Bank Reconciliation Statement When Starting With Cash Book Balance

Bank Reconciliation Statement becomes much easier when you stop treating it like a new chapter and start treating it like a comparison.

The Cash Book tells you what the business has recorded in its bank column. The Pass Book, or bank statement, tells you what the bank has recorded. Both are talking about the same bank account, but they may not show the same balance on the same day.

That difference is not automatically an error. Sometimes it is just timing.

A cheque may be issued by the business today, but the bank may pay it two days later. A cheque may be deposited today, but the bank may collect it after a short delay. The bank may charge fees or credit interest before the business updates its Cash Book.

Bank Reconciliation Statement explains these differences clearly.

Once this question becomes your habit, the plus and minus signs stop feeling random.

What a Bank Reconciliation Statement Means

A Bank Reconciliation Statement is a statement prepared to explain the difference between:

• balance as per Cash Book
• balance as per Pass Book or bank statement

It is prepared on a particular date.

The purpose is not to repeat all bank transactions. The purpose is to locate the items that appear in one record but not in the other, or appear differently in the two records.

Think of it like matching two versions of the same story.

The business says, “This is my bank balance as per my Cash Book.”

The bank says, “This is your bank balance as per our records.”

The reconciliation explains why the two answers are not the same yet.

Why Cash Book and Pass Book Balances Differ

The Cash Book and Pass Book usually differ for three reasons.

Reason	What it means	Example
Timing difference	One side has recorded the transaction, but the other side has not	Cheque issued but not presented for payment
Bank-only entry	Bank has recorded something before the business enters it	Bank charges, interest credited, direct payment
Error or omission	One side has made a mistake or left out an item	Wrong debit by bank, wrong entry in Cash Book

Most examination questions are built around timing differences and bank-only entries.

The secret is to read every item from the bank’s point of view after starting with the Cash Book balance.

First Understand the Starting Balance

When the question says “balance as per Cash Book”, it usually means the bank column balance in the Cash Book.

There are two possibilities.

Cash Book position	Meaning
Debit balance as per Cash Book	Favourable bank balance, money is available in bank
Credit balance as per Cash Book	Bank overdraft, the business owes the bank

Most basic questions start with a favourable Cash Book balance. In that case, you begin with the debit balance as per Cash Book and adjust it to reach the balance as per Pass Book.

For now, let us focus on the most common version: starting with favourable balance as per Cash Book.

The Main Rule When Starting With Cash Book Balance

Start with the balance as per Cash Book.

Then ask whether each item makes the Pass Book balance higher or lower than that Cash Book balance.

If the item makes Pass Book balance higher	Add it
If the item makes Pass Book balance lower	Deduct it

That is the whole logic.

Do not try to memorise every item blindly. Memorisation breaks when the wording changes. The better method is to understand what has happened in the Cash Book and what has happened in the Pass Book.

Items Added to Cash Book Balance

Add an item when the Pass Book balance is higher than the Cash Book balance.

This usually happens when the Cash Book has shown less bank balance, or the Pass Book has shown more bank balance.

Cheques Issued but Not Presented for Payment

This is one of the most important adjustments.

Suppose the business issues a cheque of Rs. 5,000 to a supplier.

The business immediately records the payment in the Cash Book. So the Cash Book bank balance goes down.

But if the supplier has not yet presented the cheque to the bank, the bank has not paid the money yet. So the Pass Book balance has not gone down.

That means the Pass Book balance is higher than the Cash Book balance.

So, when starting with Cash Book balance:

Item	Treatment
Cheques issued but not presented for payment	Add

Interest Credited by Bank

Sometimes the bank credits interest before the business records it in the Cash Book.

The bank has already increased the Pass Book balance. The Cash Book has not yet increased.

So the Pass Book balance is higher.

Item	Treatment
Interest credited by bank but not entered in Cash Book	Add

The same logic applies to dividends collected by the bank, direct deposits by customers, or any amount credited by the bank but not yet recorded in the Cash Book.

Direct Deposit by Customer

Suppose a customer directly deposits Rs. 8,000 into the business bank account.

The bank records the deposit immediately. But the business may come to know only after checking the bank statement.

Pass Book has increased. Cash Book has not increased yet.

So, starting with Cash Book balance, add the amount.

