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Unfavourable Balances / Bank Overdraft

Sometimes, a businessman avails Bank overdraft facility from bank as a mode of finance for which the Bank sanctions a limit. In such case the bank will allow the business enterprise to use its fund to the extent of the sanctioned limit. As Bank overdraft is a liability for the business enterprise, Balance as per cash book will show a credit balance, as is a liability payable by the business enterprise to the bank. And at the same time balance as per pass book will show a debit balance as it is an amount receivable by the bank from the customer.
 

Preparation of BRS considering overdraft as per cash book as the starting point.

 

Taking Overdraft balance as per cash book as a minus figure, 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

Taking bank overdraft balance as per cash book as a positive balance, add all those items which contribute to a lower balance in the pass book and deduct all those items which contribute to higher balance in the pass book.
 

Preparation of BRS considering overdraft as per pass book as the starting point.

 

Taking bank overdraft balance as per pass book as a minus figure, add all those items which contribute to a lower balance in the pass book and deduct all those items which contribute to higher balance in the pass book.

OR

Taking bank overdraft balance as per pass book as a positive balance, add all those items which contribute to higher balance in the pass book and deduct all those items which contribute to a lower balance in the pass book


Illustration 1

Amit Ltd. provides you the following information as on 31-03-2014.

 

Sl. No.

Particulars

1

Cheques issued but not yet presented for payment

1,500

2

Cheques deposited but not collected by bank

4,500

3

Interest allowed in pass book only

150

4

Bank charges debited in pass book

300

5

A wrong credit given in pass book

1,600

6

A wrong debit given in pass book

5,300

7

Bills receivable directly collected by bank

3,000

8

Insurance premium paid by bank understanding instruction given by the customer

750

9

Direct payment by a customer into the bank but not recorded in the cash book

1,500


Prepare a BRS as on 31-03-2012 in each of the following alternative cases:

 

Case I : If an overdraft as per cash book was ₹ 900

Case II : If an overdraft as per pass book was ₹ 900


Solution:

Take balance as per cash book or pass book as negative item

Case I : If an overdraft as per cash book was ₹900
 

BRS as on 31-03-2012

 

Particulars

Overdraft as per cash book

 

(900)

Add: Items contributing to higher balance in passbook:

 

 

 

(i) Cheques issued but not yet presented for payment

1,500

 

(ii) Interest allowed in pass book only

150

 

(iii) Bills receivable directly collected by bank

3,000

 

(iv) A wrong credit given in pass book

1,600

 

(v) Direct payment by a customer into the bank but not recorded in the cash book

1,500

7,750

 

Less: Items contributing to lower balance in passbook:

 

 

(i) Cheques deposited but not collected by bank

4,500

 

(ii) Bank charges debited in pass book

300

 

(iii) Insurance premium paid by bank understanding instruction given by customer

750

 

(iv) A wrong debit given in pass book

5,300

(10,850)

Over draft as per pass book

 

4,000


Case II : 
If an overdraft as per pass book was ₹ 900
 

BRS as on 31-03-2012

 

Particulars

Overdraft as per pass book

 

(900)

Add: Items contributing to lower balance in pass book

 

 

 

 

(i) Cheques deposited but not collected by bank

4,500

 

(ii) Bank charges debited in pass book

300

 

(iii) Insurance premium paid by bank understanding instruction given by customer

750

 

(iv) A wrong debit given in pass book

5,300

10,850

Less: Items contributing to higher balance in pass book

 

 

 

(i) Cheques issued but not yet presented for payment

1,500

 

(ii) Interest allowed in pass book only

150

 

(iii) Bills receivable directly collected by bank

3,000

 

(iv) A wrong credit given in pass book

1,600

 

(v) Direct payment by a customer into the bank but not recorded in the cash book

1,500


(7,750)

Favourable Balance( Debit Balance) as per cash book

 

2,200


Alternative solution: 
Taking balance as per cash book or pass book as positive amount.
 

