Accounting: Unfavorable Balances and Procedure for BRS under unfavorable balance

Get unlimited access to the best preparation resource for IAS/Mains/Optional Public-Administration: Get detailed illustrated notes covering entire syllabus: point-by-point for high retention.

Download PDF of This Page (Size: 134K)

Unfavorable Balances

  • Firm’s withdrawals are more compared to deposits. It is aunfavorable condition for the firm.

  • Credit balance as per cash book (overdraft) is given and the balance as per pass book is to be ascertained.

  • Debit balance as per pass book (overdraft) is given and the balance as per cash book is to be ascertained.

Procedure for BRS under Unfavorable Balance

If we take starting balance as per Cash Book

  • Add all the transactions that have resulted in increasing the balance of pass book.

  • Deduct all transactions that have resulted in decreasing the balance of pass book.

  • Extract the net overdraft balance shown by the statement which should be same as shown in the pass book.

If we take starting balance as per Pass Book

  • Add all the transactions that have resulted in increasing the balance of cash book.

  • Deduct all transactions that have resulted in decreasing the balance of cash book.

  • Extract the net overdraft balance shown by the statement which should be same as shown in the cash book.

Note: Starting balance is negative and should be recorded under minus amount column.

Example:

On December 31, 2006, the cash book of the M/s. Mona Plastics shows the credit balance Rs.6, 500. Cheques amounting to Rs.3, 500 deposited into bank but were not collected by the bank. Firm issued cheques of Rs. 1,000 which were not presented for payment. There was a debit in the pass book of Rs.200 for interest and Rs.400 for bank charges. Prepare Bank Reconciliation Statement.

Solution:

If we take starting balance as per Cash Book

Bank Reconciliation Statement of M/s Mona Plastics as on December 31, 2006

Table Supporting: Procedure for BRS under unfavorable balance

Tablutation of: Particulars, (Plus)Amount (Rs.), (Minus)Amount (Rs.)

Particulars

(Plus)

Amount (Rs.)

(Minus)

Amount (Rs.)

  1. Balance as per Cash Book

  2. Cheques issued but not presented for payment

  3. Cheques deposited but not credited by the bank

  4. Bank charges interest charged

Overdraft balance as per bank pass book

1,000

9,600

6,500

3,500

600

10,600

10,600

Example:

From the following particulars of Neha and Co. prepare Bank Reconciliation Statement on March 31, 2006

Overdraft as per pass book Rs.16, 500

Interest on overdraftRs.1, 600

Insurance premium paid by the bank Rs.800

Cheques deposited but not yet credited Rs. 5,500

Cheques issued but not present for payment Rs. 6,000

Wrongly credit to firm account by the bank Rs. 1,000

Solution:

If we take starting balance as per Pass Book

Bank Reconciliation Statement of M/s Neha & Co as on March 31, 2006

Table Supporting: Procedure for BRS under unfavorable balance

Tablutation of: Particulars, (Plus)Amount (Rs.), (Minus)Amount (Rs.)

Particulars

(Plus)

Amount (Rs.)

(Minus)

Amount (Rs.)

  1. Overdraft as per Pass Book

  2. Interest on overdraft

  3. Insurance premium paid by bank

  4. Cheques deposited but not credited by the bank

  5. Cheques issued but not present for payment

  6. Wrongly credited by bank

Overdraft Balance as per cash book

1,600

800

5,500

15,600

16,500

6,000

1,000

23,500

23,500

Developed by: