Topic – 3 Bank Reconciliation Statement

Meaning
Businesses maintain cash books to record both cash as well as bank transactions.

A Cashbook has a cash column that shows cash available with the business and a bank
column that shows cash at the bank.

Bank also keeps an account for every customer in their books. All the deposits are recorded
on the credit side of the customer’s account and withdrawals are on the debit side of their
account. An account statement is sent regularly to the customers by the bank.

Sometimes the bank balances as per the cash book and bank statement doesn’t match. In
case the balance available in the passbook doesn’t match the bank column of the cash book,
the business should identify the reasons for the same.

It is important to reconcile the differences. For reconciling the balances as shown in the
Cash Book and passbook a reconciliation statement is prepared known as Bank
Reconciliation Statement or BRS.

In other words, BRS is a statement that is prepared for reconciling the difference between
balances as per the cash book’s bank column and passbook on a given date.

Bank Reconciliation Statement is a record book of the transactions of a bank account. This
statement helps the account holders to check and keep track of their funds and update the
transaction record that they have made. Bank Reconciliation statement is also known as
bank passbook. The balance mentioned in the bank passbook of the statement must tally
with the balance mentioned in the cash book. In the statement, all the deposit will be shown
in the credit column and withdrawals will be shown in the debit column. However, if the
withdrawal exceeds deposit it will show a debit balance (overdraft).

Definition of Bank Reconciliation Statement

A bank reconciliation is a schedule explaining any differences between the balance shown
in the bank statement and the balance shown in the depositor’s accounting record.

A Bank reconciliation statement or schedule is a schedule the depositor prepares to

reconcile or explain the difference between the cash balance on the bank statement and the
cash balance on the depositor’s books.

A business concern prepares a bank reconciliation statement to ascertain the correct cash
balance and correct cash balance in the ledger, passing necessary journal entries.
Why Prepare a BRS?

It‘s not compulsory to prepare a BRS and there’s no fixed date for preparing BRS.

BRS is prepared on a periodical basis for checking that bank related transactions are
recorded properly in the cash book’s bank column and also by the bank in their books. BRS
helps to detect errors in recording transactions and determining the exact bank balance as
on a specified date.

How to prepare a BRS

• The first step is to compare opening balances of both the bank column of the cash
book as well as bank statement; these could be different due to un-credited or un-
presented cheques from a previous period.

• Now, compare the credit side of the bank statement with the debit side of the bank
column of the cash book and the debit side of the bank statement with the credit side
of the bank column of the cash book. Place a tick against all the items appearing in
both the records.

• Analyze the entries both in the bank column of the cash book as well as the passbook
and look for entries that have been missed to be posted in the bank column of the cash
book. Make a list of such entries and make the necessary adjustments in the cash
book.

• Correct if any mistakes or errors appear in the cash book.

• Calculate the corrected and revised balance of the cash book’s bank column.

• Now, start the bank reconciliation statement with an updated cash book balance.

• Add the un-presented cheques (cheques which are issued by the business firm to its
creditors or suppliers but not presented for payment – Expense) and deduct un-
credited cheques (Cheques paid into the bank but not yet collected – Income).

• Make all the necessary adjustments for the bank errors. In case the bank
reconciliation statement begins with the debit balance as per the bank column of the
cash book, add all the amounts erroneously credited by the bank and deduct all the
amounts erroneously credited by the bank. Do vice-versa in case its start with the
credit balance.

• The resultant figure must be equal to the balance as per the bank statement.
Benefits of preparing a BRS

Accounting errors could lead to circumstances that are more than just embarrassing when
the cheques bounce or companies start getting annoying calls from creditors or suppliers
for payments that are already released.

Bank reconciliations assist you in spotting fraud and reducing the risk of transactions that
could cause penalties and late fees. BRS offers several advantages to a business which
includes:

Detecting errors: A bank reconciliation helps you in spotting accounting errors that are
common to every business. These mistakes include errors such as addition and subtraction,
missed payments and double payments.

Tracking Interest and Fee: Banks might add interest payments, fees or penalties to your
account. Monthly bank reconciliation allows you to add or subtract such amounts in your
books.

Detecting Fraud: You may not be able to prevent employees from stealing your money once,
however, you could prevent it in future. Bank reconciliations statement helps you in
detecting and spotting fraudulent transactions. It is advisable to employ an independent
person to perform the reconciliations for preventing the accounting employee from
falsifying your books and reconciliations.

Tracking Receivables: BRS allows you to confirm all your receipts, assisting you to avoid
awkward situations and also identifying entries for receipts that you didn’t deposit.
 The Specimen of Bank Reconciliation Statement

In the Books Of……..

Bank reconciliation Statement as on……..

Particular Amt Amt

Bank balance as per cash-Book ****

Add i) Cheques issued but not yet debited by the Bank.

ii) Interest credited by the Bank but not yet entered in the ****
Cash-Book

iii) Cheques or Cash directly deposited by the part in the ****

Bank account but not yet entered in the Cash- Book
( e.g. dividend, bills collected by the Bank)

iv) Cheques issued by us but cancelled or dishonoured ****

subsequently and the cancellation or dishonour not yet
recorded in the Cash-Book

v) Excess balance shown by the bank due to mistake in **** ****

totaling or balancing

Total *****

Less i) Cheques deposited but not yet credited by the Bank ****
Pass-Book

ii) Cheques deposited into Bank and dishonoured by the ****

part but the dishonoured not yet recorded in the Cash-
Book

iii) Interest charged by the Bank but not yet entered in the ****
cash-Book

iv) Bank charges/commission/postage debited by the bank ****

but not yet entered in the Cash-Book

v) Direct payments made by the Bank (i.e. insurance ****

premium etc) but not yet entered in the Cash-Book

vi) Less balance shown by the bank due to mistake in **** ****
totaling or balancing

Bank Balance as per Pass- Book (Total) ****