A bank reconciliation statement (BRS) explains why the balance in your cash book differs from the balance in the bank’s statement on the same date. It shows that the two agree once the differences are listed. Businesses usually prepare it every month, so that the cash book and the bank records stay in step. The differences are normal, caused by timing, bank charges and entries the bank made that you had not yet recorded.
This guide gives you the BRS format, the five-step method, a solved example with made-up figures, the common mistakes, and the way TallyPrime does the job. The method follows the NCERT Class 11 chapter on bank reconciliation statement.
What is a bank reconciliation statement?
When you pay by cheque or receive money in your bank account, you write the entry in your cash book (the bank column). The bank writes it in your account statement or passbook. The two records describe the same account, but they are written by two different people at different times, so on any date the balances can differ.
A BRS starts from one balance, adds and subtracts every difference, and arrives at the other. It doesn’t change the books by itself. It tells you which entries you must still pass in your own books, and which are only timing differences that will sort themselves out when the bank clears the cheque.
Preparing it every month also helps you catch bank errors and fraud early.
Why does the cash book balance differ from the bank statement?
There are only a handful of reasons, and each one pushes the balance in a predictable direction. Learn this table and most BRS problems become easy.
| Reason for the difference | In your cash book? | In the bank statement? | Needs an entry in your books? |
|---|---|---|---|
| Cheque issued, not yet presented for payment | Yes, deducted | Not yet | No, timing |
| Cheque deposited, not yet cleared | Yes, added | Not yet | No, timing |
| Interest or direct credit by the bank | Not yet | Yes | Yes |
| Customer paid directly by NEFT, RTGS or UPI | Not yet | Yes | Yes |
| Bank charges | Not yet | Yes, deducted | Yes |
| Direct debit such as an EMI or standing instruction | Not yet | Yes, deducted | Yes |
| Cheque deposited by you but dishonoured | Still shown as received | Reversed | Yes |
| Mistake by you or the bank | Possible | Possible | Whichever side is wrong |
What is the format of a bank reconciliation statement?
The statement can start from either balance. If you start from the cash book balance, this is the standard layout when the cash book shows a positive (debit) balance:
| Bank reconciliation as on [date] | Amount (₹) |
|---|---|
| Balance as per cash book | X |
| Add: cheques issued but not yet presented; interest or direct credits made by the bank and not yet entered | + |
| Less: cheques deposited but not yet cleared; bank charges, direct debits and dishonoured cheques not yet entered | − |
| Balance as per bank statement (passbook) | Y |
If you start from the bank statement balance, every sign flips, and you end at the cash book balance. When the cash book shows an overdraft (a credit balance), the signs flip again, so always write down which balance you started from before you add or subtract anything.
How do you prepare a BRS step by step?
- Take both balances on the same date: the bank column of the cash book and the bank statement.
- Tick off matching entries in the cash book and the statement, one by one.
- List what is left in the cash book: those are cheques issued or deposited that the bank has not yet cleared.
- List what is left in the statement: those are charges, interest and direct receipts you have not yet recorded. Pass entries for them in your books.
- Prepare the statement using the format above and check that your starting balance, adjusted by the items, equals the other balance.
Bank reconciliation statement example with solution
The figures below are an illustration made for this guide. On 31 March, a business’s cash book shows a bank balance of ₹48,500. The bank statement on the same date shows a different balance. Ticking off the entries leaves these differences.
