11TH ACCOUNTANCY CHAPTER – 5 BANK RECONCILIATION STATEMENT (BRS)

Chapter – 1.   
Bank
Reconciliation Statement (BRS).

1.1                      
Meaning & Purpose of BRS

1)     What
is a Bank Reconciliation Statement (BRS)?

Ans: A Bank Reconciliation Statement is a statement
prepared on a specific date to explain and reconcile the difference between the
bank balance shown in the Cash Book and the balance shown in the Bank Passbook
(or Bank Statement).

2)     Who
prepares the Bank Reconciliation Statement, and why?

Ans: The business firm (account holder) prepares
the BRS. It is prepared to ensure the accuracy of bank records, identify delays
or errors in transaction recording, and prevent fraud.

1.2                      
Causes of Differences

3)     What
are the main causes of difference between Cash Book and Passbook balances?

  1. Timing differences: Time gaps between when a transaction is entered
    in the Cash Book and when it is cleared/recorded by the bank (e.g.,
    cheques issued but not yet presented).
  2. Direct transactions by bank: Items recorded in the Passbook first
    without prior entry in the Cash Book (e.g., bank charges, direct customer
    deposits).
  3. Errors: Mistakes committed either by the business firm in the Cash Book or
    by the bank in the Passbook.

4)     State
four transactions recorded in the Passbook before being entered in the Cash
Book.

  1. Direct deposit by a customer into the firm’s bank account.
  2. Bank charges or interest on overdraft debited by the bank.
  3. Interest credited by the bank on savings/fixed balance.
  4. Direct payments made by the bank on standing instructions (e.g.,
    rent, insurance premium).

1.3                      
Balances & Accounting Treatment

5)     What
is the difference between a Favourable Balance and an Unfavourable (Overdraft)
Balance?

Ans:

  • Favourable Balance: Debit balance as per Cash Book = Credit balance
    as per Passbook (indicates cash available in the account).
  • Unfavourable Balance (Overdraft): Credit balance as per Cash Book = Debit
    balance as per Passbook (indicates amount owed to the bank).

6)     How
are “Cheques issued but not yet presented for payment” treated when
starting BRS with a Cash Book debit balance?

Ans: They are added to the Cash Book balance
because the Cash Book balance was reduced at the time of issuing, but the bank
balance has not yet decreased.

7)     How
are “Cheques deposited into bank but not yet collected” treated when
starting with a Cash Book debit balance?

Ans: They are deducted
from the Cash Book balance because the Cash Book balance was increased upon
deposit, but the bank has not yet credited the amount.

1.4   Adjusted Cash Book

8)     
What is an
Amended (Adjusted) Cash Book?

Ans: An
Adjusted Cash Book is a Cash Book updated before preparing the BRS. It
incorporates unrecorded bank transactions (e.g., bank charges, direct
collections) and corrects any errors made within the Cash Book itself.

9)     
Why is an
Adjusted Cash Book prepared before BRS?

Ans: It
reflects the correct and updated cash/bank balance in the accounting records so
that the BRS only needs to reconcile timing differences caused by bank
processing
delays.