FA-1 BANK RECONCILIATION STATEMENT (BRS)
LO1 SPECIFIC GUIDANCE RELATED TO THIS CHAPTER
This chapter is speci�ically pertaining to the bank balance of the business deposited into the bank. Normally
business has a bank account through which it receipts amounts from the customers or any other receipt (receipt
from sale of asset etc.) and made payments to suppliers or any other payments (i.e., salaries, petty cash etc.).
Business and bank both maintain separate books of accounts for internal purposes.
Exam Tips:
- In this chapter we always think with the perspective of business rather than bank.
- Ledger of bank prepared by business is called cash/bank book. Few further names are Business ledger,
bank column, bank account.
- Ledger of business prepared by the bank is called bank statement.
- If all the transactions are correctly recorded by both business and bank then balance as per bank
statement will be equal to the bank account but opposite in nature.
- Nature of both cash/bank book and bank statement is different just like if someone is provided loan to
someone else then one party is recorded it as an asset and the other party is recorded it as a liability. It
is further elaborated with the help of below examples.
LO 2 METHODS OF RECEIPTS AND PAYMENTS
There are many different methods by which a business might make payment to suppliers and receive payment
from customers. These methods may include:
Cash (includes money in hand and petty cash), cheques, Pay order, Bank Transfer, Credit and debit card, Online
payments, Standing order, Direct debit and credit etc.
2.1 Pay order
Issued by the bank on behalf of customer stating an order to pay a speci�ied amount to a speci�ied
person.
A pay order is pre-printed with the word "Not Negotiable". There is no chance of dishonouring as the
amount is prepaid. Once issued pay order is valid for certain period.
2.2 Format and understanding of Cash book (Assuming same data in cash book and bank
statement)
Dr. Cash Book (Bank Column) Cr.
Date Particulars Rs. Date Particulars Rs.
1 Jan b/d 300,000 6 Jan Supplier Y 900,000
3 Jan Customer A 1,200,000 10 Jan Rent 400,000
21 Jan Customer B 1,300,000 23 Jan Supplier Z 1,000,000
31 Jan Bank charges 3,000
c/d 497,000
2,800,000 2,800,000
Exam Tips (Related to Cash/Bank Book)
- In cash/bank book receipts should be presented in the debit side (left hand side) of the book and payments
should be presented on the credit side (right hand side) of the book.
- If cash/bank book has a debit balance then normally, it means receipts > payments.
- If cash/bank book has a credit balance then normally, it means Payments > receipts.
- Balance of the cash/bank book is positive/favorable if it is showing debit balance.
- Balance of the cash/bank book is negative/un favorable/overdraft/overdrawn if it is showing credit
balance.
2.3 Format and Understanding of Bank Statement
Date Details Dr. Cr. Balance Rs
1 Jan Opening balance 300,000 Cr.
3 Jan Deposit: A 1,200,000 1,500,000 Cr.
6 Jan Withdrawal: Y 900,000 600,000 Cr.
10 Jan Withdrawal: Rent 400,000 200,000 Cr.
H M Umer
,FA-1 BANK RECONCILIATION STATEMENT (BRS)
21 Jan Deposit: B 1,300,000 1,500,000 Cr.
23 Jan Withdrawal: Z 1,000,000 500,000 Cr.
31 Jan Bank charges 3,000 497,000 Cr.
Exam Tips
- Cash book is prepared by the business accountant (business document) while bank statement is prepared
by the bank (bank document)
- Both cash book and bank statement has opposite nature.
- All the deposits are recorded on the debit side of the cash book (asset increase w.r.t business) while all
deposits are recorded on the credit side of the bank statement (Due to deposits liability of bank towards
customer/account holder is increased)
- All the payments are recorded on the credit side of the cash book (asset decrease w.r.t business) while
all payments are recorded on the debit side of the bank statement (Due to payments liability of bank
towards customer/account holder is decreased.)
- Above mentioned example is clearly shown that all debit items in the cash book are presented on the credit
side of the bank statement and vice versa.
- After every transaction balance is updated in the bank statement (just like running account balance).
- For each separate account there is separate bank statement and cash book.
LO3 REASONS FOR DIFFERENCE OF BALANCE AS PER CASH BOOK AND BANK STATEMENT
Sometimes, difference may arise and balance as per business record (cash/bank book) is not agreed with the
balance as per the records of the bank (bank statement)
1. Error made by business
Bank charges, interest, etc. may appear on bank statement but not recorded (complete omission) by the
business and record when accountant of the business receives and reviews the bank statement.
