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Bank Reconciliation Statement – Introduction

You check your bank passbook: Balance = ₹50,000
You check your cash book (bank column): Balance = ₹55,000

Panic! Where did ₹5,000 go?

Relax. This is normal. Let's understand why.

What is Bank Reconciliation Statement (BRS)?

Definition: A statement prepared to reconcile (match) the bank balance as per Cash Book with the balance as per Bank Pass Book/Statement.

Purpose: To identify and explain differences between the two balances.

Two Books, Two Balances

1. Cash Book (Bank Column)

Maintained by YOU (the business)
Shows YOUR record of bank transactions
Balance = What YOU think is in the bank

2. Pass Book / Bank Statement

Maintained by THE BANK
Shows BANK'S record of your account
Balance = What BANK says is in your account

Ideally: Both should match.
Reality: They rarely do (at least temporarily).

Why Differences Occur?

Think of it like WhatsApp:

You send a message (Cheque issued) → Shows as "Sent" ✓
Other person hasn't read it yet → Not "Read" ✓✓

Similarly, timing differences cause mismatches.

Types of Balances

As Per Cash Book

Debit Balance: Money in bank (Asset)
We record: "To Bank" when money goes IN

As Per Pass Book

Credit Balance: Money in your account (Bank owes you)
Bank records: "By..." when money comes IN to your account

Important:

Debit balance in Cash Book = Credit balance in Pass Book (ideally)
They are mirror images!

Common Reasons for Differences

Reason	Cash Book	Pass Book	Example
Cheque issued but not presented	Reduced	Not reduced	You paid ₹10K by cheque, supplier hasn't deposited it yet
Cheque deposited but not cleared	Increased	Not increased	You deposited ₹5K, bank hasn't cleared it yet
Bank charges	Not recorded	Reduced	Bank deducted ₹100 as charges
Interest credited	Not recorded	Increased	Bank added ₹500 interest
Direct deposit by customer	Not recorded	Increased	Customer paid ₹20K directly to bank
Standing instructions	Not recorded	Reduced/Increased	Auto-debit of ₹2K for insurance premium

The Reconciliation Process

Step 1: Start with one balance (usually Cash Book balance)

Step 2: Add/Subtract items that cause differences

Step 3: Arrive at the other balance (Pass Book balance)

Formula:

Cash Book Balance
+ Items that increase Pass Book but not in Cash Book
- Items that decrease Pass Book but not in Cash Book
+ Items in Cash Book (Dr) but not in Pass Book
- Items in Cash Book (Cr) but not in Pass Book
= Pass Book Balance

Simple Example

Cash Book (Bank Column): ₹10,000 (Dr.)

Differences:

Cheque issued ₹2,000 not yet presented
Bank charges ₹100 (in Pass Book, not in Cash Book)

BRS:

Particulars	Amount
Balance as per Cash Book	10,000
Add: Cheque issued but not presented	2,000
Less: Bank charges not recorded in Cash Book	(100)
Balance as per Pass Book	11,900

Verification: Check Pass Book → Should show ₹11,900 ✅

Quiz

Test Your Knowledge

Question 1 of 5

1. BRS is prepared to:

Calculate profit

Match Cash Book and Pass Book balances

Pay taxes

Prepare Balance Sheet

💡 Final Wisdom: "BRS is not about finding mistakes (usually). It's about understanding timing differences. Your money is safe, just in transit!"