Bank Reconciliation Statement (BRS)

Prerequisites: Module 20 — Multiple Price Levels

Learning Objectives

By the end of this module, you will be able to:

• Explain why Cash Book and Pass Book balances differ
• Identify causes of differences: timing vs errors
• Prepare a Bank Reconciliation Statement
• Use Tally's bank reconciliation feature

Why Balances Differ

Sunrise Retail maintains a Cash Book (SBI Current Account ledger in Tally) — a record of all bank transactions as recorded by the company.

The bank maintains a Pass Book (bank statement) — a record of all transactions as seen by the bank.

Both should show the same balance. But on any given date, they almost never match. Here is why:

Category 1: Timing Differences (Normal — Temporary)

These differences exist because the bank processes transactions with a delay, or the company records transactions the bank hasn't processed yet.

These differences resolve themselves when the bank processes the transaction. The BRS captures them to explain the gap.

Category 2: Errors (Must Be Corrected)

• Bank debited wrong account
• Company recorded wrong amount in Cash Book
• Duplicate entry in either book

Errors require correction — in the company's books (journal entry) or by reporting to the bank.

BRS Adjustments Flow

Company's Cash Book Balance (Starting Point)
        │
        ▼
ADD: Items in Bank but not in Cash Book (positive for company)
  └─ Interest credited by bank but not recorded
  └─ Direct deposits not yet entered
        │
        ▼
LESS: Items in Bank but not in Cash Book (negative for company)
  └─ Bank charges debited but not recorded
  └─ ECS/standing instructions not recorded
        │
        ▼
ADD: Items in Cash Book but not yet in Bank (Cash Book reduced early)
  └─ Cheques issued (CB already reduced, bank not yet)
        │
        ▼
LESS: Items in Cash Book but not yet in Bank (CB increased early)
  └─ Deposits not yet credited by bank
        │
        ▼
Pass Book Balance (Ending Point — must match bank statement)

Format of BRS

There are two formats. We use the most common one — starting from Cash Book balance and arriving at Pass Book balance:

Bank Reconciliation Statement as on [Date]

Cash Book (Company's) Balance            ₹X
Add: Cheques deposited but not yet
     credited by bank                   +₹A
Less: Cheques issued but not yet
      presented for payment             −₹B
Add: Bank directly credited (interest,
     dividends) not in Cash Book        +₹C
Less: Bank directly debited (charges,
      ECS) not in Cash Book             −₹D
                                        ______
Pass Book (Bank's) Balance               ₹Y

The Two-Book Problem — Visual

The classic confusion: both books record the same money, but they record it at different times. This visual shows how the same April 8 rent cheque appears differently:

━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
       CASH BOOK (Sunrise Retail's Tally)  vs  PASS BOOK (SBI)
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━

Apr 8 — Kiran signs cheque ₹35,400 for rent and hands it to landlord

  CASH BOOK                          PASS BOOK
  Apr 8  Rent  Cr ₹35,400 ✓         (nothing yet — cheque not deposited)
  Balance: ₹8,00,000 − ₹35,400      Balance: ₹8,00,000
         = ₹7,64,600                         = ₹8,00,000
                    ↑                                ↑
          LOWER by ₹35,400                    HIGHER by ₹35,400

  (landlord deposits cheque at his bank on Apr 10)

Apr 10 — SBI processes the cheque, debits Sunrise Retail's account

  CASH BOOK                          PASS BOOK
  (already recorded Apr 8)          Apr 10  Rent  Dr ₹35,400 ✓
  Balance: ₹7,64,600                Balance: ₹7,64,600
                    ↑                                ↑
              Both match NOW — ₹35,400 gap closed after bank clears
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━

RULE: If CB < PB for a cheque → CB already reduced (early recording)
      BRS adds back the uncleared cheque to reach PB figure.

Sunrise Retail — Case Study Application

Step 1: Calculate Cash Book Balance (Company's Books)

Starting with opening SBI balance: ₹8,00,000

All April transactions affecting SBI Current Account:

Cash Book Balance (Apr 30):

₹8,00,000 + ₹5,66,400 − ₹35,400 − ₹5,00,000 − ₹1,50,000 = ₹6,81,000

(Note: Electricity ₹8,500 was paid in cash, not bank. So not affecting SBI.)

