Reconcile

• To bring (something) into a state of agreement or accord
• Getting two things to correspond
• Make compatible with

To reconcile does not mean to adjust or to rectify.

Reconciling a bank account implies ensuring that the bank account balance as per the Cash Book is agreeing with the balance as per the Pass (Bank) book after taking into consideration all the reasons for the difference in the balance.

What is done in reconciling?

In reconciling the bank balance, we consider the balance either as per the Cash Book or the Bank Pass Book and make adjustments to the same to account for the difference in the books and thereby check whether we get the balance as per the other book or not.

If after taking into consideration all the reasons for the difference in balances as shown by both the books and making adjustments to the balance as shown by one of the books, we arrive at the balance as per the other book, then we assure ourselves that the balance as revealed by both the books is agreeing.

The balance sheet of any organisation is a statement of ledger account balances (Personal, Real and some Nominal accounts) which have been carried over to the subsequent accounting period.

The ledger account balances appearing in the Balance Sheet of an organisation would therefore be the balances of the ledger accounts balances in their books. Therefore, the Bank a/c balance as shown by the Cash Book would be the balance that appears in the balance sheet.

The Bank Reconciliation Statement is an additional statement that is prepared to serve some purpose, i.e. to explain the reasons for difference in balance as shown by the cash book and pass book. The objective of preparing a BRS bank reconciliation statement is not to adjusting the figure in the balance sheet or the ledger account.

In the Bank's Balance sheet, the balance in the customer account (as shown by the pass book) would find its way into the balance sheet.

Bank Reconciliation Statement (BRS) is prepared as and when needed. The need for preparation of BRS arises only when there is a difference in the bank a/c balance as revealed by the Cash Book and the bank balance as shown by the Pass Book issued by the bank.

Generally a BRS is prepared at the end of the accounting period, to explain the difference between the Bank a/c balance as shown in the Balance Sheet and the balance as revealed by the pass book.

Considering the balances on the days on which the bank balance as per cash book and bank pass book differ, we will try reconciling the balances on each day separately.

• CB = Bank balance as per cash book
• PB = Bank balance as per pass book

Aug 8^th

Cash Book : 24,600   [12,600 + 12,000]
Pass Book : 12,600

Cheques deposited but not yet collected

• CB > PB
• CB to PB, deduct

  Start with CB balance, deduct the amount involved in the transaction to arrive at the PB balance.

  Bank Reconciliation Statement

  Particulars		Amount	Amount
  Balance as per Cash Book			24,600
  Add :		–	–
  			24,600
  Less :	Cheques deposited but not yet collected	12,000	12,000
  Balance as per Pass Book			12,600

• PB to CB, add

  Start with PB balance, add the amount involved in the transaction to arrive at the CB balance.

  Bank Reconciliation Statement

  Particulars		Amount	Amount
  Balance as per Pass Book			12,600
  Add :	Cheques deposited but not yet collected	12,000	12,000
  			24,600
  Less :		–	–
  Balance as per Cash Book			24,600

Aug 11^th

Cash Book : 19,680   [24,600 − 4,920]
Pass Book : 24,600

Cheques issued but not yet presented for payment

• PB > CB
• CB to PB, add

  Bank Reconciliation Statement

  Particulars		Amount	Amount
  Balance as per Cash Book			19,680
  Add :	Cheques issued but not yet presented for payment	4,920	4,920
  			24,600
  Less :		–	–
  Balance as per Pass Book			24,600

• PB to CB, deduct

  Bank Reconciliation Statement

  Particulars		Amount	Amount
  Balance as per Pass Book			24,600
  Add :		–	–
  			24,600
  Less :	Cheques issued but not yet presented for payment	4,920	4,920
  Balance as per Cash Book			19,680

Aug 14^th

Cash Book : 64,680   [14,680 + 50,000]
Pass Book : 14,680

Cheques deposited but not yet collected

• CB > PB
• CB to PB, deduct
• PB to CB, add

Aug 15^th

Cash Book : 40,680   [64,680 − 24,000]
Pass Book : 14,680

There are two reasons for the difference between the balance shown by the cash book and the pass book.

