Chapter 6 — Bank Reconciliation Statement

A firm that keeps a bank account records every deposit and withdrawal in the bank column of its cash book. The bank, in its own books, keeps an account in the firm's name and records the same deposits and withdrawals. Periodically the bank sends the firm a copy of that account: the pass book in the case of a small account, or a printed bank statement, which is now the usual form. Because both parties record the same transactions, the balance shown by the bank column of the cash book and the balance shown by the pass book should agree on any given date.

In practice, when the firm compares the two on a given date, they usually differ. This is not necessarily a sign of anything wrong. It happens because the two sets of books are written by two different parties at two different times. The firm writes a cheque and records it at once; the bank records it only when the payee presents it, which may be days later. The firm deposits a cheque and records it at once; the bank credits it only after collecting it from the drawer's bank. The bank deducts its charges and credits interest and records them at once; the firm learns of them only when it sees the statement. Any of these makes the two balances differ on a particular date, even though every transaction has been correctly recorded by both.

A bank reconciliation statement is a statement prepared by the firm, on a particular date, that starts with the balance shown by one of the two records, lists the items that explain the difference, and arrives at the balance shown by the other. The word reconcile means to bring into agreement; the statement reconciles the cash book with the pass book by accounting for every rupee of difference.

Who prepares it and when. The statement is prepared by the firm, not the bank, usually by the accountant or cashier, whenever a bank statement is received: monthly in most businesses, weekly or even daily in large ones. It is not part of the double entry books. It is a memorandum statement, a working document, and it makes no entries in the ledger by itself.

Need for the statement

• It explains the difference between the two balances and shows that it is caused by legitimate timing differences and not by missing or wrong entries.
• It reveals errors in the cash book, such as a wrong amount or an omitted bank charge, so that they can be corrected.
• It reveals errors made by the bank, which can then be taken up with the bank.
• It shows cheques that have been outstanding for a long time, which may need to be followed up or cancelled.
• It discourages embezzlement by the cashier, because the bank's independent record is compared with the cash book regularly.
• It gives the true bank balance available for the balance sheet, after adjusting the cash book for items the bank has recorded.

The first step in mastering the statement is to be clear about how the bank's record is kept, because its debits and credits are the mirror image of the firm's, and that is the subject of the next topic.

The pass book, or bank statement, is a copy of the firm's account in the bank's ledger. To read it correctly one must remember whose books it comes from. In the firm's books the bank is a personal account, a debtor when the firm has money in the bank; in the bank's books the firm is a personal account, and the bank owes the firm the balance, so the firm is a creditor of the bank. The same event is therefore recorded on opposite sides in the two records.

So a favourable balance is a debit balance in the cash book and a credit balance in the pass book; an overdraft is a credit balance in the cash book and a debit balance in the pass book. A student who confuses these will reverse every item in the reconciliation. When a question says credit balance as per pass book, it means money in the bank; when it says debit balance as per pass book, it means overdraft.

Format of a bank statement. A modern bank statement has columns for date, particulars, cheque number, withdrawals (debit), deposits (credit) and balance, with the balance shown after every entry and marked Cr for a favourable balance or Dr for an overdraft. A pass book of the older type is ruled the same way. Every entry in it corresponds to an entry that should appear, on the opposite side, in the bank column of the cash book.

The comparison. To reconcile, the accountant ticks each entry in the bank column of the cash book against the corresponding entry in the pass book. The unticked items on either side are the causes of the difference. Unticked credits in the cash book (cheques issued) that have no matching debit in the pass book are cheques not yet presented. Unticked debits in the cash book (cheques deposited) that have no matching credit in the pass book are cheques not yet collected. Unticked debits in the pass book (charges, dishonoured cheques, standing orders) that have no matching credit in the cash book are bank payments not yet recorded by the firm. Unticked credits in the pass book (interest, direct deposits by customers) that have no matching debit in the cash book are bank receipts not yet recorded by the firm.

That ticking exercise is the practical origin of the list of causes dealt with next. In an examination the unticked items are given; in practice the accountant must find them.

The causes of difference between the cash book and the pass book fall into three groups: timing differences caused by cheques in transit, transactions recorded by the bank but not yet by the firm, and errors. This topic deals with the first and most common group, which arises from the delay between one party's entry and the other's.