| Item | Amount (₹) |
|---|---|
| Cheques deposited, not yet cleared by the bank | 9,000 |
| Cheques issued, not yet presented for payment | 6,200 |
| Interest credited by the bank, not in the cash book | 420 |
| A customer’s NEFT payment received directly, not in the cash book | 7,500 |
| Bank charges, not in the cash book | 350 |
| Loan EMI debited by the bank, not in the cash book | 5,000 |
The statement, starting from the cash book balance, is:
| Bank reconciliation as on 31 March | Add (₹) | Less (₹) | Amount (₹) |
|---|---|---|---|
| Balance as per cash book | 48,500 | ||
| Add: cheques issued, not yet presented | 6,200 | ||
| Add: interest credited by the bank | 420 | ||
| Add: customer’s NEFT receipt | 7,500 | ||
| Less: cheques deposited, not yet cleared | 9,000 | ||
| Less: bank charges | 350 | ||
| Less: loan EMI debited | 5,000 | ||
| Balance as per bank statement | 14,120 | 14,350 | 48,270 |
Check the sum: 48,500 + 14,120 − 14,350 = 48,270, so the bank statement should show ₹48,270. Now do the second check, which is what a careful accountant always does. The interest, the NEFT receipt, the charges and the EMI need entries in your books. The corrected cash book balance is 48,500 + 420 + 7,500 − 350 − 5,000 = ₹51,070. From the bank side, ₹48,270 + ₹9,000 (deposits still on their way) − ₹6,200 (cheques still to be presented) is also ₹51,070. Both routes give the same figure, and that is the true bank balance of the business.
Notice what happened to the timing items. The uncleared cheques and the unpresented cheques needed no entry, because they will clear in April. The other four needed entries in the books before the statement was final. If you also need to record those four, our journal entries guide shows how a debit and a credit are chosen, and our golden rules of accounting explain why.
What are the common mistakes in bank reconciliation?
- Adding when you should subtract. Always write which balance you started from, and whether it was a debit or an overdraft.
- Entering the timing items in the books. Unpresented and uncleared cheques need no entry.
- Forgetting the bank’s own entries. Charges, interest and EMIs appear only on the statement, so tick them off one by one.
- Ignoring dishonoured cheques. If a deposited cheque bounced, reverse the receipt and show the customer’s account as unpaid again.
- Reconciling once a year. A monthly reconciliation keeps the list of differences short and the errors easy to find. An error in the trial balance often traces to the bank, as our trial balance format with an example explains.
How do you do a bank reconciliation in TallyPrime?
TallyPrime does the matching for you. According to Tally’s help pages, press Alt+G and open Banking Activities, then drill into the Bank Reconciliation Summary and report. There are two ways to reconcile.
In the manual method, press Alt+R for the Bank Reconciliation (Manual) screen, enter the bank date of each transaction as printed on your statement, and press Ctrl+A to accept. In the auto method, you import the bank statement and TallyPrime matches the transactions. Read the official guides to bank reconciliation reports and manual reconciliation for the current steps, as Tally changes the screens between releases. What Tally can’t do is understand why a difference arose. The accountant still has to know the table above.
How we teach this at IPA
At IPA, the Institute of Professional Accountants (est. 2003), bank reconciliation belongs to the accounting foundation and to the banking topics of the 12-month ADFA diploma, whose records list business financial accounting, e-commerce banking and Tally Prime. The shorter Tally course (1 month basic, 2 months advanced) covers ledgers, vouchers and reports. Classes run at Laxmi Nagar and in live online batches, with weekend timings. Placement support is available, and a free demo class is available for every course.
More guides on accounting, GST, Tally and income tax are on the IPA blog.
Frequently asked questions
What is a bank reconciliation statement?
It is a statement that explains the difference between the bank balance in your cash book and the balance in the bank statement on the same date. It shows that the two agree after adjustments.
Why is a bank reconciliation statement prepared?
To find missed entries, bank charges, errors and dishonoured cheques, and to confirm the true bank balance. Many businesses prepare it every month.
Which items need an entry in the books after a BRS?
Items the bank recorded and you did not: interest, charges, direct debits, direct receipts and dishonoured cheques. Cheques issued or deposited and not yet cleared need no entry.
What is the difference between a cash book and a bank statement?
The cash book is your own record of receipts and payments. The bank statement is the bank’s record of the same account. They differ in timing and in entries made by only one side.
What happens if the cash book shows an overdraft?
The bank column has a credit balance, so the signs in the statement reverse. Write down the starting balance and its nature before you add or deduct anything.
Can TallyPrime prepare a bank reconciliation?
Yes. You can reconcile by entering bank dates in the manual screen or by importing a bank statement for automatic matching. You still need to understand the reasons for each difference.