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BRS Preparation - Part 1

"From Cash Book balance to Bank Statement balance - the reconciliation journey."

Now that we understand WHY balances differ (from Lesson 21), let's learn HOW to prepare a Bank Reconciliation Statement.

Two Approaches to BRS

Starting PointMethod
Cash Book Balance (Favorable)Add/Subtract items to arrive at Bank Statement balance
Bank Statement BalanceAdd/Subtract items to arrive at Cash Book balance

We'll focus on Method 1 (starting from Cash Book) in this lesson.

Format of BRS

Bank Reconciliation Statement as on 31st December 202X
---------------------------------------------------------
Particulars                                    | Add (₹) | Less (₹)
-----------------------------------------------|---------|----------
Balance as per Cash Book                       | XX,XXX  |
Add: Cheques issued but not presented          | X,XXX   |
Add: Interest credited by bank (not in CB)     | X,XXX   |
Add: Direct deposit by customer                | X,XXX   |
Less: Cheques deposited but not cleared        |         | X,XXX
Less: Bank charges (not in CB)                 |         | X,XXX
Less: Dishonor of cheque                       |         | X,XXX
-----------------------------------------------|---------|----------
Balance as per Bank Statement                  | XX,XXX  |

Step-by-Step Method

Step 1: Write Cash Book balance
Step 2: Identify items causing difference
Step 3: Add items that increase bank balance
Step 4: Subtract items that decrease bank balance
Step 5: Arrive at Bank Statement balance

Rules for Adjustment

Note

Starting from Cash Book (Favorable Balance):

ADD (+):

  1. Cheques issued but not yet presented
  2. Interest credited by bank (not in Cash Book)
  3. Direct deposits by customers
  4. Bank collected bills on our behalf

SUBTRACT (-):

  1. Cheques deposited but not yet cleared/credited
  2. Bank charges/commission
  3. Dishonor of cheques
  4. Direct payments by bank (standing instructions)

Example 1: Simple BRS

Data:

  • Cash Book balance (Dr.): ₹50,000
  • Cheques issued but not presented: ₹8,000
  • Cheques deposited but not cleared: ₹5,000
  • Bank charges: ₹500

BRS:

Particulars                               | Amount (₹)
------------------------------------------|------------
Balance as per Cash Book (favorable)      | 50,000
Add: Cheques issued not presented         |  8,000
                                          | 58,000
Less: Cheques deposited not cleared       | (5,000)
Less: Bank charges                        |   (500)
------------------------------------------|------------
Balance as per Bank Statement             | 52,500

Verification: Bank Statement should show ₹52,500 (Cr. in our favor).

Example 2: Detailed BRS

Given:

  • Cash Book shows Dr. balance: ₹1,00,000
  • Cheques issued: ₹15,000 (not yet presented)
  • Cheque deposited: ₹10,000 (not yet cleared)
  • Bank charges: ₹200
  • Interest received: ₹1,500 (credited by bank, not in Cash Book)
  • Direct deposit by customer: ₹5,000
  • Dishonored cheque: ₹3,000

BRS:

Bank Reconciliation Statement as on 31st March 202X
--------------------------------------------------
Particulars                               | Amount (₹)
------------------------------------------|------------
Balance as per Cash Book                  | 1,00,000
Add:
  - Cheques issued not presented          |   15,000
  - Interest credited by bank             |    1,500
  - Direct deposit by customer            |    5,000
                                          | 1,21,500
Less:
  - Cheques deposited not cleared         |  (10,000)
  - Bank charges                          |     (200)
  - Dishonored cheque                     |   (3,000)
------------------------------------------|------------
Balance as per Bank Statement             | 1,08,300

Why Each Adjustment?

Add: Cheques Issued Not Presented (+)

Logic:

  • You reduced Cash Book when you issued the cheque
  • Bank hasn't paid yet, so bank balance is still high
  • Add back to match bank

Example: Issued ₹2,000 cheque to supplier on Dec 28. He deposits on Jan 5.

  • Your Cash Book: Reduced on Dec 28
  • Bank: Will deduct on Jan 5
  • On Dec 31: Bank has ₹2,000 more than your Cash Book shows

Less: Cheques Deposited Not Cleared (-)

Logic:

  • You increased Cash Book when you deposited
  • Bank hasn't cleared yet, so bank balance is still low
  • Subtract to match bank

Example: Deposited ₹5,000 cheque on Dec 30. Clears on Jan 2.

  • Your Cash Book: Increased on Dec 30
  • Bank: Will credit on Jan 2
  • On Dec 31: Bank has ₹5,000 less than your Cash Book shows

Real-World Scenario

HDFC Bank Account - Month-End BRS

Your business maintains:

  • Cash Book: Updated daily as you issue/deposit cheques
  • Bank Statement: Downloaded from net banking

31st December BRS shows:

  • Cash Book: ₹10,00,000
  • 10 cheques issued (₹2,00,000) - payees haven't deposited yet
  • 5 cheques deposited (₹1,50,000) - clearance pending
  • Bank charges ₹5,000
  • Bank Statement Balance: ₹10,45,000

This BRS helps you know your actual available balance and track pending items.

Common Mistakes to Avoid

Note

Watch Out:

  1. Wrong Sign: Adding instead of subtracting, or vice versa
  2. Double Counting: Including an item twice
  3. Ignoring Updated Cash Book: Some items (bank charges, interest) should FIRST be recorded in Cash Book, then BRS
  4. OD Confusion: Overdraft balance rules are opposite (we'll learn in next lesson)

Quiz: BRS Preparation Part 1

Test Your Knowledge

Question 1 of 5

1. Cheques issued but not presented are:

Added to Cash Book balance
Subtracted from Cash Book balance
Not shown in BRS
Added to Bank Statement
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