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Learners preparing a bank reconciliation statement keep getting the add or deduct sign wrong and the statement does not balance.
From the cash book, add items that make the passbook higher and deduct items that make it lower. From the passbook, reverse every sign. Prove with matching adjusted balances.
Eight standard items: unpresented cheque, uncredited deposit, direct credit, direct debit, bank charge, interest credited, dishonoured cheque, bank error.
A BRS that reaches the other balance exactly, plus an adjusted balance figure reached from both sides as proof.
Starting from the cash book balance, add the items that make the passbook higher (cheques you issued that are not yet presented, money the bank credited that you have not booked) and deduct the items that make it lower (deposits not yet credited, amounts the bank debited that you have not booked). Starting from the passbook balance, every sign flips.
The eight items and their signs
This table assumes a normal positive bank balance. (An overdraft flips things again; see the overdraft article in this series.)
| Item | Why it arises | Starting from cash book | Starting from passbook |
|---|---|---|---|
| Cheque issued, not yet presented | You recorded the payment; the bank has not paid it | Add | Deduct |
| Cheque or cash deposited, not yet credited | You recorded the receipt; the bank has not credited it | Deduct | Add |
| Direct credit by a customer (NEFT, UPI, RTGS) not in books | Bank credited it; you do not know yet | Add | Deduct |
| Direct debit (EMI, NACH, standing instruction) not in books | Bank debited it; you have not recorded it | Deduct | Add |
| Bank charges not in books | Bank debited them | Deduct | Add |
| Interest credited by bank, not in books | Bank credited it | Add | Deduct |
| Customer cheque dishonoured, not in books | Bank reversed the credit | Deduct | Add |
| Bank error | Depends: does it make the passbook higher or lower than it should be? | Higher: add; lower: deduct | Higher: deduct; lower: add |
Why do all the signs flip when you start from the passbook?
A BRS is a walk from one balance to the other. If an item makes the passbook ₹10,000 higher than the cash book, you add ₹10,000 when walking from the cash book to the passbook. Walking the other way, from the passbook to the cash book, you must take that ₹10,000 off. Same item, opposite direction, opposite sign.
Memory rule: ask “Does this item make the balance I am heading towards higher or lower?” Higher, add. Lower, deduct.
Worked example: both routes
On 31 March the cash book shows ₹4,72,500 and the passbook shows ₹4,91,060. Ticking finds six items.
| Item | Amount (₹) | From cash book | From passbook |
|---|---|---|---|
| Cheque issued, not presented | 18,000 | + 18,000 | − 18,000 |
| Deposit not yet credited | 11,700 | − 11,700 | + 11,700 |
| Bank charges | 590 | − 590 | + 590 |
| Interest credited | 1,250 | + 1,250 | − 1,250 |
| NEFT receipt from a customer | 24,000 | + 24,000 | − 24,000 |
| Loan EMI debited | 12,400 | − 12,400 | + 12,400 |
Route 1, from the cash book: ₹4,72,500 + ₹18,000 − ₹11,700 − ₹590 + ₹1,250 + ₹24,000 − ₹12,400 = ₹4,91,060. That is the passbook balance.
Route 2, from the passbook: ₹4,91,060 − ₹18,000 + ₹11,700 + ₹590 − ₹1,250 − ₹24,000 + ₹12,400 = ₹4,72,500. That is the cash book balance.
How do you know the signs are right?
Split the items into two groups.
- Bank-only items (you have not booked them): charges ₹590, interest ₹1,250, NEFT receipt ₹24,000, EMI ₹12,400. These need entries in your books.
- Timing items (the bank has not caught up): cheque not presented ₹18,000, deposit not credited ₹11,700. These need no entry.
Adjusted cash book: ₹4,72,500 + ₹24,000 + ₹1,250 − ₹590 − ₹12,400 = ₹4,84,760.
Adjusted passbook: ₹4,91,060 − ₹18,000 + ₹11,700 = ₹4,84,760.
Both are ₹4,84,760. That is your true bank balance on 31 March, and the figure that should appear in your balance sheet once the bank-only entries are posted. If the two adjusted balances differ, one sign or one item is wrong.
What to read next
- Next in this series: How to do a bank reconciliation step by step: a worked example in ₹
- Go deeper: Bank reconciliation statement (BRS) in India: format and preparation
- Background: What is a reconciliation statement?
- For teams: Bank reconciliation software for India
TransactIG matches bank statement lines to the books and lists what is left in an exception queue, so the items you need to sign are already sorted for you.