Bank Overdraft in Bank Reconciliation Statement: Plus and Minus Rules

Bank Reconciliation Statement becomes much easier when the bank balance is favourable. You start with one balance, add a few items, deduct a few items, and reach the other balance.

But the moment the question says overdraft, many students feel as if the plus and minus signs have changed their meaning.

They have not changed. The balance has changed.

An overdraft is not money lying in the bank. It is money owed to the bank. That one idea explains almost every sign mistake in Bank Reconciliation Statement questions.

If you try to memorise a separate rule for every item, overdraft questions become tiring. If you understand the direction of the balance, the rules start making sense.

What Bank Overdraft Means in BRS

Bank overdraft means the business has withdrawn more from the bank than the amount available in the account.

In simple words, the bank account has gone below zero.

For the business, this is a liability. The business owes money to the bank. That is why it is called an unfavourable balance.

In Bank Reconciliation Statement questions, overdraft may be shown in two common ways:

Given in the question	What it means
Credit balance as per cash book	Overdraft as per cash book
Debit balance as per pass book	Overdraft as per pass book

This difference happens because the cash book is maintained by the business, while the pass book is maintained by the bank. The two records look at the same account from opposite sides.

So before solving, do not only look at the word “debit” or “credit”. Look at which book the balance belongs to.

Why Plus and Minus Feel Reversed

Imagine a normal bank balance of Rs. 10,000.

If the bank adds Rs. 2,000, the balance becomes Rs. 12,000. That feels like an increase.

Now imagine an overdraft of Rs. 10,000.

If the bank adds Rs. 2,000 to the account, the overdraft becomes Rs. 8,000. The amount owed to the bank reduces.

This is the heart of the confusion.

For a favourable balance:

More money in bank = higher balance
Less money in bank = lower balance

For an overdraft:

More money in bank = lower overdraft
Less money in bank = higher overdraft

That is why an item that is added in a favourable-balance question may be deducted in an overdraft question.

You do not have to show the minus sign in the final statement if your teacher expects the usual format. Use it only to think clearly.

The First Question to Ask

Before looking at any adjustment, ask:

Am I starting with cash book or pass book?

Then ask:

Is the starting balance favourable or overdraft?

These two answers decide your direction.

For this blog, we will focus on the most confusing situation: starting with overdraft.

There are two common forms:

• overdraft as per cash book, and you have to find overdraft as per pass book
• overdraft as per pass book, and you have to find overdraft as per cash book

Both are easy if you remember one principle.

That question is slower at first, but it is far more reliable.

Starting With Overdraft as per Cash Book

Suppose the question gives:

This means the business record already shows that the bank account is overdrawn by Rs. 8,000.

Now you are trying to find the pass book figure. So you must ask what the bank has or has not recorded compared with the business.

Let us look at the common adjustments.

Cheques Deposited but Not Yet Cleared

When a cheque is deposited into the bank, the business may record it immediately in the cash book.

But the bank will increase the account only after the cheque is cleared.

So if the cheque is deposited but not cleared, the cash book has already improved the balance, while the pass book has not improved it yet.

In an overdraft question, this means:

• cash book overdraft is lower because the cash book has recorded the deposit
• pass book overdraft is higher because the bank has not credited it yet

So, when starting with overdraft as per cash book, cheques deposited but not cleared are added to overdraft.

This is where many students make the wrong move. They remember that cheques deposited usually increase bank balance, so they add it to a favourable balance. But here the starting point is overdraft. The cheque would have reduced the overdraft if the bank had cleared it. Since the bank has not cleared it, the pass book overdraft remains higher.

Cheques Issued but Not Presented

When the business issues a cheque, it records the payment in the cash book.

But the bank reduces the account only when the cheque is presented and paid.

So if the cheque is issued but not presented, the cash book has already reduced the balance, while the pass book has not reduced it yet.

