Q.Prepare a bank reconciliation statement as on 31 March 2022 :

Favorable Cash Book Balance – A First Look

Think of your own pocket money. You note down every rupee you receive and every rupee you spend in a small diary. At the end of the month, you count the cash actually in your wallet. If your diary shows you have ₹500, and you actually have ₹500 in hand, your diary balance is correct. But what if your diary shows ₹500, yet you only have ₹300 in your wallet? Something is off — maybe you forgot to record a payment, or the bank charged a fee you didn't note.

Now replace your diary with the Cash Book (the account that records all cash and bank transactions) and your wallet with the Pass Book (the bank's statement of your account). The Cash Book is your record; the Pass Book is the bank's record. Ideally, both should show the same balance. But they rarely do — at least not on the same day.

The Precise Meaning

A Favorable Cash Book Balance means that, according to your Cash Book, you have a positive (debit) balance in your bank account. In other words, the Cash Book shows that the business has money in the bank — it is not overdrawn. This is the normal, healthy state: your bank column in the Cash Book has a debit balance.

Why "favorable"? Because from the business's point of view, having money in the bank is favorable. An overdrawn balance (credit balance in the Cash Book) is unfavorable — it means you owe the bank.

Why It Matters

You will soon learn to prepare a Bank Reconciliation Statement (BRS). The BRS starts with either the Cash Book balance or the Pass Book balance and explains why they differ. The very first step is to identify which balance you are starting from — and whether it is favorable or unfavorable.

• If you start with a favorable Cash Book balance, you add items that increase the Pass Book balance and subtract items that decrease it, to arrive at the Pass Book balance.
• If you start with an unfavorable (overdraft) Cash Book balance, the logic reverses.

So the concept of "favorable" is not just a label — it determines the entire direction of your reconciliation.

Accounting Treatment

The Cash Book itself is a subsidiary book as well as a ledger account. When you record a transaction in the Cash Book, you are simultaneously posting to the bank account in the ledger. The bank account is a personal account (representing the bank) and follows the rule: Debit the receiver, Credit the giver.

• When you deposit money into the bank, the bank receives it → Debit Bank Account in the Cash Book.
• When you withdraw money, the bank gives it → Credit Bank Account in the Cash Book.

A favorable balance means total debits exceed total credits in the bank column of the Cash Book. That debit balance is an asset for the business — it appears on the Assets side of the Balance Sheet under "Cash at Bank."

Format of the Cash Book (Bank Column)

The Cash Book with a bank column typically looks like this. The balance brought down (b/d) on the debit side is the favorable balance.

In the above example, the Bank column on the debit side totals ₹9,000 and on the credit side totals ₹9,000. The balance carried down (c/d) on the credit side is ₹4,000 — that is the closing favorable balance of the Cash Book. It will be brought down as To Balance b/d on the debit side of the next period. …