Q.Distinguish between a Favourable Balance and an Overdraft, and explain how their treatment differs while preparing a BRS.

A bank balance is not always money the firm holds — sometimes it is money the firm owes the bank, and this changes how every reconciling item must be treated.

A Favourable Balance is money the firm actually holds at the bank; it is a Debit balance in the Cash Book and, being a mirror image, a Credit balance in the Pass Book. An Overdraft is money the firm owes the bank; it is a Credit balance in the Cash Book and a Debit balance in the Pass Book. The reconciling items are the same in both cases, but their Add/Less trea …

When in doubt on an overdraft problem, first work out the treatment as if the balance were favourable, then simply flip Add to Less and Less to Add for every item — this is faster …

The single most common mistake in overdraft problems is applying the favourable-balance treatment to an overdraft situation without reversing it, which produces a plausible-looking but wrong final fig …