How is a Bank Reconciliation Statement prepared?

Question

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Answer

Following points should be kept in mind, while preparing Bank Reconciliation Statement:

Date: The date on which Bank Reconciliation Statement is prepared.
Balance: Which balance, i.e., that of Cash Book or of Bank Statement or Bank Pass Book, is the basis of bank reconciliation. In this regard it should also be kept in mind that:

Balance as per Cash Book means the balance as per bank column of Cash Book.
Debit balance or favourable balance in Cash Book means that the amount is lying deposited in the bank. It is an asset of the firm.
Credit balance in the Cash Book means overdraft balance, i.e., withdrawals are in excess of deposits. It is a liability of the firm.
Credit balance or favourable balance as per Bank Statement or Bank Pass Book means that the amount is lying deposited in the bank, it is an asset of the firm.
Debit balance as per Bank Statement or Bank Pass Book means overdraft balance, i.e., withdrawals are in excess of deposits. It is a liability of the firm.

Besides the above, following should also be kept in mind:

Debiting an item in the Cash Book increases Cash Book balance and crediting decreases it.
Debiting an item in the Bank Statement or Bank Pass Book decreases the Bank Statement or Bank Pass Book balance or increases the overdraft balance and crediting increases the balance or decreases the overdraft balance.

Preparing Bank Reconciliation Statement: After deciding which entries are to be added to the balance of the concerned book (i.e., the starting balance of Bank Reconciliation Statement) and which entries are to be subtracted, Bank Reconciliation Statement is prepared in a statement form.

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Cheques paid into bank prior to December 31, 2016, but not credited until after that date for ₹ 10,000.
Transfer of funds from Account No. II to Account No. I recorded by the bank on December 31, 2016 but entered in the Cash Book after that date for ₹ 8,000.
Cheques issued prior to December, 31 2016 but not presented until after that date for ₹ 7,429.
Bank charges debited by bank not entered in the Cash Book for ₹ 200.
Interest debited by the bank not entered in the Cash Book ₹ 580.
Overdraft as per Pass Book ₹ 18,990.

The bank had paid fire insurance premium of ₹ 550 which does not appear in the Cash Book.
Cheques for ₹ 25,000 issued during January, but cheques for only ₹ 18,500 were presented for payment.
Interest collected by bank ₹ 740.
Cheques of ₹ 8,700 were deposited into bank, but cheques for ₹ 7,000 were cleared till 31st January, 2017.
A customer deposited ₹ 620 directly into bank without informing Mr. Sanjay.

Overdraft as per Pass Book on 31-12-2012 ₹ 7,600.
Cheques deposited but not collected by the bank ₹ 8,560.
Incidental charges not recorded in Cash Book ₹ 80.
Cheques were issued for ₹ 7,800 but only ₹ 4,400 were presented for payment.
Insurance premium paid by bank not recorded in the Cash Book ₹ 4,200.
On 31st December, 2012 cash was deposited in bank ₹ 385 but the cashier debited the bank column with ₹ 485 by mistake.

Mahabir Prashad had paid into the Bank on 26th June four cheques for ₹ 3,000; ₹ 6,000; ₹ 8,000 and ₹ 10,000. Of these, the cheque for ₹ 6,000 was credited by the bank in July 2014.
On 23rd June three cheques were drawn for ₹ 12,000; ₹ 13,000 and ₹ 16,000. The first two cheques were presented to the bank for payment in June and the third in July 2014.
Cheques amounting to ₹ 3,600 were deposited in the bank but no entry was passed in the Cash Book.
Bank charges entered in Cash Book twice ₹ 50.
Cheque received entered twice in the Cash Book ₹ 3,200.