CBSE Class 11 Accountancy Revision Notes Chapter 5

CBSE Class 11 Accountancy Revision Notes Chapter-5 Bank Reconciliation Statement

Bank Reconciliation Statement or BRS is an essential part of accounting as it helps make sure that the cash balances of a firm match with its bank account statements. If there are any discrepancies between the firm’s cash book and its bank account statements, which is usually the case, the Bank Reconciliation Statement helps identify the reasons for those discrepancies. This is an important chapter for Accountancy students.

To make it easier for students to prepare for this chapter, Extramarks offers CBSE Class 11 Accountancy Revision Notes Chapter – 5 Bank Reconciliation Statement. These are clear and concise notes that cover all the important concepts covered in the chapter in brief. Students can access these notes at any time from the Extramarks website.

Revision Notes for CBSE Class 11 Accountancy Chapter 5 – Download

Access Class 11 Accountancy Chapter 5 – Bank Reconciliation Statement

The revision notes are prepared by subject experts and professionals having years of expertise in their respective fields. They prepare the notes with utmost efficiency and accuracy which helps students to comprehend all the topics easily.

1. Definition:

A firm prepares BRS or Bank Reconciliation Statement to reconcile the balances according to the cash book created by the firm and balances according to the passbook that the bank records. The requirement of the reconciliation statement arises when we see any difference in both balances.

2. Causes of Differences in Balance:

There may be different reasons for the balance differences in the passbook and cash book.

1. If there is a difference in timings for recording the transactions.
2. There may be errors made by mistake by the banking or firm personnel while recording the transactions.

2.1. Difference in Timings for Recording the Transaction

Some differences in balances are caused by differences in timings. These timing differences may be due to the following reasons.

• Cheques issued by the banks are not presented for payments
• The bank makes direct debit on behalf of the customer
• The cheque paid in the bank has not been collected so far
• The amount is deposited directly in the bank account
• The bank collects dividends and interests
• Payment is made by the bank directly on behalf of the customer
• Cheques bills/deposited discounted dishonoured

Students will find detailed explanations on all these ‘difference in timing’ issues in Revision Notes by Extramarks.

2.2. Errors Made by Bank or Firm While Recording the Transaction

Sometimes differences in balances are recorded due to the banks’ errors as well as the firm. These errors are of two types.

Errors made by the firm:

• The wrong amount credited or debited into the cashbook
• Missing any transaction
• Error in balancing or totalling the bank column of the cashbook.

Errors made by the bank:

• The wrong amount credited or debited into the passbook
• Missing any transaction
• Error in balancing or totalling the bank column of the passbook.

3. Benefits of Bank Reconciliation Statement:

• It helps in tracking mistakes or errors committed
• Eliminates the risk of fraud
• With this periodic transaction, status can be tracked.
• Accurate balance can be achieved.

4. Preparation of Bank Reconciliation Statement:

• A bank reconciliation statement is prepared by taking the cash book or passbook balance as the starting point.
• All the deposits are recorded on the credit side and withdrawals on the bank’s debit side of the passbook.
• Match the credit side of the passbook and debit side of the cashbook and vice-versa to note the differences in any.

4.1. Method for Preparing Bank Reconciliation Statement:

The format for BRS preparation is provided below:

An alternative format with columns showing deductions and additions is as follows:

Points to Remember:

• If the BRS starts with balance as per the cashbook, in the end, it will provide balance as per the passbook and vice-versa.
• The credit balance as per the passbook and debit balance as per the cash book is written positively. It means that the deposits are more than the withdrawals by the firm, which is considered a favourable condition.
• The debit balance as per the passbook and credit balance per the cash book is written negatively. It means that the deposits are less than the withdrawals of the firm, which is an unfavourable condition also known as overdraft balance.
• The adjustment concept involves increasing the balance in the cashbook when we see the balance in the cashbook getting deducted unnecessarily.
• We reduce the amount in the cashbook if the cash book balance is getting over-amounted to subtract those items.

