Overdraft cases and the amended (adjusted) cash book
- Prepare a BRS when the cash book or passbook shows an overdraft, treating it as a negative balance
- Read the final figure of a two-column BRS as favourable or overdraft
- Prepare an amended cash book for items the business has not yet recorded and for its own errors
- Prepare a BRS starting from the amended cash book balance
So far our businesses always had money in the bank. Real life is not always so kind. Many shops run on an overdraft: the bank lets them withdraw more than they have, and charges interest for it. Students fear overdraft questions because “everything seems reversed”. Today you will see that nothing is reversed if you think of an overdraft as a minus balance. In the second half we learn how accountants really do it in offices: first they correct the cash book, and only then prepare a short BRS. NCERT notes that in practice the BRS is prepared after adjusting the cash book, so this method is worth learning well.
1. Overdraft: a balance below zero
Khan Electronics in Aligarh buys a big stock of fans and coolers every March for the summer season. Its current account has ₹30,000, but the stock costs ₹75,000. Its bank has sanctioned an overdraft limit, so Mr. Khan pays the full ₹75,000 by cheque. Now his account stands at −₹45,000: he has, in effect, borrowed ₹45,000 from the bank. As coolers sell in April and May, deposits bring the balance back above zero.
Bank overdraft: the amount withdrawn in excess of the amount deposited, allowed by the bank up to an agreed limit. It is shown as a credit balance in the cash book and a debit balance in the passbook (often marked Dr. or OD). It is also called an unfavourable balance.
Picture a number line. A favourable balance is to the right of zero; an overdraft is to the left. Every item of the BRS still pushes the balance left or right in exactly the same way as before:
- A cheque issued but not presented still makes the passbook “higher”, that is, less negative, so we still add it.
- A cheque deposited but not collected still makes the passbook “lower”, that is, more negative, so we still deduct it.
Overdraft rule: write the overdraft as the starting item in the (−) column. Treat every other item exactly as you would for a favourable balance. At the end, if the balancing figure falls in the (+) column, the answer is an overdraft; if it falls in the (−) column, the answer is a favourable balance.
“Minus start, same rules.” And for the answer: (−) column → money in bank; (+) column → overdraft. The answer sits on the opposite side of what it “is”, because it is the figure that balances the statement.
2. Starting from the overdraft as per cash book
(i) Cheques issued but not presented ₹12,500.
(ii) Cheques deposited but not yet collected ₹18,200.
(iii) Interest on overdraft ₹1,350 debited by the bank, not in cash book.
(iv) Bank charges ₹150, not in cash book.
(v) A customer paid ₹6,000 directly by NEFT, not in cash book.
- Start: overdraft as per cash book ₹45,000 → (−) column.
- (i) Passbook higher (less overdrawn) → (+) 12,500. (v) Passbook higher → (+) 6,000.
- (ii) Passbook lower (more overdrawn) → (−) 18,200. (iii) → (−) 1,350. (iv) → (−) 150.
- (+) total = 18,500. (−) total = 45,000 + 18,200 + 1,350 + 150 = 64,700.
- The (−) side is heavier by 46,200. The balancing figure goes into the (+) column, so it is an overdraft as per passbook. In numbers: −45,000 + 18,500 − 19,700 = −46,200.
Bank Reconciliation Statement of Khan Electronics as on 30 April 2026
| Particulars | (+) ₹ | (−) ₹ |
|---|---|---|
| Overdraft as per cash book | 45,000 | |
| Cheques issued but not presented for payment | 12,500 | |
| Amount received directly by NEFT | 6,000 | |
| Cheques deposited but not yet collected | 18,200 | |
| Interest on overdraft debited by the bank | 1,350 | |
| Bank charges debited by the bank | 150 | |
| Overdraft as per passbook | 46,200 | |
| 64,700 | 64,700 |
A common mistake: starting with the overdraft in the (+) column “because it is the first item”. Then every answer comes out wrong. An overdraft is a negative figure; it always starts in the (−) column.
On 31 May 2026, the cash book of Pooja Furnishings shows an overdraft of ₹20,000. Cheques issued but not presented ₹6,000; cheques deposited but not collected ₹4,500; interest on overdraft ₹700 charged by the bank, not in the cash book. What is the overdraft as per passbook (in ₹)?
3. Starting from the overdraft as per passbook
Start with the passbook overdraft in the (−) column, and use the reversed treatment you learnt for the passbook in Lesson 2 (now we travel from the passbook to the cash book).