1. Cheques issued but not yet presented for payment. When the firm issues a cheque to a creditor, it credits the bank column at once, reducing its bank balance. The creditor may take several days to deposit the cheque, and his bank several days more to present it to the firm's bank. Until the cheque is presented and paid, the bank has not debited the firm's account. On the reconciliation date, therefore, the cash book balance is lower than the pass book balance by the amount of such cheques. Other names for this item: unpresented cheques, cheques drawn but not cashed, cheques issued but not yet debited by the bank.

2. Cheques deposited but not yet collected or credited. When the firm receives a cheque from a customer and deposits it, it debits the bank column at once. The bank credits the account only after it has collected the amount from the drawer's bank, which for an outstation cheque may take a week or more. Until then the pass book does not show the deposit. On the reconciliation date the cash book balance is higher than the pass book balance by the amount of such cheques. Other names: cheques paid in but not yet cleared, cheques sent for collection but not yet credited, uncleared effects.

These two items are the heart of every reconciliation. They are pure timing differences: no one has made a mistake, and they will disappear by themselves once the cheques pass through the bank. They require no entry in the cash book. Their only effect is to make the pass book balance different from the cash book balance on a particular date.

Direction of the adjustment. Suppose the reconciliation starts from the cash book balance and aims at the pass book balance.

• Cheques issued but not presented: the pass book is higher, so add.
• Cheques deposited but not collected: the pass book is lower, so deduct.

If instead the reconciliation starts from the pass book balance and aims at the cash book balance, the directions reverse: deduct unpresented cheques and add uncollected cheques.

An illustration in figures. On 30 June the cash book shows a bank balance of Rs 20,000. Cheques of Rs 5,000 issued in June have not been presented; cheques of Rs 3,000 deposited on 28 June have not been collected. The pass book will show 20,000 + 5,000 − 3,000 = Rs 22,000. Reason: the bank has not yet reduced the balance for the Rs 5,000 the firm has already deducted, and has not yet increased it for the Rs 3,000 the firm has already added.

Partial information. Questions often say cheques amounting to Rs 12,000 were issued in the month, of which cheques for Rs 9,000 were presented before the month end. The unpresented amount is 12,000 − 9,000 = Rs 3,000, and only that is used. Likewise cheques of Rs 8,000 deposited, of which Rs 6,500 was credited by the bank, leaves Rs 1,500 uncollected. Always compute the outstanding portion before using it.

The second group of differences consists of transactions the bank has put through the account on its own initiative or on instructions, and which the firm discovers only when it reads the statement. Until the firm enters them in the cash book, the two balances differ. Unlike cheques in transit, these are not self-correcting: they require entries in the cash book, and if the firm does not make them its bank balance will remain wrong.

Items that reduce the pass book balance (pass book lower than cash book)

• Bank charges: commission, collection charges, cheque book charges, SMS charges, and similar deductions the bank makes for its services. The bank debits the account; the firm has not yet credited its cash book.
• Interest on overdraft charged by the bank.
• Cheque deposited and dishonoured: the firm debited the bank column when it deposited the customer's cheque; the bank, having failed to collect it, either never credited it or credited and then reversed it. The pass book shows less than the cash book by the cheque amount.
• Payments made by the bank under standing instructions: insurance premium, loan instalment, electricity bill, rent, or any payment the firm has asked the bank to make on a fixed date. The bank debits the account when it pays; the firm may not know the exact date.
• Bills payable paid by the bank on the due date under instructions.

Items that increase the pass book balance (pass book higher than cash book)

• Interest allowed by the bank on the deposit balance, credited by the bank without notice.
• Direct deposits by customers: a debtor who pays straight into the firm's bank account by transfer or by depositing cash at a branch. The bank credits the account; the firm learns of it from the statement.
• Dividends, interest on investments, or rent collected by the bank on the firm's behalf under instructions and credited to the account.
• Bills receivable collected by the bank on maturity and credited.

Direction of adjustment starting from the cash book balance: items that reduce the pass book balance (charges, interest on overdraft, dishonoured cheques, standing-order payments) are deducted; items that increase it (interest allowed, direct deposits, collections) are added. Starting from the pass book, reverse the signs.

Illustration in figures. Cash book balance on 31 July Rs 15,000. The pass book shows bank charges Rs 200 and interest on overdraft nil, a dishonoured cheque of Rs 1,800, an insurance premium paid by standing order Rs 2,000, interest allowed Rs 350, and a direct deposit by a customer Rs 4,000, none of which is in the cash book. Pass book balance = 15,000 − 200 − 1,800 − 2,000 + 350 + 4,000 = Rs 15,350.