Item	Treatment
Amount directly deposited by customer into bank	Add

Wrong Credit by Bank

If the bank wrongly credits the business account, the Pass Book balance becomes higher than it should be.

If the question asks you to reconcile with the Pass Book as it stands, this wrong credit is added when starting with Cash Book balance.

Item	Treatment
Wrong credit by bank	Add

This does not mean the wrong credit is correct. It only explains why the Pass Book currently shows a higher balance.

Items Deducted From Cash Book Balance

Deduct an item when the Pass Book balance is lower than the Cash Book balance.

This usually happens when the Cash Book has shown more bank balance, or the Pass Book has shown less bank balance.

Cheques Deposited but Not Credited by Bank

Suppose the business deposits a cheque of Rs. 10,000 into the bank.

The business records the deposit in the Cash Book. So the Cash Book bank balance goes up.

But if the bank has not yet collected and credited the cheque, the Pass Book balance has not gone up.

That means the Pass Book balance is lower than the Cash Book balance.

So, when starting with Cash Book balance:

Item	Treatment
Cheques deposited but not credited by bank	Deduct

This is the opposite of cheques issued but not presented.

Cheques Deposited and Dishonoured

If a cheque was deposited and entered in the Cash Book, the business increased its bank balance.

But if the cheque is later dishonoured, the bank will not actually collect the money. The Pass Book will not show that amount as a successful deposit, or it may reverse it.

So the Pass Book balance is lower than the Cash Book balance.

Item	Treatment
Cheque deposited but dishonoured, not yet recorded in Cash Book	Deduct

Students sometimes forget dishonour because they treat it like an ordinary deposit. But dishonour cancels the benefit of the deposit.

Bank Charges

Bank charges are often recorded by the bank before the business records them.

The bank deducts the charges from the account. So the Pass Book balance goes down.

The Cash Book has not yet recorded the expense, so it still shows a higher balance.

Starting with Cash Book balance, deduct bank charges.

Item	Treatment
Bank charges not entered in Cash Book	Deduct

Direct Payment Made by Bank

The bank may make payments on behalf of the business under standing instructions.

Examples include:

• insurance premium
• rent
• loan instalment
• subscription
• electricity bill

The bank has paid the amount, so the Pass Book balance has gone down. If the business has not recorded it yet, the Cash Book balance is still higher.

So deduct the amount.

Item	Treatment
Direct payment by bank not entered in Cash Book	Deduct

Interest Charged by Bank

If the bank charges interest, especially interest on overdraft or loan, it reduces the bank balance.

The Pass Book balance becomes lower than the Cash Book balance.

So it is deducted.

Item	Treatment
Interest charged by bank not entered in Cash Book	Deduct

Wrong Debit by Bank

If the bank wrongly debits the business account, the Pass Book balance becomes lower.

When starting with Cash Book balance, deduct the wrong debit if the statement is being prepared to match the Pass Book balance as shown.

Item	Treatment
Wrong debit by bank	Deduct

Again, this does not make the bank’s error correct. It only explains the difference.

A Simple Working Rule

Here is the easiest way to decide the treatment.

Question to ask	If answer is yes	Treatment from Cash Book balance
Has Pass Book recorded more than Cash Book?	Pass Book is higher	Add
Has Cash Book recorded a decrease that Pass Book has not recorded?	Pass Book is higher	Add
Has Cash Book recorded more than Pass Book?	Pass Book is lower	Deduct
Has Pass Book recorded a decrease that Cash Book has not recorded?	Pass Book is lower	Deduct

This one sentence is more useful than memorising a long list without understanding.

Solved Example: Starting With Cash Book Balance

Prepare a Bank Reconciliation Statement from the following information:

Balance as per Cash Book on 31 March: Rs. 25,000

Additional information:

• cheques issued but not presented for payment: Rs. 7,500
• cheques deposited but not credited by bank: Rs. 10,000
• bank credited interest not entered in Cash Book: Rs. 800
• bank charges not entered in Cash Book: Rs. 350
• insurance premium paid by bank not entered in Cash Book: Rs. 1,200

Step 1: Start With Cash Book Balance

Particulars	Amount
Balance as per Cash Book	25,000

Step 2: Add Items That Make Pass Book Higher

Cheques issued but not presented are added because the Cash Book has already reduced the balance, but the bank has not reduced it yet.