Error made by business shall be incorporated in the adjusted cash book. At period end adjusted cash
book will be prepared and incorporate adjustments. After incorporation of all the errors/adjustment
balance as per adjusted cash book is available.
Following is the list (not exhaustive) of errors made by business & that require adjustment in the cash
book
- Business failed to record bank charges, interest expense.
So these need to be recorded on the credit (payment side) of the adjusted cash book
- Interest/Dividend income
If not recorded by the business, then need to be recorded on the debit (receipt side) of the
adjusted cash book.
- Standing orders payment
Instruction by business/account holder to make speci�ic amount of payment to any other
party on regular basis (i.e., after each month/quarterly basis etc.,). So bank made payment as
per the instructions but business failed to record it. So, it should be recorded on the credit
(payment side) of the adjusted cash book.
- Direct debit
Business/Account-holder allows another party to directly collect varying amounts on regular
basis from its bank. Used for monthly utility bills or credit card bills. This should be recorded
on credit (payment side) of the adjusted cash book.
- Direct Credit
Amounts directly credited into bank account by another party. E-g., a customer
deposits/transfers the amount due directly into the bank account of the business. This should
be recorded on debit (receipt side) of the adjusted cash book.
- Dishonoured cheques/Cancelled cheque
Due to incorrect name, incorrect amount or signature issue etc. bank will not accept the
cheque so, these should be reversed in the adjusted cash book.
H M Umer
, FA-1 BANK RECONCILIATION STATEMENT (BRS)
In case cheque received from customers is initially recorded on the receipt side of cash book
but due to reversal should be recorded on the payment side of adjusted cash book while if issue
to suppliers etc., then initially these are recorded on the payment side while on reversal, these
are recorded on receipt side.
- Casting, Balancing etc., Errors in cash book
These need to be adjusted on receipt side or payment side accordingly.
If posted with the wrong/incorrect amount i.e., bank charges by Rs. 23 instead of 32. It
means payment (credit side) is understated so, need to record Rs. 9 (understated amount of Rs.
9 on credit side of the cash/bank book).
When an item is incorrectly recorded on the wrong side of cash book (debit instead of credit
or vice versa), the correction is made by adjusting twice the amount on correct side.
EXAMPLE
A payment of Rs. 1,300 has been wrongly recorded on the receipt side of the cash book. So, it
should be recorded by Rs. 2,600 on the on the payment (credit side) of the cash book.
- Post-dated cheques
A post-dated cheque is a cheque written with a future date, meaning it cannot be cashed or
deposited until that date. Reversal should be made in the adjusted cash book if have been
included in the cash book.
- Time-barred cheques
A cheque becomes time-barred after six months have passed from the date mentioned on it
and the bank might not pay it anymore. Therefore, these are cancelled (either recorded on the
debit or credit side) and reversal is to be recorded in the adjusted cashbook.
Exam Tips
All errors/adjustments made by business are incorporated into the adjusted cash book.
What is Adjusted cash book
This is the balance as per cash book after incorporating all the errors and omissions in the cash book
have been corrected and adjusted. This is also called true balance of cash book and this is the amount
to be presented in the statement of �inancial position.
Format of Adjusted Cash book
Balance as per cash book is given in the question and there’s some errors that require adjustment in the
cash book. So, balance given (un-adjusted) is written just like opening balance (b/f) and incorporate in
it the given adjustments.
Cash Book – Adjusted
Dr. Cr.
(Rs.) (Rs.)
Unadjusted closing bal. (Dr. balance) xxx Unadjusted closing bal. (Cr. Balance) xxx
Interest income/ Dividend income xxx Bank charges/ bank commission xxx
Credit transfer xxx Interest expense/ Mark-up expense xxx
Debit side understated/ Credit side overstated xxx Expense (Standing order/ Direct debit) xxx
Creditor (time barred cheques) xxx Debtor (Dishonour) xxx
Credit side understated/ Debit side xxx
overstated
Debited closing balance (Cr balance) xxx Adjusted closing balance (Dr. balance) xxx
2- Error made by bank
Any amount incorrectly recorded by the bank, rare but may happen
3- Timing difference
- Un-presented cheques.
Cheque credited by us but not debited by the bank.
Cheque clearing process may require few days. So, difference arises in b/w cash book and bank
statement.
