Bond Valuation
A Bank Reconciliation Statement (BRS) is a document prepared to match the bank balance shown in a company's records with the balance shown in the bank's own records. Every business maintains a 'Cash Book' where they record all bank transactions in a specific column. At the same time, the bank maintains a 'Pass Book' or 'Bank Statement' for the customer. In a perfect world, the closing balance of the Cash Book should match the closing balance of the Pass Book.
Concepts (3)
The bank often performs transactions without immediate notification to the account holder. These include 'Bank Charges' for services, 'Interest' earned on balances, or 'Standing Instructions' where the bank pays bills like insurance automatically.
The bank often performs transactions without immediate notification to the account holder. These include 'Bank Charges' for services, 'Interest' earned on balances, or 'Standing Instructions' where the bank pays bills like insurance automatically. The business only learns of these when checking the Pass Book. Example: The bank deducts 500 rupees as monthly locker rent. The Pass Book balance drops immediately, but the Cash Book still shows the old, higher balance until the statement is checked.
An overdraft is a facility where the bank allows you to withdraw more money than you actually have. This creates a negative balance. In accounting terms, an overdraft is a Credit balance in the Cash Book and a Debit balance in the Pass Book.
An overdraft is a facility where the bank allows you to withdraw more money than you actually have. This creates a negative balance. In accounting terms, an overdraft is a Credit balance in the Cash Book and a Debit balance in the Pass Book. When solving BRS questions starting with an overdraft, remember that you are starting from a 'Minus' position. Example: If you have 2,000 rupees and spend 3,000 rupees, you have a 1,000 rupee overdraft.
These occur when a transaction is recorded in one book but takes time to appear in the other. The most common examples are 'Cheques Issued but not presented' and 'Cheques deposited but not cleared.
These occur when a transaction is recorded in one book but takes time to appear in the other. The most common examples are 'Cheques Issued but not presented' and 'Cheques deposited but not cleared.' In the first case, the business records the payment, but the bank does not. In the second, the business records the receipt, but the bank is still processing the money. Example: You pay a bill of 10,000 rupees by cheque on the 30th of the month. Your Cash Book shows 10,000 less, but the bank statement remains the same until the next month.
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