Bank Reconciliation Statement
Why Does a Difference Occur?
The cash book records transactions from the business’s perspective, while the bank statement records them from the bank’s perspective. Timing differences and entries recorded by one side first can therefore produce different balances.
Common Causes
- Cheques issued but not yet presented for payment
- Cheques deposited but not yet collected
- Bank charges entered by the bank first
- Interest credited by the bank
- Direct deposits or payments made by the bank
- Errors in the cash book or bank statement
Preparation Method
Start with the balance specified in the question—cash book or pass book—and adjust each item according to whether it increases or decreases the balance being reconciled. The sign depends on the starting balance, so students should avoid memorising a universal plus/minus table without identifying the starting point.
Explained MCQs
- A cheque issued by the business has not yet been presented. Why can this cause a difference?
Answer: The business may already have reduced its cash-book balance while the bank has not yet reduced the bank statement balance.
Explanation: The two records recognise the transaction at different times. - Why is a BRS prepared?
Answer: To explain and reconcile differences between the cash-book bank balance and bank statement balance.
Explanation: It helps identify timing differences and possible errors.
Practice
Given a starting cash-book balance and five reconciling items, classify each item first as “cash book already adjusted / bank statement already adjusted / timing difference,” then calculate the reconciled balance. This two-step method reduces sign errors.