All six of these items must be entered in the cash book when the firm learns of them: By Bank Charges 200, By Customer (dishonoured) 1,800, By Insurance 2,000 on the credit side; To Interest 350 and To Customer 4,000 on the debit side. Once entered, the cash book balance becomes Rs 15,350 and these items drop out of the reconciliation. This is the idea behind the adjusted cash book, dealt with later.

The third group of differences arises from mistakes, either by the firm's clerk in the cash book or by the bank in the pass book. These are found only when the two records are compared line by line, which is one of the strongest reasons for reconciling regularly. Each error must be analysed for its effect on the balance concerned.

Errors in the cash book (the firm's mistakes, to be corrected in the cash book)

• A cheque deposited or issued recorded with the wrong amount: for example, a deposit of Rs 4,500 entered as Rs 5,400. The cash book is overstated by Rs 900.
• A deposit or a cheque recorded twice, or omitted altogether.
• A cheque issued entered in the cash column instead of the bank column, or a cash payment entered in the bank column.
• A receipt entered on the payments side, or vice versa.
• A wrong casting (addition) of the bank column.
• A cheque issued but recorded in the bank column of the wrong month.

Errors in the pass book (the bank's mistakes, to be reported to the bank)

• A cheque belonging to another customer wrongly debited to the firm's account.
• A deposit belonging to another customer wrongly credited to the firm's account.
• A cheque deposited by the firm credited with the wrong amount.
• Bank charges debited twice.

How to determine the effect. For each error, ask: which record contains the error, and does it make that record's balance too high or too low, and by how much? Then apply the adjustment in the direction that removes the effect.

Suppose the reconciliation starts from the cash book balance. A deposit of Rs 4,500 entered in the cash book as Rs 5,400 has overstated the cash book by Rs 900; the pass book, being correct, is Rs 900 lower; so deduct Rs 900. A cheque issued for Rs 2,300 entered in the cash book as Rs 3,200 has understated the cash book by Rs 900; the pass book is higher by Rs 900; so add Rs 900. A cheque of Rs 1,000 belonging to another customer wrongly debited by the bank makes the pass book lower by Rs 1,000; deduct Rs 1,000. A deposit of Rs 700 credited by the bank twice makes the pass book higher by Rs 700; add Rs 700.

Undercasting and overcasting. If the receipts side of the bank column is undercast by Rs 500, the cash book balance is too low by 500, so the pass book is higher: add 500. If the payments side is undercast by Rs 500, the cash book balance is too high by 500, so the pass book is lower: deduct 500. Overcasting reverses these.

An item recorded in the wrong column. A cheque of Rs 3,000 issued to a creditor but entered in the cash column has not reduced the cash book bank balance at all, though the bank has paid it. The cash book bank column is too high by 3,000; deduct.

Errors in the cash book are corrected by entries in the cash book. Errors made by the bank are not corrected by the firm; they are listed in the reconciliation until the bank rectifies them, and the firm writes to the bank. The reconciliation statement is thus also a checklist of matters to be pursued.

Before preparing statements, it helps to fix the direction of every common item in one table. The table is built for a reconciliation that starts with the cash book balance (favourable) and arrives at the pass book balance. For any other starting point the directions are modified as explained in the following topics.

The one question to ask. Every item can be settled by asking: has this transaction reduced or increased the pass book relative to the cash book? If the bank has taken money out that the firm has not yet deducted, or has not yet added money the firm has already added, the pass book is lower: deduct. If the bank has added money the firm has not yet added, or has not yet taken out money the firm has already deducted, the pass book is higher: add. Errors are treated by working out which record is wrong and in which direction.

Reversing the start. If the statement starts from the pass book balance and aims at the cash book balance, every add becomes deduct and every deduct becomes add, because the same difference is being traversed in the opposite direction. If the starting balance is an overdraft, the signs reverse again, because an overdraft is a negative balance and adding to it makes it larger in the negative sense. These two rules together handle all four starting points, and the next three topics work each one through in full.

Students should not try to memorise the table as forty separate facts. They should memorise the one question and derive each line from it; that skill survives any unfamiliar item an examiner may invent.

The standard format of a bank reconciliation statement has a heading, a starting balance, a section of additions, a section of deductions, and the closing balance. The usual form uses a plus column and a minus column, or a single amount column with subtotals.

Illustration 1. On 31 March 2026 the cash book of Kavitha Enterprises showed a bank balance of Rs 25,000. On comparing with the pass book, the following were found: (a) cheques issued for Rs 9,000 had not been presented; (b) cheques deposited for Rs 6,500 had not been credited by the bank; (c) bank charges Rs 250 were not entered in the cash book; (d) interest allowed by the bank Rs 400 was not entered in the cash book; (e) a customer, Prasad, had paid Rs 3,000 directly into the bank; (f) a cheque of Rs 1,500 deposited had been dishonoured, not recorded in the cash book; (g) insurance premium of Rs 2,000 had been paid by the bank under standing instructions.

The additions total 37,400 and the deductions 10,250; the pass book balance is 37,400 − 10,250 = Rs 27,150, a credit balance in the bank's books, meaning money in the bank.

Reading each line. Unpresented cheques: the firm has deducted Rs 9,000 that the bank has not, so the bank shows more; add. Interest and Prasad's deposit: the bank has added amounts the firm has not; add. Uncollected cheques: the firm has added Rs 6,500 that the bank has not; the bank shows less; deduct. Bank charges, the dishonoured cheque and the premium: the bank has deducted amounts the firm has not; deduct.

Heading. The statement is always headed with the firm's name, the words Bank Reconciliation Statement, and the date as on which it is prepared. The starting line states whose balance it is and whether it is a debit or credit balance. The closing line states the other balance. Marks are awarded for these labels.

Method summary for a favourable cash book start

• Write the cash book (Dr) balance in the plus column.
• Put in the plus column every item that makes the pass book higher.
• Put in the minus column every item that makes the pass book lower.
• Total both columns; plus minus minus is the pass book (Cr) balance.
• If the minus total exceeds the plus total, the result is negative: the pass book shows an overdraft (Dr balance), and the statement says so.

A question may give the pass book balance and ask for the cash book balance. The same items explain the same difference, but the statement now travels in the opposite direction, so each item's sign is reversed from the cash-book-start table. The logic is unchanged: an item that made the pass book higher than the cash book must now be deducted from the pass book to get back to the cash book.

Illustration 2. Using the same facts as Illustration 1 but starting from the pass book: on 31 March 2026 the pass book of Kavitha Enterprises showed a credit balance of Rs 27,150. Items: (a) cheques issued but not presented Rs 9,000; (b) cheques deposited but not collected Rs 6,500; (c) bank charges Rs 250; (d) interest allowed Rs 400; (e) direct deposit by Prasad Rs 3,000; (f) dishonoured cheque Rs 1,500; (g) insurance premium paid by bank Rs 2,000.

The answer, Rs 25,000, is the cash book balance we started from in Illustration 1, which confirms that the two statements are the same reconciliation read in opposite directions.

Reasoning each line from the pass book side. Uncollected cheques: the firm has already added them, the bank has not, so the cash book is higher; add to the pass book. Bank charges, the dishonoured cheque and the premium: the bank has deducted them, the firm has not, so the cash book is higher; add. Unpresented cheques: the firm has deducted them, the bank has not, so the cash book is lower; deduct. Interest and Prasad's deposit: the bank has added them, the firm has not, so the cash book is lower; deduct.

A practical tip. Rather than learning a second table, students may reason every item from the cash-book-start table and simply swap the columns when the start is the pass book. Whichever way is used, the check is the same: the balance arrived at must be the other record's balance, and its nature (Dr or Cr) must be stated correctly. Starting from a pass book credit balance, a positive result is a cash book debit balance; a negative result means the cash book shows an overdraft (credit balance).

Examiners sometimes give the pass book balance without saying credit or debit; a balance as per pass book without qualification is taken as favourable (credit), and a question that intends an overdraft says overdraft as per pass book or debit balance as per pass book.

When the firm has overdrawn its account, the cash book shows a credit balance and the pass book a debit balance. Reconciling from an overdraft confuses many students because an overdraft is a negative amount: anything that would increase a favourable balance now reduces the overdraft, and anything that would reduce a favourable balance now increases it. Two methods handle this reliably.

Method 1: Treat the overdraft as a negative figure. Write the overdraft in the minus column as the starting balance, apply all items with exactly the signs of the favourable-balance table (add items that make the pass book higher, deduct items that make it lower), total the columns, and read the result: if the minus total exceeds the plus total, the closing figure is an overdraft in the other record; if the plus total exceeds, it is a favourable balance.

Method 2: Reverse the signs. Write the overdraft in the plus column as a positive number, reverse the sign of every item compared with the favourable table, and the result is the overdraft as per the other record. This is the method most textbooks show, but it demands two reversals when starting from a pass book overdraft, and errors multiply. Method 1 is safer.

