Bank Reconciliation Statement NOTES
Bank Reconciliation Statement NOTES
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.
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.
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.
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.
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.
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.
Firstly, it’s essential to have all the required documentation and information in hand. That means, if
all the required documentation and information are at your disposal you get a better view of things.
Not accounting for a transaction that would cause a difference equal to the missed amount
Errors while entering commas and dots, which cause discrepancies that, could be of significant value.
For instance, instead of entering INR 2,401.30, entering INR 240.13.
Banks can make mistakes too: It is possible that your bank might have committed a mistake. They
might debit incorrect amounts from your account or credit deposits that don’t belong to you. For
this reason, in case you find errors for which you don’t find any explanations, or for which you’re in
doubt, the best thing is to consult your bank.
Reconciling items: Listing differences and reconciling them and then forgetting it is possible. In case
differences keep on accumulating with no action taken, your bank reconciliation would become
meaningless. It is needed that a constant check is kept on the reconciled transactions so that they
are reflected in the right way in the bank column of the cash book and in the bank statement.