Interest credited by bank is added because the Pass Book has increased, but the Cash Book has not.

Particulars	Amount
Add: Cheques issued but not presented for payment	7,500
Add: Interest credited by bank	800

Step 3: Deduct Items That Make Pass Book Lower

Cheques deposited but not credited are deducted because the Cash Book has increased, but the bank has not.

Bank charges and insurance premium are deducted because the bank has reduced the balance, but the Cash Book has not.

Particulars	Amount
Less: Cheques deposited but not credited by bank	10,000
Less: Bank charges	350
Less: Insurance premium paid by bank	1,200

Step 4: Present the Final Statement

Bank Reconciliation Statement	Amount
Balance as per Cash Book	25,000
Add: Cheques issued but not presented for payment	7,500
Add: Interest credited by bank	800
	33,300
Less: Cheques deposited but not credited by bank	10,000
Less: Bank charges	350
Less: Insurance premium paid by bank	1,200
Balance as per Pass Book	21,750

So, the balance as per Pass Book is Rs. 21,750.

What if the Question Starts With Overdraft as per Cash Book?

Sometimes the question starts with overdraft as per Cash Book instead of favourable balance.

An overdraft means the bank balance is negative. The business owes money to the bank.

This is where signs confuse many students.

The easiest method is to think in terms of overdraft:

If the item reduces overdraft	Deduct from overdraft
If the item increases overdraft	Add to overdraft

For example, if cheques issued are not presented, the bank has not yet paid them. So the overdraft as per Pass Book is less than the overdraft as per Cash Book. Deduct the amount from overdraft.

If bank charges are not recorded in the Cash Book, the bank has already increased the amount owed. So the overdraft as per Pass Book is more. Add the bank charges to overdraft.

Here is a quick example:

Overdraft as per Cash Book: Rs. 12,000

Additional information:

• cheques issued but not presented: Rs. 5,000
• cheques deposited but not credited: Rs. 4,000
• bank charges: Rs. 500
• interest credited by bank: Rs. 200

Bank Reconciliation Statement	Amount
Overdraft as per Cash Book	12,000
Add: Cheques deposited but not credited	4,000
Add: Bank charges	500
	16,500
Less: Cheques issued but not presented	5,000
Less: Interest credited by bank	200
Overdraft as per Pass Book	11,300

So, overdraft as per Pass Book is Rs. 11,300.

Should You Prepare an Amended Cash Book First?

Some questions include items that should be recorded in the Cash Book before preparing the Bank Reconciliation Statement.

These usually include:

• bank charges
• interest credited by bank
• direct deposits by customers
• direct payments made by bank
• dishonoured cheques
• errors in the Cash Book

These are not just timing differences. They are items that the business needs to record in its own books.

If the question asks for an amended Cash Book, first update the Cash Book for these items. Then prepare the Bank Reconciliation Statement using the amended Cash Book balance.

If the question only asks for a Bank Reconciliation Statement, follow the information and format expected in the question.

Item type	Usually corrected in amended Cash Book?
Bank charges	Yes
Interest credited by bank	Yes
Direct payment by bank	Yes
Direct deposit by customer	Yes
Cheques issued but not presented	No
Cheques deposited but not credited	No

The reason is simple. Cheques issued but not presented and cheques deposited but not credited are timing differences. Nothing is wrong in the Cash Book. The bank record is just not updated yet.

Common Mistakes Students Make

1. Treating Every Cheque the Same Way

Cheques issued and cheques deposited are opposites.

Cheque type	What Cash Book has done	What bank has not done	Treatment from Cash Book balance
Cheque issued but not presented	Reduced bank balance	Not reduced it yet	Add
Cheque deposited but not credited	Increased bank balance	Not increased it yet	Deduct

If you remember only “cheque means add” or “cheque means deduct”, you will make mistakes. Always check whether the cheque was issued or deposited.

2. Ignoring the Word “Not”

The word “not” changes the whole treatment.

“Cheque deposited and credited by bank” is not an adjustment if both records already agree.

“Cheque deposited but not credited by bank” is an adjustment because the Cash Book has recorded it but the Pass Book has not.

Read the complete line before deciding.

3. Forgetting Bank-Only Entries

Bank charges, interest, direct payments, and direct deposits often appear first in the Pass Book.

