PREPARATION OF BANK RECONCILIATION STATEMENT :-

To reconcile the bank balance as shown in the pass book with the balance shown by the cash book, Bank Reconciliation Statement is prepared. After identifying the reasons of difference, the Bank Reconciliation statement is prepared without making change in the cash book balance. We may have the following different situations with regard to balances while preparing the Bank Reconciliation statement. These are:

1. Favourable balances

(a) Debit balance as per cash book is given and the balance as per pass book is to be ascertained.

(b) Credit balance as per pass book is given and the balance as per cash book is to be ascertained.

2. Unfavourable balance/overdraft balance

(a) Credit balance as per cash book (i.e. overdraft) is given and the balance as per pass book is to be ascertained.

(b) Debit balance as per pass book (i.e. overdraft) is given and the balance as per cash book is to be ascertained.

The following steps are taken to prepare the bank reconciliation statement:

(i) Favourable balances : When debit balance as per cash book or credit balance as per pass book is given :

(a) Take balance as a starting point say Balance as per Cash Book.

(b) Add all transactions that have resulted in increasing the balance of the pass book.

(c) Deduct all transactions that have resulted in decreasing the balance of pass book.

(d) Extract the net balance shown by the statement which should be the same as shown in the pass book.

In case balance as per pass book is taken as starting point all transactions that have resulted in increasing the balance of the Cash book will be added and all transactions that have resulted in decreasing the balance of Cash book will be deducted. Now extract the net balance shown by the statement which should be the same as per the Cash book.