Step 2: Identify the Differences

For this BRS, the timing difference items are:

• Item 1: Rent cheque ₹35,400 — issued in books but not yet cleared by bank (bank still has the higher balance)
• Item 5: Bank charges ₹500 — bank already debited but company hasn't recorded
• Item 6: Interest ₹200 — bank already credited but company hasn't recorded

(NEFT transactions typically clear same day or next day — for simplicity, assume NEFT entries 2, 3, 4 are in both books.)

Step 3: Prepare the BRS

Bank Reconciliation Statement Sunrise Retail Pvt Ltd — SBI Current Account As on April 30, 2025

Verification: The bank statement should show ₹7,16,100 balance on April 30.

Step 4: Post-BRS Adjustments in Books

Once the BRS is prepared, items that the company hasn't recorded (bank charges and interest) must be entered:

Journal Entry — Bank Charges:

Journal Entry — Interest Earned:

After these entries, Cash Book balance becomes: ₹6,81,000 − ₹500 + ₹200 = ₹6,80,700

The rent cheque difference (₹35,400) is a timing difference that will resolve when the bank clears the cheque.

Bank Reconciliation in Tally Prime

Tally has a built-in bank reconciliation module:

Step 1: Import Bank Statement

Gateway → Banking → Bank Reconciliation → SBI Current Account

You can either:

• Enter manually: Type each bank statement transaction
• Import: Upload the bank statement file (OFX/CSV format from SBI)

Step 2: Auto-Match

Tally automatically matches bank statement entries with ledger entries using:

• Amount matching
• Date matching (with ±3 days tolerance)
• Narration keywords

Matched entries are shown in green. Unmatched entries (in either book) are shown as pending.

Step 3: Mark Unmatched

For entries in the bank statement not in the ledger (like bank charges):

• Select the unmatched bank entry
• Press Alt+R to mark as reconciled after posting the journal entry

For ledger entries not yet in bank statement (like the rent cheque):

• These remain as "pending" — will be matched when the bank processes them

Step 4: Print the BRS

Gateway → Banking → Bank Reconciliation → SBI Current Account → Print

The printed BRS report shows the exact reconciliation as of any date.

Practice Exercise

Exercise 1: Sunrise Retail's Cash Book shows a closing balance of ₹9,50,000 on May 31. The bank statement shows ₹9,20,000. Identify what might explain the ₹30,000 difference and what the BRS would look like.

Exercise 2: After preparing Sunrise Retail's BRS, the accountant discovers that a cheque for ₹45,000 was issued in March 2025 to a stationery supplier and is still not cleared in May (2 months later). What should the accountant do?

Key Terms

Module Summary

• Cash Book balance (company) and Pass Book balance (bank) almost never match due to timing differences
• The BRS explains the difference — it is not an error, it is a reconciliation tool
• Main causes: outstanding cheques (CB lower), deposits in transit (PB lower), bank charges/interest not yet in CB
• Post-BRS: record bank charges and interest income as journal entries in company books
• Tally's bank reconciliation feature allows manual or imported bank statement matching
• Outstanding cheques older than 3 months need investigation — they become stale and uncashable

Quick Quiz

1. Sunrise Retail issues a ₹35,400 rent cheque on April 8. The bank clears it April 12. On April 10, the BRS shows:
   • a) No difference — cheque amount is in both books
   • b) Cash Book is ₹35,400 LESS than Pass Book
   • c) Pass Book is ₹35,400 less than Cash Book
   • d) No BRS needed — cheque will clear soon

2. Bank charges ₹500 debited by SBI but not yet recorded in Cash Book will make:
   • a) Cash Book ₹500 HIGHER than Pass Book
   • b) Pass Book ₹500 higher than Cash Book
   • c) No difference — bank charges are always in both books
   • d) Cash Book ₹500 lower

3. In Tally's BRS, an unmatched entry in the bank statement (bank charge) is handled by:
   • a) Deleting the bank statement entry
   • b) Ignoring it — will clear next month
   • c) Posting a journal entry then marking as reconciled
   • d) Altering the Cash Book balance directly

4. The format "Cash Book Balance → Adjustments → Pass Book Balance" is known as:
   • a) Reverse BRS format
   • b) Standard BRS format (starting with Cash Book)
   • c) Trial Balance format
   • d) Adjusted Cash Book format

Next up: Module 22 — Cost Centres — Tracking expenses by department — Sales, Accounts, and Operations — and allocating April salaries across Sunrise Retail's three departments.