In an overdraft question, this means:

• cash book overdraft is higher because the cash book has recorded the payment
• pass book overdraft is lower because the bank has not paid the cheque yet

So, when starting with overdraft as per cash book, cheques issued but not presented are deducted from overdraft.

If the bank has not paid it yet, the pass book will show a better position than the cash book. In overdraft language, a better position means a smaller overdraft.

Bank Charges and Interest on Overdraft

Bank charges, cheque collection charges, and interest on overdraft are usually recorded by the bank first.

The business may come to know about them only after checking the bank statement.

These charges reduce the bank balance. If the account is already overdrawn, they increase the overdraft.

So, when starting with overdraft as per cash book:

• bank charges not entered in the cash book are added to overdraft
• interest on overdraft not entered in the cash book is added to overdraft
• direct payments made by bank but not recorded in cash book are added to overdraft

The reason is simple: the bank has already reduced the account, but the cash book has not.

Read the words carefully. If the question says the bank has debited the amount and it is not entered in the cash book, the pass book has already become more unfavourable.

Direct Deposits and Interest Credited by Bank

Sometimes a customer deposits money directly into the bank account. Sometimes the bank collects interest or dividend on behalf of the business.

In these cases, the pass book improves first, while the cash book may not show the amount yet.

If the account is overdrawn, this reduces the overdraft.

So, when starting with overdraft as per cash book:

• direct deposit by customer is deducted from overdraft
• interest credited by bank is deducted from overdraft
• dividend collected by bank is deducted from overdraft

Why? Because the bank has already added money to the account, so the pass book overdraft is lower than the cash book overdraft.

A Complete Overdraft Example

Let us solve a small example slowly.

Now think in rough work:

Overdraft as per cash book = Rs. 8,000
Cheques deposited but not cleared = add Rs. 2,000
Cheques issued but not presented = deduct Rs. 800
Interest on overdraft = add Rs. 60
Bank charges = add Rs. 100

So:

8,000 + 2,000 - 800 + 60 + 100 = 9,360

The answer is:

Overdraft as per pass book = Rs. 9,360

Notice what happened. The cheque deposited but not cleared increased the overdraft as per pass book. The cheque issued but not presented reduced it. Bank charges and interest increased it.

This is not a trick. It is just the effect of each item on a negative balance.

Starting With Overdraft as per Pass Book

Now let us reverse the situation.

Suppose the question gives overdraft as per pass book and asks you to find overdraft as per cash book.

In that case, you are moving from the bank’s record to the business record.

The treatment of the common items generally reverses.

Item	Starting with overdraft as per pass book
Cheques deposited but not cleared	Deduct from overdraft
Cheques issued but not presented	Add to overdraft
Bank charges not recorded in cash book	Deduct from overdraft
Interest on overdraft not recorded in cash book	Deduct from overdraft
Direct deposit by customer not recorded in cash book	Add to overdraft
Interest or dividend credited by bank only	Add to overdraft
Direct payment by bank not recorded in cash book	Deduct from overdraft

This table is useful, but do not memorise it blindly. Understand why it works.

If bank charges are already in the pass book but not in the cash book, the pass book overdraft is higher. To reach the cash book overdraft, you deduct them.

If a customer has paid directly into the bank and the cash book has not recorded it, the pass book overdraft is lower. To reach the cash book overdraft, you add it.

The logic stays the same. Only the starting point changes.

The Four-Step Method for Any Overdraft Question

Use this method in every Bank Reconciliation Statement overdraft question.

Step 1: Mark the Starting Balance

Write one of these clearly:

OD as per cash book
OD as per pass book

Do not begin the adjustments until this is clear.

Step 2: Decide Which Book Has Recorded the Item

For every adjustment, ask:

• Has the cash book recorded it?
• Has the pass book recorded it?
• Has both recorded it?
• Has neither recorded it?

If both books have recorded it correctly, it is usually not a reconciliation item.

If only one book has recorded it, it may explain the difference.

