Accountancy [Class 11 Semester II] Chapter 4: Bank Reconciliation Statement
Q.1. What is a Bank Reconciliation Statement (BRS)?
Answer: When the bank balance shown in the passbook and the bank balance shown in the cash book of an organization on a specific date do not tally, a statement is prepared to analyze the reasons for the difference between the two balances and to reconcile them. This statement is called a Bank Reconciliation Statement.
Q.2. Who prepares the Bank Reconciliation Statement?
Answer: The Bank Reconciliation Statement is prepared by the depositor of the bank.
Q.3. State the features of the Bank Reconciliation Statement.
Answer: The main features of the Bank Reconciliation Statement are as follows:
(a) It is not an account in the ledger.
(b) It is merely a statement outside the double-entry system.
(c) Since it is not part of the accounting books, it is prepared on a separate sheet of paper.
(d) This statement identifies the errors in the cash book and passbook but does not correct them.
(e) When the balances of the cash book and passbook tally, this statement is not prepared.
(f) It is prepared periodically — weekly, fortnightly, monthly, half-yearly, or yearly.
Q.4. State the necessity or importance of a Bank Reconciliation Statement.
Answer: The necessity or importance of a Bank Reconciliation Statement is as follows:
(a) It helps to determine the reasons for discrepancies between the bank balances of the cash book and the passbook on a specific date.
(b) It helps ascertain the actual deposit balance or the extent of overdrawing in the bank account.
(c) It detects errors in the cash book and passbook, allowing necessary corrective measures later.
(d) Preparing it regularly ensures smooth management and control of transactions through the bank.
(e) It helps detect and prevent frauds like embezzlement of cash.
Q.5. Which two books are compared while preparing a Bank Reconciliation Statement?
Answer: To prepare a Bank Reconciliation Statement, the bank balance as per the passbook is compared with the bank balance as per the cash book.
Q.6. Why is a Bank Reconciliation Statement prepared?
Answer: As the bank statement is received periodically, it is not possible to know all deposits and withdrawals in time. Hence, they may not be recorded promptly in the cash book. This leads to a difference between the bank balances of the cash book and the passbook. To analyze these differences and reconcile both balances, a Bank Reconciliation Statement is prepared.
Q.7. State the difference between a Cash Book and a Pass Book.
Answer:
(a) It is maintained by the depositor and kept in his possession.
It is maintained by the bank but kept with the depositor.
(b) Deposits are recorded on the debit side; withdrawals on the credit side.
Deposits are recorded on the credit side; withdrawals on the debit side.
(c) When a cheque is deposited, it is entered in the cash book on the date of deposit.
It is recorded in the passbook when the bank collects and credits the amount.
(d) When a cheque is issued, it is recorded in the cash book on the date of issue.
It is recorded in the passbook on the date the bank pays the cheque.
(e) A debit balance in the cash book represents an asset — money deposited in the bank.
A debit balance in the passbook represents a liability — overdrawing from the bank.
(f) A credit balance in the cash book represents a liability — overdrawing from the bank.
A credit balance in the passbook represents an asset — money deposited in the bank.
(g) It is one of the subsidiary books under the double-entry system.
It is not part of the double-entry system; merely a copy of the bank’s record.
Q.8. What do debit and credit balances in a Pass Book signify?
Answer: A debit balance in the passbook indicates a liability — the amount overdrawn from the bank.
A credit balance in the passbook indicates an asset — the amount of money deposited in the bank.
Q.9. Is a Bank Reconciliation Statement an account?
Answer: When the bank balances in the passbook and the cash book on a specific date do not agree, a Bank Reconciliation Statement is prepared to verify the correctness of both records. It is not an account in the ledger; rather, it is merely a statement outside the double-entry system.
Q.10. Mention any three causes of discrepancy between the bank balances in the Cash Book and Pass Book.
Answer: Three main causes of discrepancy are:
(a) A cheque has been issued but not yet presented for payment at the bank.
(b) A cheque has been deposited but the bank has not yet collected or credited the amount.
(c) Money has been directly deposited into the bank by a debtor.
Shortcut Methods for Quick Memorization
Method 1:
When starting with 1st or 4th b/d —
i.e.
Bank Favourable Balance as per Cash Book
or
Overdraft Balance as per Pass Book
1. We “Minus” but they didn’t → ADD
2. We “Plus” but they didn’t → LESS
3. They “Minus” but we didn’t → LESS
4. They “Plus” but we didn’t → ADD
5. We added twice → LESS once
6. We subtracted twice → ADD once
7. Cash Book Dr. side Under-cast → ADD
8. Cash Book Dr. side Over-cast → LESS
9. Cash Book Cr. side Under-cast → LESS
10. Cash Book Cr. side Over-cast → ADD
Method 2:
When starting with 2nd or 3rd b/d —
i.e.
Bank Favourable Balance as per Pass Book
or
Overdraft Balance as per Cash Book
1. We “Minus” but they didn’t → LESS
2. We “Plus” but they didn’t → ADD
3. They “Minus” but we didn’t → ADD
4. They “Plus” but we didn’t → LESS
5. We added twice → ADD once
6. We subtracted twice → LESS once
7. Cash Book Dr. side Under-cast → LESS
8. Cash Book Dr. side Over-cast → ADD
9. Cash Book Cr. side Under-cast → ADD
10. Cash Book Cr. side Over-cast → LESS
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