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Kinds of Balances

Cash book (Debit) - Cash book favourable balance

 

Cash book (Credit) - Cash book unfavourable balance

 

Pass book (Credit) - Pass book favourable balance

 

Pass book (Debit) - Pass book unfavourable balance

 

 

Note: When question is silent regarding the kind of balance, it should always be assumed as a favourable balance.

 

Steps for preparing the Bank Reconciliation Statement

  1. Compare the items appearing on the debit side of the cash book with those appearing on the credit side of the pass book. The entries that do not match in the course are the causes of difference in the balances of both the books.
  2. Compare the items appearing on the credit side of the cash book with those appearing on the debit side of the pass book. The entries that do not match in the course are the causes of difference in the balances of both the books.
  3. Take the balance as per cash book as the base and add all those items that contribute to a higher balance in the pass book and deduct all those items that contribute to a lower balance in the pass book.
     
    Or
     
     
    Take the balance as per pass book as the base and add all those items that contribute to a higher bank balance as per cash book and deduct all those items that contribute to a lower bank balance as per cash book.

Causes for Difference in Balances





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