A bank reconciliation statement (BRS) explains the difference between the balance in your cash book and the balance in the bank passbook or statement on the same date. Differences arise from timing (cheques issued but not yet presented, deposits not yet credited) and from items the bank has recorded that you have not (charges, interest, direct credits). Prepare one at every month end.
Facts checked: 9 October 2026. The cheque validity point was checked against RBI circular RBI/2011-12/251 dated 4 November 2011; the SA 505 point is from secondary summaries, so read the standard on the ICAI website before quoting it in working papers.
Why the two balances differ
| Cause | In cash book? | In bank statement? |
|---|---|---|
| Cheque issued, not yet presented | Yes | No |
| Cheque deposited, not yet credited | Yes | No |
| Bank charges | Not yet | Yes |
| Interest credited by bank | Not yet | Yes |
| Direct credit (NEFT, RTGS, UPI) from a customer | Not yet | Yes |
| Customer cheque dishonoured | Not yet | Yes |
| Errors by either side | Possible | Possible |
Steps
- Take the cash book bank balance and the bank statement balance as on the same date.
- Tick off each cash book entry against the statement. Untick items are the differences.
- Items the bank has recorded and you have not (charges, interest, direct credits, dishonours) need entries in your books first. Pass them.
- Timing items (uncleared cheques, deposits in transit) need no entry. They clear on their own.
- Reconcile the adjusted cash book balance to the passbook balance. Any unexplained gap is an error to chase.
Format and worked example
Illustrative figures, invented for this post.
| Particulars | ₹ |
|---|---|
| Balance as per cash book (debit) | 1,84,500 |
| Add: customer NEFT received, not yet entered | 25,000 |
| Add: interest credited by bank | 1,200 |
| Less: bank charges | (600) |
| Less: customer cheque dishonoured | (5,000) |
| Adjusted cash book balance | 2,05,100 |
| Add: cheques issued, not yet presented | 32,000 |
| Less: cheques deposited, not yet credited | (45,000) |
| Balance as per passbook | 1,92,100 |
Check: the passbook shows ₹1,92,100. Starting from it, subtract the uncleared issued cheques (₹32,000) and add back the deposits in transit (₹45,000) to return to ₹2,05,100. If the numbers do not tie, an item is missing or counted twice.
Common errors
- Adding where you should deduct for cheques issued and deposits in transit. Cheques issued push the bank balance up relative to the books; deposits in transit push it down.
- Passing entries for timing items, which then get recorded twice when the cheque clears.
- Reconciling on different dates.
- Carrying old items forward every month without follow-up.
Stale cheques
RBI directed banks, effective 1 April 2012, not to pay cheques, drafts, pay orders or banker's cheques presented after three months from the date of the instrument (RBI/2011-12/251 dated 4 November 2011, applying to instruments bearing that date or later). A cheque issued but unpresented beyond that cannot be paid by the bank. Review the outstanding list for such items and reverse them to the party's account or a liability head as per your policy, so the BRS does not carry dead items.
What the auditor tests
The auditor compares the BRS to the bank statement and tests the outstanding items to the next month's clearing. SA 505 on external confirmations is the standard for getting direct confirmation of balances from the bank. Old uncleared items, round-sum deposits at year end and unexplained adjustments draw the most attention. For the confirmation side, see balance confirmation letters and SA 505.
To automate the tick-off, see bank reconciliation and the bank reconciliation template. Teams scaling this up may also read bank reconciliation automation.
Frequently asked questions
What is the purpose of a bank reconciliation statement?
It proves that the cash book bank balance is correct, finds errors and unrecorded items, and highlights uncleared cheques.
Does a BRS change the accounts?
Only for items the bank has recorded and you have not. Timing items need no entry.
How often should it be prepared?
At least monthly. High-volume accounts are often done weekly or daily.
Is a bank reconciliation statement required by law?
No Companies Act section prescribes the statement as such, but the auditor expects one as support for the bank balance.
Statutory facts on this page are checked against their sources, and the page says where it relied on secondary reporting. How we verify · Report an error