Overdraft shown by the passbook of Mr. Murli is ₹ 20,000. Prepare bank reconciliation statement on dated March

Numerical Questions · Q15

Q. Overdraft shown by the passbook of Mr. Murli is ₹ 20,000. Prepare bank reconciliation statement on dated March 31, 2017.

(i) Bank charges debited as per passbook ₹ 500.

(ii) Cheques recorded in the cash book but not sent to the bank for collection ₹ 2,500.

(iii) Received a payment directly from customer ₹ 4,600.

(iv) Cheque issued but not presented for payment ₹ 6,980.

(v) Interest credited by the bank ₹ 100.

(vi) LIC paid by bank ₹ 2,500.

(vii) Cheques deposited with the bank but not collected ₹ 3,500.

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Concept understanding — Bank Reconciliation Purpose

The Everyday Intuition

Imagine you and a friend keep a shared record of money you've lent each other. You note down every loan and repayment in your personal diary. Your friend does the same in theirs. At the end of the month, you sit together to compare diaries. You expect them to match — but they don't. You find a ₹500 entry in your diary that your friend hasn't recorded yet. Whose record is correct? Both are, for now — the difference is just a matter of timing.

That's exactly what a Bank Reconciliation Statement does. It compares your Cash Book (your diary of bank transactions) with the Pass Book (the bank's diary of your account). The goal is to find and explain any differences between the two balances.

The Precise Meaning

A Bank Reconciliation Statement is a statement prepared to reconcile (make agree) the bank balance as per the Cash Book with the bank balance as per the Pass Book on a given date. It is not a ledger account — it is a statement that lists the reasons for the difference.

The Cash Book shows the bank balance from the business's point of view. The Pass Book shows it from the bank's point of view. Both should eventually show the same balance, but at any given moment, they often differ because of:

Timing differences — cheques issued but not yet presented, cheques deposited but not yet cleared
Errors — mistakes in recording by either party
Direct entries by the bank — interest credited, bank charges debited, direct deposits, dishonoured cheques

Important

The Bank Reconciliation Statement is not a correcting entry. It is a detective tool — it identifies discrepancies so you can then make the necessary adjustments in the Cash Book.

Why It Matters

Three reasons, each critical for a Class 12 student to understand:

1. Accuracy of records. The Cash Book is the primary record of bank transactions for the business. If it doesn't match the bank's record, the business cannot trust its own cash position. A reconciliation ensures the Cash Book is correct.

2. Detection of errors and fraud. A persistent difference might reveal a cheque that was never deposited, a bank charge you didn't know about, or — in extreme cases — an unauthorised withdrawal. The reconciliation is the first line of defence.

3. Reliable financial statements. The bank balance shown in the Balance Sheet must be accurate. If the Cash Book balance is wrong, the Balance Sheet is wrong. Reconciliation ensures the final accounts show the true financial position.

Note

In practice, businesses prepare a Bank Reconciliation Statement every month as soon as the bank statement (Pass Book) arrives. It is a routine internal control procedure.

Accounting Treatment

Here is the key distinction: the Bank Reconciliation Statement itself involves no journal entries. It is a statement, not an account. The journal entries come after the reconciliation, when you discover items that need to be recorded in the Cash Book.

What gets recorded in the Cash Book?

Items that appear in the Pass Book but not yet in the Cash Book must be entered. These are typically:

Item	Effect on Cash Book	Journal Entry
Interest credited by bank	Increases bank balance	Debit Bank A/c, Credit Interest A/c
Bank charges debited	Decreases bank balance	Debit Bank Charges A/c, Credit Bank A/c
Direct deposit by customer	Increases bank balance	Debit Bank A/c, Credit Customer's A/c
Cheque dishonoured	Decreases bank balance	Debit Customer's A/c, Credit Bank A/c
Direct payment by bank (e.g., insurance premium)	Decreases bank balance	Debit Expense A/c, Credit Bank A/c

Watch out

A common mistake: students try to pass journal entries in the Bank Reconciliation Statement. Do not. The statement only lists differences. The entries are made in the Cash Book after the reconciliation is done.

What about the other items? …

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Starting from the overdraft as per pass book (₹20,000):

Particulars	Plus (₹)	Minus (₹)
Overdraft as per Pass Book		20,000
(i) Bank charges in pass book only	500
(ii) Cheques recorded in cash book, not sent for collection	2,500
(iii) Amount collected directly by bank, not in cash book		4,600
(iv) Cheque issued but not presented		6,980
(v) Interest credited by bank, not in cash book		100
(vi) LIC premium paid by bank only	2,500

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The pass book shows an overdraft of ₹20,000. After adjusting the seven differences, the overdraft as per cash book comes to ₹22,680, matching the NCERT answer.

Concept & treatment

An overdraft is a credit (unfavourable) balance in the cash book. Starting from the pass-book overdraft, an item that leaves the cash book less overdrawn goes to the Plus (+) column and one that leaves it more overdrawn to the Minus (–) column.

Treatment of each item

(i) Bank charges ₹500 — debited by the bank in the pass book only; the cash book is less overdrawn ⇒ Plus ₹500.
(ii) Cheques ₹2,500 recorded in cash book but not sent for collection — the cash book treated them as receipts, so it is less overdrawn than the pass book ⇒ Plus ₹2,500.
(iii) Payment ₹4,600 received directly by the bank from a customer — credited in the pass book only; the cash book is more overdrawn ⇒ Minus ₹4,600.
(iv) Cheque ₹6,980 issued but not presented — recorded as a payment in the cash book only, so the cash book is more overdrawn ⇒ Minus ₹6,980.
(v) Interest ₹100 credited by bank — in the pass book only; the cash book is more overdrawn ⇒ Minus ₹100.
(vi) LIC premium ₹2,500 paid by bank — debited in the pass book only; the cash book is less overdrawn ⇒ Plus ₹2,500.
(vii) Cheques ₹3,500 deposited but not yet collected — recorded as receipts in the cash book only, so the cash book is less overdrawn ⇒ Plus ₹3,500.

Bank Reconciliation Statement of Mr. Murli as on March 31, 2017

Particulars	Plus (₹)	Minus (₹)
Overdraft as per Pass Book	—	20,000
(i) Bank charges debited in pass book only	500	—
(ii) Cheques recorded in cash book, not sent for collection	2,500	—

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Q.Overdraft shown by the passbook of Mr. Murli is ₹ 20,000. Prepare bank reconciliation statement on dated March 31, 2017.

Concept & treatment

Treatment of each item

Bank Reconciliation Statement of Mr. Murli as on March 31, 2017

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