Illustration 3: Overdraft as per cash book. On 30 September 2026 the cash book of Rahim Traders showed a bank overdraft of Rs 12,000. (a) Cheques issued but not presented Rs 7,000. (b) Cheques deposited but not collected Rs 4,000. (c) Interest on overdraft charged by the bank Rs 600, not in the cash book. (d) A customer paid Rs 5,000 directly into the bank. (e) Bank charges Rs 150. (f) A cheque of Rs 2,000 deposited was dishonoured.

Minus total 18,750 exceeds plus total 12,000 by 6,750, so the pass book shows an overdraft of Rs 6,750. Check by reasoning: the bank has not yet paid the Rs 7,000 cheques and has received Rs 5,000 the firm has not recorded, both of which make the bank's overdraft smaller; it has not yet credited Rs 4,000 the firm has recorded and has charged 600 + 150 + 2,000 the firm has not recorded, which make the bank's overdraft larger. 12,000 − 7,000 − 5,000 + 4,000 + 600 + 150 + 2,000 = 6,750.

Illustration 4: Overdraft as per pass book. On 30 September the pass book showed an overdraft of Rs 6,750 with the same items. Start with 6,750 in the minus column, reverse every item's column compared with Illustration 3 (because we are now going from pass book to cash book): unpresented cheques 7,000 minus, direct deposit 5,000 minus, uncollected cheques 4,000 plus, interest 600 plus, charges 150 plus, dishonoured cheque 2,000 plus. Plus total 6,750; minus total 6,750 + 7,000 + 5,000 = 18,750; result minus 12,000: overdraft as per cash book Rs 12,000, as expected.

With Method 1 the only rule to remember beyond the basic table is: the starting overdraft goes in the minus column, and a closing minus result is an overdraft. Everything else is unchanged.

Of the items that appear in a reconciliation, some are timing differences that will vanish on their own (cheques not yet presented or collected) and some are transactions or errors the firm has simply not yet recorded (bank charges, interest, direct deposits, dishonoured cheques, standing orders, wrong amounts in the cash book). The second kind must be recorded in the cash book in any case, because until they are, the firm's books are wrong. The modern practice, and the one many boards now examine, is therefore to do the reconciliation in two steps: first bring the cash book up to date by entering all the items it has missed, arriving at the adjusted cash book balance; then prepare a short reconciliation statement from that adjusted balance, which will contain only the timing differences and any bank errors.

Step 1: Adjust the cash book. Open the bank column of the cash book with the given balance, enter on the debit side the receipts the bank has recorded but the firm has not (interest allowed, direct deposits, collections, and corrections that increase the balance), enter on the credit side the payments the bank has recorded but the firm has not (charges, interest on overdraft, dishonoured cheques, standing-order payments, and corrections that reduce the balance), and balance the column. The result is the true bank balance according to the firm's records, and it is this figure that goes into the balance sheet.

Step 2: Reconcile from the adjusted balance. Start with the adjusted cash book balance, add cheques issued but not presented, deduct cheques deposited but not collected, adjust for any errors made by the bank, and arrive at the pass book balance.

Illustration 5. The facts of Illustration 1: cash book bank balance Rs 25,000 on 31 March 2026; unpresented cheques Rs 9,000; uncollected cheques Rs 6,500; bank charges Rs 250; interest allowed Rs 400; direct deposit by Prasad Rs 3,000; dishonoured cheque Rs 1,500; insurance premium paid by bank Rs 2,000.

The pass book balance, Rs 27,150, is the same as in Illustration 1, but the reconciliation is now three lines long and the cash book is correct. Rs 24,650 is the bank balance for the balance sheet; Rs 25,000 was wrong, because it ignored the charges, the bounced cheque, the premium, the interest and Prasad's payment.

Which items go in the adjusted cash book. Everything that the firm should have recorded and has not: bank charges, interest allowed or charged, direct deposits and collections, dishonoured cheques, standing-order payments, and the correction of the firm's own errors in amount, column or side. Which items stay in the reconciliation: cheques issued but not presented, cheques deposited but not collected, and errors committed by the bank, which the firm cannot correct in its own books.

When a question says prepare an adjusted cash book and a bank reconciliation statement, both parts must be shown. When it merely says prepare a bank reconciliation statement, the single-statement method of the earlier illustrations is acceptable, but the two-step method is never wrong and gives the true balance as well.