If they are not entered in the Cash Book, they must be adjusted.

4. Mixing Up Balance and Overdraft

Starting with favourable Cash Book balance and starting with overdraft as per Cash Book are not the same.

In a favourable balance question, you are trying to reach another positive balance.

In an overdraft question, you are adjusting an amount owed to the bank.

Whenever you see “overdraft”, write the word clearly in your working. It prevents careless sign errors.

5. Writing the Final Balance Without Its Source

Do not write only “Balance Rs. 21,750”.

Write:

Balance as per Pass Book: Rs. 21,750

or

Overdraft as per Pass Book: Rs. 11,300

The final label matters because a bank balance and a bank overdraft mean opposite things.

A Quick Revision Table

Use this table when the question starts with favourable balance as per Cash Book.

Adjustment	Treatment
Cheques issued but not presented for payment	Add
Cheques deposited but not credited by bank	Deduct
Cheques deposited and dishonoured, not entered in Cash Book	Deduct
Bank charges not entered in Cash Book	Deduct
Interest charged by bank not entered in Cash Book	Deduct
Direct payment by bank not entered in Cash Book	Deduct
Interest credited by bank not entered in Cash Book	Add
Dividend collected by bank not entered in Cash Book	Add
Direct deposit by customer not entered in Cash Book	Add
Wrong credit by bank	Add
Wrong debit by bank	Deduct

This table is useful for revision, but do not depend on it alone. The real understanding comes from asking whether the Pass Book balance becomes higher or lower than the Cash Book balance.

How to Practise Bank Reconciliation Statement

Do not practise BRS by only reading solutions.

Use a three-step method.

Step 1: Mark the Starting Point

Circle the starting balance:

• balance as per Cash Book
• overdraft as per Cash Book
• balance as per Pass Book
• overdraft as per Pass Book

Your treatment depends on the starting point.

Step 2: Label Every Item

Next to each item, write one small note:

• Pass Book higher
• Pass Book lower
• overdraft higher
• overdraft lower

This is better than jumping straight to plus and minus.

Step 3: Prepare a Clean Statement

After your logic is clear, prepare the statement in proper format.

Use “Add” and “Less” neatly. Put the final balance with its full name.

Final Takeaway

Bank Reconciliation Statement is not difficult because the concept is hard. It is difficult because small words change the treatment.

Issued is different from deposited.

Balance is different from overdraft.

Recorded is different from not recorded.

Starting with Cash Book balance, your job is to travel from the business record to the bank record. If an item makes the Pass Book balance higher, add it. If it makes the Pass Book balance lower, deduct it.

Keep that one route clear, and Bank Reconciliation Statement becomes one of the most logical topics in Accountancy.

Frequently Asked Questions

What is a Bank Reconciliation Statement?

A Bank Reconciliation Statement explains the difference between the balance shown by the Cash Book and the balance shown by the Pass Book or bank statement on a particular date.

When starting with Cash Book balance, do we add cheques issued but not presented?

Yes. Cheques issued but not presented are added because the Cash Book has already reduced the bank balance, but the bank has not reduced it yet. So the Pass Book balance is higher.

When starting with Cash Book balance, do we deduct cheques deposited but not credited?

Yes. Cheques deposited but not credited are deducted because the Cash Book has already increased the bank balance, but the bank has not credited the amount yet. So the Pass Book balance is lower.

Why are bank charges deducted from Cash Book balance?

Bank charges are deducted because the bank has already reduced the account balance, but the Cash Book may not have recorded the charge yet.

Why is interest credited by bank added?

Interest credited by bank is added because the bank has increased the Pass Book balance, but the Cash Book has not recorded the income yet.

What is the difference between balance as per Cash Book and overdraft as per Cash Book?

Balance as per Cash Book usually means a favourable bank balance. Overdraft as per Cash Book means the business owes money to the bank. The adjustment logic changes because overdraft is a negative bank position.

Are all differences between Cash Book and Pass Book errors?

No. Many differences are only timing differences. For example, a cheque may be recorded in the Cash Book today but cleared by the bank later.

Should bank charges be entered in an amended Cash Book?

Yes, if the question asks for an amended Cash Book. Bank charges are bank-only entries that the business should record in its Cash Book before preparing the final reconciliation.