Case I : If an overdraft as per cash book was ₹ 900
 

BRS as on 31-03-2012

 

Particulars

Overdraft as per cash book

Add: Items contributing to lower balance in pass book

(i) Cheques deposited but not collected by bank

(ii) Bank charges debited in pass book

(iii) Insurance premium paid by bank understanding instruction given by customer

(iv) A wrong debit given in pass book

Less: Items contributing to higher balance in pass book

(i) Cheques issued but not yet presented for payment

(ii) Interest allowed in pass book only

(iii) Bills receivable directly collected by bank

(iv) A wrong credit given in pass book

(v) Direct payment by a customer into the bank but not recorded in the cash book

Overdraft as per Pass Book

 

 

4,500

300

 750

5,300

 

 

1,500

150

3,000

1,600 

1,500

 

 

900

 

 

 

 

 10,850

 

 

 

 

 

 

(7,750)

4,000


Case II : 
If an overdraft as per pass book was ₹ 900

 

BRS as on 31-03-2012

 

Particulars

Overdraft as per pass book

 

900

Add: Items contributing to higher balance in pass book:

 

 

 

 

(i) Cheques issued but not yet presented for payment

1,500

 

(ii) Interest allowed in pass book only

150

 

(iii) Bills receivable directly collected by bank

3,000

 

(iv) A wrong credit given in pass book

1,600

 

(v) Direct payment by a customer into the bank but not recorded in the cash book

1,500

7,750

 

 

 

 

Less: Items contributing to lower balance in pass book:

 

 

(i) Cheques deposited but not collected by bank

4,500

 

(ii) Bank charges debited in pass book

300

 

(iii) Insurance premium paid by bank understanding    instruction given by customer

750

 

(iv) A wrong debit given in pass boo

5,300

(10,850)

Balance as per Cash Book

 

(2,200)


Difference due to:

  • Errors in cash book: Due to errors in the cash book, there may be a difference between the bank balance as per the pass book and the bank balance as per the cash book. The examples for errors in cash book include the following:
    • Wrong debit / credit given in the cash book
    • Under casting / over casting of the receipts side or debit side of the cash book
    • Under casting / over casting of the payment side or credit side of the cash book
    • Recording in the wrong column of the cash book
    • Entering a wrong amount for the transaction on the receipt / payment side
    • Wrong carry forward of the balance in the cash book

Illustration 2

From the following particulars, prepare a BRS as on 31st March, 2014.

 

Sl. No.

Particulars

1

Balance as per cash book

14,500

2

Cheque deposited but not recorded in cash book

(Note: Bank has collected and credited this cheque)

1,500

3

Cash deposit recorded in cash column only

150

4

Cheque issued ₹ 150 recorded wrongly in cash column (Note: Bank has made the payment of this cheque)

150

5

Debit balance of previous page brought forward as credit balance

1,700

6

The payment side of cash book (bank column) under casted

150

7

Cash discount of ₹ 171 wrongly recorded in the bank column

171

8

Cheque received from debtor recorded in cash book but not deposited in the bank

700

9

Cheque issued recorded twice in cash book

400

 

Bank Reconciliation Statement as on 31-03-2012.

 

 

Particulars

A. Balance as per cash book

14,500

B. Add:

 

Error in carrying forward

Cheque recorded twice in cash book

Cash deposited not recorded in bank column

Cheque deposited but not recorded

3,400

400

150

1,500

C. Less:

 

Under casting of payment side

Cheque issued but not entered

A cash discount wrongly recorded in bank column

Cheque recorded but not deposited

150

150

171

700

Balance as per pass book

18,779

  • Errors in pass book : Due to errors in the pass book, there may be a difference between the bank balance as per the pass book and the bank balance as per the cash book. The examples for errors in pass book include the following:
    • Wrong debit / credit given in the pass book
    • Under casting / over-casting of the deposits column or credit side of the pass book
    • Under casting / over-casting of the withdrawal column or debit side of the pass book
    • Entering a wrong amount for the transaction in the deposit / withdrawal column
    • Wrong carry forward of the balance in the pass book

Illustration 3

From the following particulars, prepare a BRS as on 31st March, 2014.

 

 

Sl. No.

Particulars

1

Balance as per pass book

15,000

2

Cheque collected by bank on behalf of X credited to Y’s A/c.

650

3

Cash deposit ₹1,789 wrongly recorded by bank

1,897

4

Withdrawal column of pass book under casted

170

5

Credit balance on page 9 of the pass book wrongly recorded on page 10 as debit balance

1,700

6

Payment of cheque recorded twice in pass book

600

7

Bank credited in X’s A/c. cheque deposited by Y (another customer)

1,200


Bank Reconciliation Statement as on 31-03-2012.

 

Particulars

A. Balance as per pass book

15,000

B. Add:

 

 

Error in carrying forward

Cheque wrongly credited to another customer’s a/c

Cheque wrongly recorded twice in pass book

3,400

650

600

C. Less:

 

Under casting of withdrawal column

Excess credit for cash deposit

Wrong credit

170

108

1,200

Balance as per cash book

18,172





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