(i) Cheques issued but not presented ₹8,400.
(ii) Cheques deposited but not credited ₹11,000.
(iii) Interest on overdraft ₹900, not in the cash book.
(iv) Dividend ₹1,500 collected by the bank, not in the cash book.
(v) The bank wrongly debited ₹600 to Rana Hardware’s account.
- Start: overdraft as per passbook ₹30,000 → (−) column.
- (i) The cash book has deducted these cheques; the passbook has not. Cash book is lower (more overdrawn) → (−) 8,400.
- (ii) The cash book has added the deposits; the passbook has not. Cash book is higher → (+) 11,000.
- (iii) Only the passbook has deducted interest → cash book higher → (+) 900. (v) Only the passbook has the wrong debit → cash book higher → (+) 600.
- (iv) Only the passbook has added dividend → cash book lower → (−) 1,500.
- (+) = 11,000 + 900 + 600 = 12,500. (−) = 30,000 + 8,400 + 1,500 = 39,900. Balancing figure 27,400 in the (+) column → overdraft as per cash book.
Bank Reconciliation Statement of Rana Hardware as on 31 May 2026
| Particulars | (+) ₹ | (−) ₹ |
|---|---|---|
| Overdraft as per passbook | 30,000 | |
| Cheques deposited but not yet credited | 11,000 | |
| Interest on overdraft not entered in cash book | 900 | |
| Amount wrongly debited by the bank | 600 | |
| Cheques issued but not presented for payment | 8,400 | |
| Dividend collected by the bank | 1,500 | |
| Overdraft as per cash book | 27,400 | |
| 39,900 | 39,900 |
An overdraft can turn into a favourable balance (and the other way round) after reconciliation. For example, overdraft as per cash book ₹5,000 and cheques issued but not presented ₹9,000: −5,000 + 9,000 = +4,000, so the passbook shows a favourable balance of ₹4,000. Always read the answer from its column, never assume.
4. Why adjust the cash book first?
Look again at items like bank charges, interest on overdraft, dividend collected, direct deposits and dishonoured cheques. These are real transactions that the business has simply not recorded yet. They will never “sort themselves out”: the bank will never undo its charges. So the business must record them in its own cash book anyway. The same is true of the business’s own errors in the cash book.
Therefore, in practice, accountants work in two steps:
- Step 1: Prepare the amended (adjusted) cash book. Take the bank column balance and record all items the business has missed or recorded wrongly. The result is the correct bank balance of the business, the one shown in its balance sheet.
- Step 2: Prepare the BRS from the amended balance. Only the items that the bank has not yet recorded (cheques issued not presented, cheques deposited not collected) and the bank’s own errors remain.
| Item | Where it is dealt with |
|---|---|
| Bank charges, interest on overdraft, standing-instruction payments | Amended cash book (credit side) |
| Dishonoured cheques / bills not yet recorded | Amended cash book (credit side) |
| Interest / dividend collected, direct deposits | Amended cash book (debit side) |
| Errors in the cash book (wrong amount, casting, wrong column) | Amended cash book (either side, by effect) |
| Cheques issued but not presented | BRS |
| Cheques deposited but not collected / not sent to bank | BRS |
| Errors made by the bank | BRS |
“Our mistakes and our missing entries → our book. The bank’s delays and the bank’s mistakes → the BRS.”
5. Worked example: amended cash book + BRS
(i) Cheques issued but not presented ₹16,800.
(ii) Cheques deposited but not yet cleared ₹9,400.
(iii) Bank charges ₹350, not in cash book.
(iv) Interest ₹780 credited by the bank, not in cash book.
(v) A cheque of ₹5,000 from Ajay, deposited earlier, was dishonoured; not in cash book.
(vi) Electricity bill ₹2,650 paid by the bank on auto-debit, not in cash book.
(vii) Neha, a customer, paid ₹7,300 directly by UPI; not in cash book.
(viii) A cheque of ₹3,850 issued to Kishan Traders was recorded as ₹3,580.
Prepare the amended cash book and the BRS.
- Sort: (iii) to (viii) belong to the business → amended cash book. (i) and (ii) are the bank’s delays → BRS.
- Debit side of amended cash book: balance 62,000 + interest 780 + Neha 7,300 = 70,080.
- Credit side: bank charges 350 + Ajay 5,000 + electricity 2,650 + Kishan Traders 270 (the payment was understated by 3,850 − 3,580 = 270) = 8,270.