Cheques issued but not yet presented for payment

• PB > CB
• CB to PB, add
• PB to CB, deduct

Cheques deposited but not yet collected

• CB > PB
• CB to PB, deduct
• PB to CB, add

Bank Reconciliation Statement

Particulars		Amount	Amount
Balance as per Pass Book			14,680
Add :	Cheques deposited but not yet collected	50,000	50,000
			64,680
Less :	Cheques issued but not yet presented for payment	24,000	24,000
Balance as per Cash Book			40,680

Bank Reconciliation Statement

Particulars		Amount	Amount
Balance as per Cash Book			40,680
Add :	Cheques issued but not yet presented for payment	24,000	24,000
			64,680
Less :	Cheques deposited but not yet collected	50,000	50,000
Balance as per Pass Book			14,680

Aug 17^th

Cash Book : 40,680
Pass Book : −9,320   [14,680 − 24,000]

The cheque issued on 15^th has been presented for payment and paid by the bank.

The cheque deposited on 14^th remains uncollected still.

Cheques deposited but not yet collected

• CB > PB
• CB to PB, deduct
• PB to CB, add

Bank Reconciliation Statement

Particulars		Amount	Amount
Balance as per Pass Book			−9,320
Add :	Cheques deposited but not yet collected	50,000	50,000
			40,680
Less :		–	–
Balance as per Cash Book			40,680

Bank Reconciliation Statement

Particulars		Amount	Amount
Balance as per Cash Book			40,680
Add :		–	–
			24,600
Less :	Cheques deposited but not yet collected	50,000	50,000
Balance as per Pass Book			−9,320

Alternative using Overdraft Balance (as positive figure)

Using a negative sign to indicate overdraft balance would give a unified approach to problem solving. However, if we are required to avoid signs we have to change the logic for deciding whether to add or deduct the amount involved.

If we are interpreting the balances in terms of overdraft balances, then a normal balance would be a negative balance.

Cash Book : −40,680
Pass Book : 9,320

• PB OD balance > CB OD balance
• PB OD to CB, add
• CB OD to PB, deduct

These are the exact opposite of the interpretations arrived at normally (when using a negative sign to indicate overdraft balance with a negative sign).

Bank Reconciliation Statement

Particulars		Amount	Amount
Overdraft balance as per Pass Book			9,320
Add :
			9,320
Less :	Cheques deposited but not yet collected	50,000	50,000
Overdraft balance as per Cash Book			−40,680

A negative overdraft balance implies a normal balance.

Bank Reconciliation Statement

Particulars		Amount	Amount
Overdraft balance as per Cash Book			−40,680
Add :	Cheques deposited but not yet collected	50,000	50,000
			9,320
Less :		–	–
Overdraft balance as per Pass Book			9,320

Aug 18^th

Cash Book : 40,680
Pass Book : 40,560   [−9,320 + 50,000 − 120]

Bank Charges not yet recorded in cash book

• CB > PB
• CB to PB, deduct

  Bank Reconciliation Statement

  Particulars		Amount	Amount
  Balance as per Cash Book			40,680
  Add :		–	–
  			40,680
  Less :	Bank Charges not yet recorded in cash book	120	120
  Balance as per Pass Book			40,560

• PB to CB, add

  Bank Reconciliation Statement

  Particulars		Amount	Amount
  Balance as per Pass Book			40,560
  Add :	Bank Charges not yet recorded in cash book	120	120
  			40,680
  Less :		–	–
  Balance as per Cash Book			40,680

Note:

BRS is not prepared on every instance of a difference between cash book balance and bank pass book balance.

It is generally prepared as an annexure to the accounting period end financial statements to explain the difference between the balance as shown in the books and the balance shown by the supporting document i.e. the pass book.

BRS may however be prepared as and when required, sometimes to explain the variation in balances to decision makers.