When we look at the various items that normally cause the difference between the cash book balance and the pass book balance, we find a number of items which appear only in the pass book. Why not record such items in the cash book before preparing the Bank Reconciliation Statement? This shall reduce the number of items responsible for the difference.
So, as soon as the pass book is received, the firm may record all those items in the cash book which appear only in pass book and work out a fresh balance of the cash book. This is called 'adjusted balance' or 'corrected balance' as per cash book. Similarly, it may also pass correcting entries for the errors committed in the cash book and adjust the cash book balance.
When we work out an adjusted balance of the cash book as above, the Bank Reconciliation Statement may be prepared with this adjusted balance, This would reduce the number of items shown in the Bank Reconciliation Statement. As a matter of fact, this is exactly what is done in practice.
The items which can usually be adjusted in the cash book are : 1. Interest allowed by bank, 2. Amounts collected by bank as per standing instructions, 3. Payments made by bank as per standing instructions, 4. Bank charges, 5. Interest on overdraft, 6. Direct deposits by customers, 7. Dishonored cheques or bills receivable, 8. Errors committed in the cash book.