how to identify either its favorable or non favorable balance in BRS
Answers
Answer:
Unfavorable or negative balance means credit balance in cash book. This means that we have taken a loan from the bank i.e. we owe money to the bank. In such a case, the bank expects money from us and we become an asset for the bank. Assets have debit balance. So, the bank shows debit balance in our pass book, which is a copy of customer's account in the books of bank. So, an unfavorable balance in cash book represents debit balance in pass book.
Explanation:
Step 1:
All items appearing in the bank pass book should be checked and ticked with the items appearing in cash book.
Step 2:
The un-ticked items in both the books i.e. cash book and pass book are listed according to their nature of difference.
Step 3:
Put the balance of cash book or pass book as the first item in bank reconciliation statement. The favourable balance of cash book (i.e., debit balance) or pass book (i.e., credit balance) is to be shown under ‘plus’ column and unfavourable/overdraft balance of cash book (i.e., credit balance) or pass book (i.e., debit balance) is to be shown under ‘minus’ column of the bank reconciliation statement.
Step 4:
All items which have caused the difference between the balance as per cash book and balance as per pass book are to be examined and analyzed. In this analysis, the impact of the transactions on the balance as per cash book should be taken, if starting point is the balance as per pass book. However, if starting point is the balance as per cash book then the impact of all transactions on the balance as per pass book should be taken.
Step 5:
The impact of errors and omissions in both the books is to be analyzed and their affects should be suitably noted in the bank reconciliation statement. Such errors and omissions may cause decrease/increase in the balance of cash book or increase/decrease in the balance of pass book.
Errors, that have caused decrease in the balance of cash book, shall be added, if the starting point is the cash book and vice-versa, when the starting point is pass book. Similarly, errors that have caused increase in the balance of cash book shall be deducted, if the starting point is the cash book and vice-versa when the starting point is the pass book.
Step 6:
The ‘plus’ and ‘minus’ columns are to be balanced.
Step 7:
Put the difference as ‘Balance as per Cash Book/Pass Book’ or ‘Overdraft Balance as per Cash Book/Pass Book’ as the case may be.
In the above paragraphs, we have discussed the general points that have to be kept in view while preparing the bank reconciliation statement. Now, we shall move to discuss some additional and specific steps required for preparing bank reconciliation statement when:
(A) The starting point is balance as per cash book (favourable or unfavourable) and
(B) The starting point is balance as per pass book (favourable or unfavourable).
(A) When Starting Point Is Balance as Per Cash Book:
If bank reconciliation statement is prepared with the favourable balance of cash book (i.e., debit balance of cash book) or unfavourable balance/overdraft balance of cash book (i.e., credit balance of cash book), the impact of all transactions on the pass book shall be examined.
The transactions shall be recorded in the bank reconciliation statement as under:
(i) Add: All those transactions that have resulted in increasing the balance of pass on book.
Example:
Cheque issued on 15th March, 2011 but not presented for payment up to 31st March, 2011 Rs. 10,000.
Impact:
In this case, the issue of cheque has been recorded in the cash book on the payment side but it was not entered in the pass book. Therefore, bank balance as shown by cash book would have been shown at lower than the balance as shown by the pass book. In other words, the balance shown by the pass book would be higher than the balance shown by cash book to the extent of that cheque.
Answer:
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