Examination questions frequently combine timing items, unrecorded bank entries and errors in one problem. The following works such a problem from a favourable cash book balance, showing the reasoning for each item.

Illustration 6. On 31 December 2026 the bank column of the cash book of Sudha and Co showed a debit balance of Rs 18,400. On checking with the pass book the following were discovered:

• Cheques for Rs 11,200 were issued in December, of which cheques for Rs 7,700 were presented before 31 December.
• Cheques for Rs 9,600 were deposited in December, of which Rs 3,100 were credited by the bank in January.
• The bank had credited Rs 520 as interest and debited Rs 180 as charges; neither was in the cash book.
• A cheque for Rs 2,400 received from Lata was entered in the cash book as Rs 4,200.
• A cheque for Rs 1,350 issued to Gopal was entered in the cash column of the cash book.
• The bank had wrongly debited Rs 900 for a cheque of another customer.
• Dividend of Rs 1,600 was collected by the bank on the firm's behalf, not in the cash book.
• The receipts side of the bank column was undercast by Rs 100.

Working out each item

• Unpresented cheques = 11,200 − 7,700 = Rs 3,500: pass book higher; add.
• Uncollected cheques = Rs 3,100: pass book lower; deduct.
• Interest Rs 520: add. Charges Rs 180: deduct.
• Lata's cheque entered as 4,200 instead of 2,400: cash book overstated by 1,800; pass book lower; deduct 1,800.
• Gopal's cheque in the cash column: the bank column has not been reduced by 1,350 though the bank paid it; cash book overstated; deduct 1,350.
• Wrong debit by bank Rs 900: pass book lower; deduct 900.
• Dividend collected Rs 1,600: pass book higher; add.
• Receipts undercast by 100: cash book balance too low by 100; pass book higher; add 100.

The two-step version. Adjusting the cash book for items 3, 4, 5, 7 and 8: 18,400 + 520 − 180 − 1,800 − 1,350 + 1,600 + 100 = Rs 17,290, the adjusted cash book balance and the figure for the balance sheet. Reconciliation: 17,290 + 3,500 (unpresented) − 3,100 (uncollected) − 900 (bank's wrong debit) = Rs 16,790, the pass book balance. The bank's error stays in the reconciliation because the firm cannot correct the bank's books; it will be pursued with the bank.

Notice how items 1 and 2 required a subtraction before use, and how item 5 needed thought about which column was affected. These are the places where marks are separated in this question.

Advantages of preparing a bank reconciliation statement

• Detects errors in the cash book, such as wrong amounts, omitted bank charges or entries in the wrong column, so that they can be corrected promptly.
• Detects errors by the bank, such as a wrong debit, which can then be reported and reversed.
• Checks the cashier. Regular reconciliation against an independent record deters and exposes misappropriation of cheques and cash.
• Shows the true bank balance. The adjusted cash book balance, after entering the bank's charges and credits, is the figure the balance sheet must carry.
• Reveals delays. Cheques that remain unpresented or uncollected for long can be investigated; a customer's cheque that has been dishonoured is spotted at once.
• Keeps the cash book up to date with items such as interest, dividends and direct deposits that the firm would otherwise miss.

Limitations. The statement is only as good as the comparison behind it; if the same error appears in both records it is not exposed. It is a memorandum, not part of the double entry, so it does not by itself correct anything; the adjusting entries must still be made. And it reconciles only the bank column; cash in hand must be verified by counting.

Examination technique

• Read the starting balance carefully: cash book or pass book, favourable or overdraft. Write it on the correct side (favourable in plus, overdraft in minus, using Method 1).
• For each item, write in the margin whether the pass book is higher or lower than the cash book, and by how much, before placing it in a column. Compute outstanding portions where only totals and presented amounts are given.
• Do not include items that appear in both records; only unticked items cause a difference. A cheque issued and presented in the same month is not an item.
• Handle errors by identifying which record is wrong and the direction of the error.
• Label the starting and closing balances with the record's name and Dr or Cr. A closing figure that comes out negative when starting from a favourable balance is an overdraft in the other record; say so.
• If the question asks for an adjusted cash book, prepare it first, with dates and proper particulars, and reconcile from its balance; keep the timing items and bank errors for the statement.
• Total the plus and minus columns and show the subtraction clearly.

Frequent slips

Bank reconciliation is not difficult once the direction of each item is reasoned rather than memorised. Practise from all four starting points and with errors of each kind, and the question becomes routine.