🏆 Challenge Zone · Chapter 5 · ⏱ 30 min

Challenge Zone: Bank Reconciliation Statement

Each challenge solved = +25 XP. Solve without a hint = +10 bonus XP. Solve all four to earn the chapter’s Topper badge.

🎯 What you will master here:

Reconcile when only part of the cheques issued or deposited are still pending
Handle cash book errors and bank errors in the same statement
Split a single bank debit into business and personal parts in the amended cash book
Solve an overdraft case by first amending the cash book and then preparing the BRS

Welcome to the topper round of Chapter 5! In the board exam, BRS questions look easy but hide little traps: only part of a cheque total is pending, an error is in the wrong column, the balance is an overdraft. These four challenges collect all those traps in one place. For every item, ask just one question: “Because of this, is the passbook bigger or smaller than the cash book?” Hints are there if you get stuck, but try honestly first.

🌍 Where is this used in real life?

Every business that has a bank account reconciles it, usually every month. In accounting software such as Tally there is a bank reconciliation screen where the accountant enters the date on which each cheque or transfer actually cleared in the bank; whatever has not cleared is exactly the list of reconciling items you learnt about. Many banks now let businesses download their bank statement as a file, and the software matches most entries automatically, leaving only the mismatches for a person to check. During an audit, a Chartered Accountant usually asks for the BRS on the balance sheet date and checks that the pending cheques really cleared in the next few days. Reconciliation is also a strong control against fraud: a payment that the bank made but nobody recorded, or a “deposit” that never reached the bank, shows up as an unexplained difference.

🪄 Accounting magic

The cash book and the passbook are mirror images. When you deposit money, you debit Bank A/c in your cash book, while the bank credits your account in its books, because for the bank your money is a debt it owes you. So a favourable balance is a debit in the cash book but a credit in the passbook, and an overdraft is the other way round. Quick trick for every question: write a favourable balance as a plus number and an overdraft as a minus number. Then passbook balance = cash book balance + items that made the passbook bigger − items that made it smaller. If the answer comes out negative, it is an overdraft. No need to remember separate rules for overdraft questions.

⭐ Challenge 1 (Level: Tough)

Gupta Stationers, Khurja: on 30 April 2026 the bank column of the cash book shows a debit balance of ₹38,450. You find:
(i) Cheques of ₹15,000 were issued in April, of which cheques of ₹9,200 were presented for payment by 30 April.
(ii) Cheques of ₹22,000 were deposited in April, of which ₹6,500 had not been collected by 30 April.
(iii) Bank charges ₹180 and a dividend of ₹1,250 collected by the bank appear only in the passbook.
(iv) A customer paid ₹3,400 directly into the bank by UPI; not recorded in the cash book.
(v) A cheque of ₹2,300 deposited earlier was dishonoured; the cash book does not show this.
What is the balance as per the passbook (in ₹)?

Only the pending part of a cheque total is a reconciling item: 15,000 − 9,200 for (i), and 6,500 for (ii). Then ask “bigger or smaller?” for each item.

Unpresented cheques = 15,000 − 9,200 = 5,800 (passbook bigger, add). Uncollected cheques 6,500 (subtract). Bank charges 180 (subtract), dividend 1,250 (add), UPI receipt 3,400 (add), dishonoured cheque 2,300 (subtract).

Particulars	(+) ₹	(−) ₹
Balance as per cash book	38,450
Cheques issued but not presented	5,800
Dividend collected by bank	1,250
Direct UPI deposit by customer	3,400
Cheques deposited but not collected		6,500
Bank charges		180
Cheque dishonoured		2,300
Balance as per passbook		39,920
	48,900	48,900

Balance as per passbook = ₹39,920 (credit balance).

⭐⭐ Challenge 2 (Level: Tougher)

Sharma Traders’ cash book shows a bank balance of ₹52,600 (favourable) on 30 April 2026. Checking with the passbook reveals only errors:
(i) A cheque of ₹4,750 received from a customer was deposited and credited by the bank, but the accountant entered it in the cash column instead of the bank column.
(ii) The payments side of the bank column was undercast by ₹1,000.
(iii) A cheque of ₹3,860 issued to a supplier (and paid by the bank) was entered in the cash book as ₹3,680.
(iv) The bank wrongly credited Sharma Traders with ₹2,000 that belonged to another customer.
What is the balance as per the passbook (in ₹)?

For each cash book error, ask: did the error make the cash book bank balance too big or too small? For the bank’s error, ask the same about the passbook.

(i) The bank balance in the cash book missed a receipt of 4,750, so it is too small: add 4,750.
(ii) Payments undercast by 1,000 means too little was deducted, so the cash book balance is too big: subtract 1,000.
(iii) Only 3,680 was deducted instead of 3,860, so the cash book is too big by 180: subtract 180.
(iv) The bank’s wrong credit makes the passbook bigger by 2,000: add 2,000.
52,600 + 4,750 − 1,000 − 180 + 2,000 = ₹58,170 as per passbook. (Items (i) to (iii) will be corrected in the cash book; item (iv) will be corrected by the bank, not by Sharma Traders.)