Items which Increase the Pass Book Balance or Decrease the Cash Book Balance

• Cheques issued but not presented so far
• The amount deposited by the customers directly into the bank account
• The banks make credits for the sake of interest
• The bank collects dividends and interests
• Cheque paid into the bank but missed to be recorded into the cashbook

Items which Decrease the Pass Book Balance or Increase the Cash Book Balance

• The cheque was sent to the bank but has not been credited by the bank so far
• Bill discounted or cheques paid in the bank but dishonoured
• Direct payments by the bank
• The bank charges, commissions, etc. debited by the bank
• Cheque issued but missed to be recorded into the cash book

Illustration:1

From the following particulars, prepare the Bank reconciliation statement of Arun Ltd. as of 31st March 2022: 

1. Balance as per Pass Book was Rs. 14,000. 
2. Bank collected a cheque of Rs. 500 on behalf of Arun Ltd. but forgot to record it in the Pass Book. 
3. Bank deposits a cash deposit of Rs. 2,589 as Rs. 2,598. 
4. The payment of a cheque of Rs. 700 was recorded twice in the Pass Book. 
5. Dividend collected by bank Rs. 450. 
6. Bank charges Rs. 250 debited by the bank. 

Ans: In the books of Arun Ltd Bank Reconciliation Statement as of 31st March 2022

Explanation:

• We start with balance as per the passbook and take it as a starting point.
• Bank collected the cheque on behalf of the firm and omitted to record it in the passbook resulting in an undercast balance. It should be added to match the cash balance.
• The bank records an error of Rs.9 in excess, so it must be brought down by subtracting.
• Payment was recorded twice, and reduced passbook balance with a twice amount of Rs. 1400. But the cash book balance is reduced only once. So it must be added back.
• The dividend collected will increase the passbook balance, but the cash book balance is not changed, so it should be deducted.
• Bank charges paid by the bank reduce the passbook balance, so they must be added to reconcile with the cashbook.

Class 11 Accounts Chapter 5 Notes: A Detailed Analysis

Accountancy class 11 chapter 5 talks about Bank Reconciliation Statement, differences in balance, preparation and benefits of bank reconciliation statements, different methods of preparing BRS, etc.. Students can refer to CBSE Revision Notes for Class 11 Accountancy for further in-depth and thorough explanations of the important concepts.

Basis of the Difference Between a Cash Book and a Pass Book

As per the Notes of Class 11 Accountancy Chapter 5, the reasons for differences in balances of cash book and passbook are categorised in two ways.

1. A gap in timing in recording transactions.
2. Miscalculation errors committed while recording transactions.

Types of Differences Caused by the Time Gap

• Cheques are issued but not presented at the bank for the sake of affecting payments.
• If the cheques are deposited in the bank but not processed or credited by the bank yet.
• If the bank dishonours the cheques.
• The bank grants interest.
• The bank charges interest on an overdraft commission.
• Customers deposited into the bank directly.
• Amount collected in the form of dividends or interest by the bank.

Types of Differences Caused by Miscalculations Committed in Recording Transactions:

There are two categories of miscalculations committed while recording transactions.

Miscalculations by the firm

• A cheque issued to any creditor is omitted or recorded twice.
• Cheque deposited into the bank omitted or recorded twice.
• Mistake in the aggregate column of the cashbook.

Miscalculations by the bank

• Wrong entries made by the bank in the account of the customer which results in differences in the two balances 

Significance of Bank Reconciliation Statement

Class 11 Accountancy chapter 5 notes perfectly illustrate the significance of the Bank Reconciliation Statement.

• Mistakes or errors committed by the firm and the bank can be identified easily.
• It offers customer satisfaction.
• Eliminates the fear of fraud by the bank or firm employees.
• Easy tracking of cheques deposited for collection.

Process of Preparing Bank Reconciliation Statement

The process of BRS preparation is as follows:

• Debit side entries of the cash book and matched with the credit side entries of the passbook and vice-versa.
• Items appearing in the passbook and cashbook must be ticked correctly.
• Unmarked items will be the points of difference.
• BRS should be prepared by taking either the cash book balance or the passbook as a starting point.

Class 11 Accounts Chapter 5 Notes: Vital Points to Remember

• If the cash book balance is the starting point, the passbook balance will be the ending point and vice-versa.
• The cash book debit and passbook credit balance show that the firm has deposited such amounts into the bank.
• Cashbook credit and passbook debit balance show that such an amount is withdrawn from the bank.