Bank Reconciliation Statement

Bank Reconciliation statement is a record book of the transactions of a bank account. This statement helps the account holders to check and keep track of their funds and update the transaction record that they have made. Bank Reconciliation statement is also known as bank passbook. The balance mentioned in the bank passbook of the statement must tally with the balance mentioned in the cash book. In the statement, all the deposit will be shown in the credit column and withdrawals will be shown in the debit column. However, if the withdrawal exceeds deposit it will show a debit balance (overdraft).

Importance of Bank Reconciliation Statement

Generally while making a comparison between the company’s cash book and bank balance, the balance does not tally. Therefore, it is important to determine the cause for the difference and display them in the bank reconciliation statement and then tally the two balances. The bank reconciliation statement helps in explaining the differences in the amount between the company’s cash book and bank balance. The cash book and the bank passbook differences are caused by

  • The difference in timing recording the transactions- The difference in timing can be caused by many factors. Few factors are
    • Bank issued cheque but not yet deposited for payment
    • Paid cheque in the bank but yet not cleared
    • Bank made direct debit from the customer’s side
    • Cheque/ amount deposited directly to the bank account
    • Dividends and Interest collected by the bank
    • Bank made direct payment from the customer’s side
    • Cheques deposited/bills discounted dishonored
  • Errors made by the company or by the bank.- In a few occasions, the error in two balances can be made from the bank side or in the company’s cash book. Few errors can be.
    • Errors made while registering the transaction by the company
    • Errors made while registering the transaction by the bank

Types of Bank Reconciliation Statement

The Bank Reconciliation Statement can be prepared in two ways.

  • Documenting of bank reconciliation statement without adjusting the cash book balance.
  • Filing of bank reconciliation statement after adjusting the cash book balance.

Steps to Prepare Bank Reconciliation Statement

    • First, the date on which the statement is recorded is mentioned.
    • After which the balance displayed in the cash book is mentioned in the statement. Sometimes, the balance mentioned in the passbook can also be mentioned.
    • The deposited cheques which are not collected are deducted.
    • Then the cheques issued but the deposited for payment, but amount directly deposited in the bank account are recorded
    • Al the transactions like overdraft interest, amount debited by the bank but not recorded in the cash book, cheques and bills dishonored are deducted.
    • All the credits and profit collected by the company and directly deposited in the bank is added.
    • Adjustments of errors are made
    • Now the balance between the cash book and statement should be equal or the same.


  1. Differences due to timing.
  2. Differences due to the recording of transactions by the bank.
  3. Differences due to errors or omissions.
(A) DIFFERENCES DUE TO TIMING. Following transactions are recorded in Cash Book or in Pass Book at a different date.

  1. Cheques issued but not presented for payment.Balance as per Cash Book reduces immediately upon issue but balance as per Bank Pass Book remains unaffected unless it is presented for payment.
  2. Cheques deposited but not yet collected.When we deposit a cheque, balance as per Cash Book increases immediately but balance as per Bank Pass Book remains the same until it is cleared and actually collected by bank.
  • These differences may arise, when a transaction is recorded by the bank in the pass book, but not recorded in the cash book.
  • These types of transactions are unknown to the account holder.
  • Some examples of this type are:
  1. Interest allowed/credited by bank.
  2. Bank Charges and Interest charged/debited by bank.
  3. Direct payment made by bank standing instruction of Account Holder.
  4. Direct deposit made by the customer
  5. Interest/Dividend collected by Bank
  6. Bills Receivables Collected by Bank on our behalf.
  7. Dishonour of a Bill Discounted.
  8. Bills Payable met by Bank on our behalf.
  • These differences may arise, due to an error committed in recording transactions in the cash book by the account holder or in the passbook by bank.

(I) The error committed by the account holder in the recording of transactions:

  • Cheque issued but not recorded in the Cash Book.
  • Cheques deposited into the bank but omitted to record in the cash book.
  • Error in totaling or balancing of the bank column of the cash book.

(II) The error committed by the bank in the recording of transactions:

  • Wrong debit or credit in the account holder’s account.
  • Recording bank charges and interest more than once.

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