⭐⭐ Challenge 3 (Level: Tougher)

While preparing the amended cash book on 30 April 2026, Verma Mobile Store finds a standing-instruction debit of ₹12,000 in the bank statement that is not in the cash book. It covers two premiums: ₹8,000 for the fire insurance of the shop and ₹4,000 for the owner’s personal life insurance policy. Pass the single compound journal entry that records this in the books. (Two debits, one credit.)

Money has left the bank, so Bank A/c is credited. The shop’s premium is a business expense; the owner’s personal premium is not a business expense at all.

The bank balance has gone down by ₹12,000, so Bank A/c is credited. Fire insurance of the shop is a business expense (Insurance Premium A/c, debit). The owner’s life insurance is a personal payment made out of business money, so it is treated as drawings (debit). It must never be shown as a business expense, or the profit would be understated.

Date	Particulars	Dr (₹)	Cr (₹)
2026 Apr 30	Drawings A/c Dr.	4,000
	Insurance Premium A/c Dr.	8,000
	To Bank A/c		12,000
	(Being insurance premiums paid by the bank under standing instructions, owner’s life insurance treated as drawings)

In the amended cash book, the ₹12,000 simply appears on the credit (payments) side of the bank column.

⭐⭐⭐ Challenge 4 (Level: Topper)

Kapoor Mobile Store, Aligarh, has an overdraft facility. On 30 April 2026 its cash book shows an overdraft of ₹28,400. Comparing with the bank statement:
(a) Interest on overdraft ₹1,150 and bank charges ₹250 were debited by the bank only.
(b) Cheques of ₹18,000 were issued in April; cheques of ₹11,500 of these were presented by 30 April.
(c) Cheques of ₹9,800 deposited on 29 April were credited by the bank only in May.
(d) A customer paid ₹7,200 by NEFT directly into the bank; not in the cash book.
(e) A cheque of ₹3,100 from Arora, deposited and credited earlier, was dishonoured on 29 April; not in the cash book.
(f) The receipts side of the bank column was overcast by ₹500.
First prepare the amended cash book, then the BRS. What is the overdraft as per the passbook (in ₹)?

Amended cash book: the items the business did not know about, plus its own error, i.e. (a), (d), (e), (f). The BRS then needs only (b) and (c). Treat the overdraft as a minus number.

Step 1: Amended cash book (bank column).

Dr. Particulars	₹	Cr. Particulars	₹
To Customer (NEFT)	7,200	By Balance b/d (overdraft)	28,400
To Balance c/d (overdraft)	26,200	By Interest on overdraft	1,150
		By Bank charges	250
		By Arora (cheque dishonoured)	3,100
		By Correction of overcasting	500
	33,400		33,400

Amended overdraft = ₹26,200 (this is the figure for the balance sheet).
Step 2: BRS from the amended cash book. Unpresented cheques = 18,000 − 11,500 = 6,500.

Particulars	(+) ₹	(−) ₹
Overdraft as per amended cash book		26,200
Cheques issued but not presented	6,500
Cheques deposited but not collected		9,800
Overdraft as per passbook	29,500
	36,000	36,000

Check with signs: −26,200 + 6,500 − 9,800 = −29,500. Overdraft as per passbook = ₹29,500 (debit balance in the passbook).

🧠 Think fast

The cash book shows an overdraft of ₹10,000. The only difference from the passbook is cheques of ₹10,000 issued but not yet presented. The passbook will show:

An overdraft of ₹20,000
A nil balance
A favourable balance of ₹10,000
An overdraft of ₹10,000

Unpresented cheques make the passbook bigger (the bank has not paid them yet). With signs: −10,000 + 10,000 = 0. The passbook shows a nil balance.

A cheque of ₹2,000 issued to a supplier (and presented in the bank) was wrongly entered on the debit side of the bank column of the cash book. Starting from the cash book balance, the BRS should:

Add ₹2,000
Subtract ₹2,000
Add ₹4,000
Subtract ₹4,000

The cash book should have deducted ₹2,000 but added ₹2,000 instead, so it is too big by 2,000 + 2,000 = ₹4,000. The passbook is smaller by that much, so subtract ₹4,000.

📌 What toppers remember

Only the pending part of a cheque total (issued minus presented, deposited minus collected) is a reconciling item.
For cash book errors, ask whether the error made the cash book too big or too small; bank errors are judged in the passbook.
A personal payment made by the bank for the owner is drawings, not a business expense.
Treat an overdraft as a minus number; a negative final answer means an overdraft in the passbook.
Amend the cash book first; the BRS then needs only unpresented cheques, uncollected cheques and bank errors.