- Amended balance = 70,080 − 8,270 = ₹61,810 (debit).
- BRS: 61,810 + 16,800 (issued, not presented) − 9,400 (deposited, not cleared) = ₹69,210 as per passbook.
Amended Cash Book (Bank column only) of Mehta Sweets
| Dr. | Cr. | ||||
|---|---|---|---|---|---|
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| 2026 Apr 30 | To Balance b/d | 62,000 | 2026 Apr 30 | By Bank Charges A/c | 350 |
| Apr 30 | To Interest A/c | 780 | Apr 30 | By Ajay’s A/c (cheque dishonoured) | 5,000 |
| Apr 30 | To Neha’s A/c | 7,300 | Apr 30 | By Electricity A/c | 2,650 |
| Apr 30 | By Kishan Traders A/c (error) | 270 | |||
| Apr 30 | By Balance c/d | 61,810 | |||
| 70,080 | 70,080 | ||||
Bank Reconciliation Statement of Mehta Sweets as on 30 April 2026
| Particulars | (+) ₹ | (−) ₹ |
|---|---|---|
| Balance as per amended cash book | 61,810 | |
| Cheques issued but not presented for payment | 16,800 | |
| Cheques deposited but not yet cleared | 9,400 | |
| Balance as per passbook | 69,210 | |
| 78,610 | 78,610 |
Check with the Lesson 2 method: 62,000 + 780 + 7,300 − 350 − 5,000 − 2,650 − 270 + 16,800 − 9,400 = 69,210. Same answer. The amended cash book does not change the passbook figure; it only gives the business its correct bank balance and makes the BRS short.
Never put “cheques issued but not presented” in the amended cash book. The business recorded them correctly; it is the bank that is late. Entering them again would double-count them.
6. The entries behind the amended cash book
Each line of the amended cash book is an ordinary entry in the bank column. If the business did not keep a cash book, the same effects would be journalised. Try these two.
The bank statement shows bank charges of ₹350 that Mehta Sweets has not recorded. Which entry records it?
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
|---|---|---|---|---|
| 2026 Apr 30 | Bank Charges A/c Dr. | 350 | ||
| To Bank A/c | 350 | |||
| (Being bank charges debited by the bank) |
Ajay’s cheque of ₹5,000, deposited earlier, has been dishonoured. The bank has debited the account. Which entry records it in Mehta Sweets’ books?
| Date | Particulars | L.F. | Dr (₹) | Cr (₹) |
|---|---|---|---|---|
| 2026 Apr 30 | Ajay’s A/c Dr. | 5,000 | ||
| To Bank A/c | 5,000 | |||
| (Being Ajay’s cheque dishonoured) |
The cash book of Rohit Traders shows a bank balance of ₹40,000 (debit) on 30 June 2026. The bank statement shows: bank charges ₹200, interest credited ₹600, and a customer’s cheque of ₹3,000 dishonoured, none of which is in the cash book. Also, cheques of ₹5,000 issued have not been presented. What is the balance as per the amended cash book (in ₹)?
- Interest on overdraft charged by the bank
- Dividend collected by the bank
- Cheque deposited but not yet collected by the bank
- A cheque received recorded twice in the cash book
- a favourable balance
- an overdraft
- a nil balance
- nothing can be said
7. Exam tips
- When the question says “prepare the amended cash book and the BRS”, show both: first the bank column (Dr./Cr., To/By, balance c/d), then a short BRS starting with “Balance as per amended cash book”.
- For overdraft questions, write the words “Overdraft as per cash book / passbook” in the particulars, and label the final answer as “overdraft” or “favourable”.
- A 6-mark question often combines both methods, errors and partly presented cheques. Sort all items into “our book” and “BRS” before writing anything.
📌 Points to remember (Quick Revision)
- Overdraft = credit balance in the cash book = debit balance in the passbook; treat it as a negative figure.
- Start an overdraft in the (−) column and treat every other item exactly as for a favourable balance.
- Balancing figure in the (+) column = overdraft; in the (−) column = favourable balance.
- In practice the cash book is amended first: bank charges, interest, dividends, direct deposits, standing-instruction payments, dishonours and cash book errors go into it.
- The BRS from the amended balance contains only cheques not presented, cheques not collected and bank errors.
- The amended cash book balance is the correct bank balance shown in the balance sheet.
Pressing this saves your progress on this phone/computer.