance of Cash Book which have not been considered under previous steps:
(a) Less Cheques deposited entered in Cash Book but not collected by bank.
(b) Add Cheques issued entered in Cash Book but not presented for payment.
(c) Add Wrong credit given by bank in Pass Book.
(d) Less Wrong debit charged by bank in Pass Book.