H M Umer
LO1 SPECIFIC GUIDANCE RELATED TO THIS CHAPTER
This chapter is speci�ically pertaining to the bank balance of the business deposited into the bank. Normally
business has a bank account through which it receipts amounts from the customers or any other receipt (receipt
from sale of asset etc.) and made payments to suppliers or any other payments (i.e., salaries, petty cash etc.).
Business and bank both maintain separate books of accounts for internal purposes.
Exam Tips:
- In this chapter we always think with the perspective of business rather than bank.
- Ledger of bank prepared by business is called cash/bank book. Few further names are Business ledger,
bank column, bank account.
- Ledger of business prepared by the bank is called bank statement.
- If all the transactions are correctly recorded by both business and bank then balance as per bank
statement will be equal to the bank account but opposite in nature.
- Nature of both cash/bank book and bank statement is different just like if someone is provided loan to
someone else then one party is recorded it as an asset and the other party is recorded it as a liability. It
is further elaborated with the help of below examples.
LO 2 METHODS OF RECEIPTS AND PAYMENTS
There are many different methods by which a business might make payment to suppliers and receive payment
from customers. These methods may include:
Cash (includes money in hand and petty cash), cheques, Pay order, Bank Transfer, Credit and debit card, Online
payments, Standing order, Direct debit and credit etc.
2.1 Pay order
Issued by the bank on behalf of customer stating an order to pay a speci�ied amount to a speci�ied
person.
A pay order is pre-printed with the word "Not Negotiable". There is no chance of dishonouring as the
amount is prepaid. Once issued pay order is valid for certain period.
2.2 Format and understanding of Cash book (Assuming same data in cash book and bank
statement)
Dr. Cash Book (Bank Column) Cr.
Date Particulars Rs. Date Particulars Rs.
1 Jan b/d 300,000 6 Jan Supplier Y 900,000
3 Jan Customer A 1,200,000 10 Jan Rent 400,000
21 Jan Customer B 1,300,000 23 Jan Supplier Z 1,000,000
31 Jan Bank charges 3,000
c/d 497,000
2,800,000 2,800,000
Exam Tips (Related to Cash/Bank Book)
- In cash/bank book receipts should be presented in the debit side (left hand side) of the book and payments
should be presented on the credit side (right hand side) of the book.
- If cash/bank book has a debit balance then normally, it means receipts > payments.
- If cash/bank book has a credit balance then normally, it means Payments > receipts.
- Balance of the cash/bank book is positive/favorable if it is showing debit balance.
- Balance of the cash/bank book is negative/un favorable/overdraft/overdrawn if it is showing credit
balance.
2.3 Format and Understanding of Bank Statement
Date Details Dr. Cr. Balance Rs
1 Jan Opening balance 300,000 Cr.
3 Jan Deposit: A 1,200,000 1,500,000 Cr.
6 Jan Withdrawal: Y 900,000 600,000 Cr.
10 Jan Withdrawal: Rent 400,000 200,000 Cr.
H M Umer
,FA-1 BANK RECONCILIATION STATEMENT (BRS)
21 Jan Deposit: B 1,300,000 1,500,000 Cr.
23 Jan Withdrawal: Z 1,000,000 500,000 Cr.
31 Jan Bank charges 3,000 497,000 Cr.
Exam Tips
- Cash book is prepared by the business accountant (business document) while bank statement is prepared
by the bank (bank document)
- Both cash book and bank statement has opposite nature.
- All the deposits are recorded on the debit side of the cash book (asset increase w.r.t business) while all
deposits are recorded on the credit side of the bank statement (Due to deposits liability of bank towards
customer/account holder is increased)
- All the payments are recorded on the credit side of the cash book (asset decrease w.r.t business) while
all payments are recorded on the debit side of the bank statement (Due to payments liability of bank
towards customer/account holder is decreased.)
- Above mentioned example is clearly shown that all debit items in the cash book are presented on the credit
side of the bank statement and vice versa.
- After every transaction balance is updated in the bank statement (just like running account balance).
- For each separate account there is separate bank statement and cash book.
LO3 REASONS FOR DIFFERENCE OF BALANCE AS PER CASH BOOK AND BANK STATEMENT
Sometimes, difference may arise and balance as per business record (cash/bank book) is not agreed with the
balance as per the records of the bank (bank statement)
1. Error made by business
Bank charges, interest, etc. may appear on bank statement but not recorded (complete omission) by the
business and record when accountant of the business receives and reviews the bank statement.