Step 3: Ask Whether the Overdraft Becomes Bigger or Smaller

This is the most important step.

Do not ask whether the item is “good” or “bad” in general. Ask what it does to the overdraft in the book you are trying to reach.

If it makes the overdraft bigger, add it to the overdraft.

If it makes the overdraft smaller, deduct it from the overdraft.

Step 4: Present the Final Answer Clearly

In the final line, write whether the answer is:

Overdraft as per pass book

or

Overdraft as per cash book

Do not simply write “balance”. In overdraft questions, the final word matters.

A Simple Memory Hook

Here is a practical way to remember the common items when starting with overdraft as per cash book:

Bank has not credited my deposit yet = overdraft becomes bigger
Bank has not paid my issued cheque yet = overdraft becomes smaller
Bank has charged me = overdraft becomes bigger
Bank has received money for me = overdraft becomes smaller

This is easier than memorising columns.

If the answer is “owe more”, add to overdraft. If the answer is “owe less”, deduct from overdraft.

Common Mistakes Students Make

The first mistake is treating overdraft like a normal balance.

If you do that, almost every sign will feel confusing. Always write “negative balance” in rough work.

The second mistake is using one rule for every starting point.

The treatment changes when you start from cash book instead of pass book. It also changes when you start from favourable balance instead of overdraft.

The third mistake is reacting to the item name without reading the full line.

“Cheque deposited” is not enough. You must read whether it was cleared, not cleared, entered in cash book, omitted from cash book, wrongly recorded, or dishonoured.

The fourth mistake is ignoring bank-only items.

Bank charges, interest on overdraft, direct payments, direct deposits, and interest credited by bank are often recorded by the bank first. They matter because the cash book may not have caught up yet.

The fifth mistake is writing the final answer without saying whether it is overdraft.

If the answer is an overdraft, write it clearly. Do not leave the examiner guessing.

How to Check Your Answer

After solving, do a quick reasonableness check.

If most items are bank charges, interest on overdraft, dishonoured cheques, or cheques deposited but not cleared, the overdraft will usually become larger.

If most items are direct deposits, interest credited by the bank, or cheques issued but not presented, the overdraft may become smaller.

Sometimes the final answer may even turn into a favourable balance if the positive items are strong enough. That is not impossible. It simply means the other book shows money in the bank after considering all differences.

Bank Reconciliation Statement is not asking you to guess. It gives you the clues. Your job is to identify the starting book, understand who recorded each item first, and then decide whether the overdraft becomes bigger or smaller.

Once you do that, plus and minus signs stop feeling random.

Frequently Asked Questions

What is bank overdraft in Bank Reconciliation Statement?

Bank overdraft means the business has withdrawn more money than it has in the bank account. In BRS questions, it is an unfavourable balance. It may appear as a credit balance as per cash book or a debit balance as per pass book.

Why do plus and minus signs change in overdraft questions?

The signs feel different because overdraft is a negative balance. An item that increases a normal bank balance may reduce an overdraft, while an item that decreases a normal bank balance may increase an overdraft.

If overdraft as per cash book is given, what happens to cheques deposited but not cleared?

They are added to overdraft. The cash book has already recorded the deposit, but the bank has not cleared it yet. So the pass book overdraft will be higher than the cash book overdraft.

If overdraft as per cash book is given, what happens to cheques issued but not presented?

They are deducted from overdraft. The cash book has already recorded the payment, but the bank has not paid the cheque yet. So the pass book overdraft will be lower than the cash book overdraft.

How should I remember bank charges in overdraft questions?

Bank charges and interest on overdraft make the overdraft worse if they are recorded in the pass book but not in the cash book. So, when starting with overdraft as per cash book, add them. When starting with overdraft as per pass book, deduct them.

What is the safest way to avoid sign mistakes in BRS overdraft questions?

Write the overdraft as a negative figure in rough work, identify the starting book, and ask whether each item makes the overdraft bigger or smaller. Then present the answer in the format expected in class.