Businesses use cash books to keep track of bank and cash transactions. The transactions in a cash book are matched with the business’s cash and bank transaction records. Sometimes, it may happen that the transactions in the cash book don’t reconcile with the balance shown in the passbook. This is precisely why a Bank Reconciliation Statement (BRS) is prepared – it helps to reconcile the differences between bank transactions as recorded by the cash book and passbook.
Want to understand the rules and benefits of a Bank Reconciliation Statement and how to prepare it? Keep reading!
A Bank Reconciliation Statement is a report prepared by businesses to match or reconcile the bank transactions as recorded by the cash book and the company’s passbook.
It also helps check the accuracy of the transactions recorded by the business and the bank transactions and is prepared periodically to identify errors that a business entity might have made while recording transactions in the cash book.
The process of preparing bank reconciliation statements is quite simple. It involves identifying and recording transactions on the company’s passbook and matching it with the transactions recorded by the bank. For the transactions that don’t match, proper corrections and adjustments are made to ensure that both passbooks reconcile.
Once the causes of differences in the bank balances are identified, a bank reconciliation statement is prepared in either of the following two ways:
Generally, a bank reconciliation statement is prepared after the adjustments have been made to the balance of the cash book of a company.
A business can prepare a bank reconciliation statement depending on the value and volume of bank transactions recorded by the business during a given period. It could be daily, weekly, monthly, quarterly, etc.
Preparing a Bank Reconciliation Statement in short intervals can help businesses maintain the accuracy of transactions and quickly identify any irregularities in the balance recorded by the business entity and the bank.
Here’s the procedure for preparing a bank reconciliation statement:
|XYZ Company’s Bank Reconciliation Statement for March 2021|
|Balance as per bank statement|
Add: Cheques deposited but not cleared
Less: Cheques issued but not cleared in the bank
|Balance as per company books |
Add: Amount credited in bank but not recordedInterest received
Less: Other charges not recorded in books
|Adjusted bank balance in books||2,79,250|
Suppose your cash books reflect an overdraft balance amounting to Rs.18,000. Use the following details to calculate the adjusted cash balance and prepare an accounting bank reconciliation statement.
|Date||Receipts||Amount (Rs.)||Date||Payments||Amount (Rs.)|
|Bills collected as per the pass book||1,600.00||Balance B/F||18,000.00|
|Cheque dishonoured (X)||1,000.00|
|Cheque issued to Y Pvt. Ltd.||600.00|
Bank Reconciliation Statement as on December 31, 2021
|Bank overdraft as per the cash book||Rs. 19,000|
|Add||Uncleared cheques||Rs. 3,400|
|Deduct||Unpresented cheques||Rs. 6,000|
|Bank overdraft as per the passbook||Rs. 16,400|
When bank reconciliation statements are prepared monthly, the entries made don’t lead to any discrepancies after a while. It would be a good practice to refer to the Bank Reconciliation Statement prepared at the end of the previous month. The items included must be compared to the items included in the new bank reconciliation statement. It would help get clarity on whether they have been cleared. If the entries have already been cleared, then they need not appear in the Bank Reconciliation Statement to be prepared at the end of the current month.
However, note that a Bank Reconciliation Statement is prepared only for reconciling any discrepancies and irregularities and rectifying errors from the bank statement and the cash book. It should not be considered an accounting record in itself.
Preparing bank reconciliation statements can help businesses in the following ways:
The difference between the balance reported in the bank column of the cash book and the passbook on any particular date is reconciled in a Bank Reconciliation Statement. It helps clarify discrepancies, reduces errors, helps keep track of transactions, and reduces the possibility of theft and fraud. For all businesses, a Bank Reconciliation Statement is a crucial document and must be prepared periodically for the smooth running of the company.
Ans: There are five main types of account reconciliation, including bank reconciliation, vendor reconciliation, customer reconciliation, inter-company reconciliation and business-specific reconciliation.
Ans: When you receive your statement at the end of the month or take the information from your online banking records, you can perform a bank reconciliation. Comparing your statements, altering your balances, and documenting the reconciliation are the three main steps you need to follow.
Ans: Reconciliation of statements is the process of comparing transactions and activities recorded by a business and the bank. Furthermore, reconciliation involves resolving any irregularities and discrepancies that may have been identified during the process.
Ans: Preparing a bank reconciliation statement is important because it helps businesses identify errors in transactions recorded by a business. Furthermore, it helps identify differences between the bank statement and the accounting records. A bank reconciliation statement can also help businesses identify potential fraud risks to safeguard the business against losses.
Ans: A person who is not actively involved in the disbursement and cash receipts functions.
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