Error made by business shall be incorporated in the adjusted cash book. At period end adjusted cash
book will be prepared and incorporate adjustments. After incorporation of all the errors/adjustment
balance as per adjusted cash book is available.
Following is the list (not exhaustive) of errors made by business & that require adjustment in the cash
book
- Business failed to record bank charges, interest expense.
So these need to be recorded on the credit (payment side) of the adjusted cash book
- Interest/Dividend income
If not recorded by the business, then need to be recorded on the debit (receipt side) of the
adjusted cash book.
- Standing orders payment
Instruction by business/account holder to make speci�ic amount of payment to any other
party on regular basis (i.e., after each month/quarterly basis etc.,). So bank made payment as
per the instructions but business failed to record it. So, it should be recorded on the credit
(payment side) of the adjusted cash book.
- Direct debit
Business/Account-holder allows another party to directly collect varying amounts on regular
basis from its bank. Used for monthly utility bills or credit card bills. This should be recorded
on credit (payment side) of the adjusted cash book.
- Direct Credit
Amounts directly credited into bank account by another party. E-g., a customer
deposits/transfers the amount due directly into the bank account of the business. This should
be recorded on debit (receipt side) of the adjusted cash book.
- Dishonoured cheques/Cancelled cheque
Due to incorrect name, incorrect amount or signature issue etc. bank will not accept the
cheque so, these should be reversed in the adjusted cash book.
H M Umer
, FA-1 BANK RECONCILIATION STATEMENT (BRS)
In case cheque received from customers is initially recorded on the receipt side of cash book
but due to reversal should be recorded on the payment side of adjusted cash book while if issue
to suppliers etc., then initially these are recorded on the payment side while on reversal, these
are recorded on receipt side.
- Casting, Balancing etc., Errors in cash book
These need to be adjusted on receipt side or payment side accordingly.
If posted with the wrong/incorrect amount i.e., bank charges by Rs. 23 instead of 32. It
means payment (credit side) is understated so, need to record Rs. 9 (understated amount of Rs.
9 on credit side of the cash/bank book).
When an item is incorrectly recorded on the wrong side of cash book (debit instead of credit
or vice versa), the correction is made by adjusting twice the amount on correct side.
EXAMPLE
A payment of Rs. 1,300 has been wrongly recorded on the receipt side of the cash book. So, it
should be recorded by Rs. 2,600 on the on the payment (credit side) of the cash book.
- Post-dated cheques
A post-dated cheque is a cheque written with a future date, meaning it cannot be cashed or
deposited until that date. Reversal should be made in the adjusted cash book if have been
included in the cash book.
- Time-barred cheques
A cheque becomes time-barred after six months have passed from the date mentioned on it
and the bank might not pay it anymore. Therefore, these are cancelled (either recorded on the
debit or credit side) and reversal is to be recorded in the adjusted cashbook.
Exam Tips
All errors/adjustments made by business are incorporated into the adjusted cash book.
What is Adjusted cash book
This is the balance as per cash book after incorporating all the errors and omissions in the cash book
have been corrected and adjusted. This is also called true balance of cash book and this is the amount
to be presented in the statement of �inancial position.
Format of Adjusted Cash book
Balance as per cash book is given in the question and there’s some errors that require adjustment in the
cash book. So, balance given (un-adjusted) is written just like opening balance (b/f) and incorporate in
it the given adjustments.
Cash Book – Adjusted
Dr. Cr.
(Rs.) (Rs.)
Unadjusted closing bal. (Dr. balance) xxx Unadjusted closing bal. (Cr. Balance) xxx
Interest income/ Dividend income xxx Bank charges/ bank commission xxx
Credit transfer xxx Interest expense/ Mark-up expense xxx
Debit side understated/ Credit side overstated xxx Expense (Standing order/ Direct debit) xxx
Creditor (time barred cheques) xxx Debtor (Dishonour) xxx
Credit side understated/ Debit side xxx
overstated
Debited closing balance (Cr balance) xxx Adjusted closing balance (Dr. balance) xxx
2- Error made by bank
Any amount incorrectly recorded by the bank, rare but may happen
3- Timing difference
- Un-presented cheques.
Cheque credited by us but not debited by the bank.
Cheque clearing process may require few days. So, difference arises in b/w cash book and bank
statement.
H M Umer
