Bank Reconciliation Statement
1. Introduction
- A Bank Reconciliation Statement (BRS) is a document that reconciles the bank balance as per the Cash Book with the balance as per the Bank Statement (Passbook).
- Ensures the accuracy and completeness of the cash records maintained by the business and the bank.
2. Need for Reconciliation
- Differences between the Cash Book and the Bank Statement balances can arise due to timing differences, errors, or omissions.
- Reconciliation helps identify these discrepancies and ensures that the records are correct and up-to-date.
3. Reasons for Differences
- Cheques issued but not yet presented: Cheques issued by the business that have not been presented for payment by the recipient.
- Cheques deposited but not yet credited: Cheques deposited in the bank but not yet credited to the business’s account by the bank.
- Bank charges: Charges deducted by the bank which are not yet recorded in the Cash Book.
- Direct credits: Amounts directly deposited into the bank account, not yet recorded in the Cash Book.
- Direct debits: Payments directly made by the bank on behalf of the business, not yet recorded in the Cash Book.
- Errors: Mistakes made in recording transactions in either the Cash Book or the Bank Statement.
4. Format of Bank Reconciliation Statement
- There is no standard format, but it generally includes:
- Starting Balance: Balance as per the Cash Book or Bank Statement.
- Additions: Items to be added to the starting balance.
- Subtractions: Items to be subtracted from the starting balance.
- Adjusted Balance: The reconciled balance which should match the corresponding balance in the Bank Statement or Cash Book.
5. Steps to Prepare a Bank Reconciliation Statement
- Identify the Starting Point: Decide whether to start with the balance as per the Cash Book or the Bank Statement.
- List the Differences: Identify and list all items causing the difference between the Cash Book and Bank Statement balances.
- Adjust the Balance: Adjust the starting balance by adding or subtracting the identified items.
- Reconcile: Ensure the adjusted balance matches the corresponding balance in the Bank Statement or Cash Book.
6. Example of Bank Reconciliation Statement
Assume the following details:
- Balance as per Cash Book: ₹10,000
- Cheques issued but not presented: ₹2,000
- Cheques deposited but not credited: ₹1,500
- Bank charges: ₹100
- Direct credit by bank: ₹500
Bank Reconciliation Statement as on [Date]
| Particulars | Amount (₹) |
|---|---|
| Balance as per Cash Book | 10,000 |
| Add: Cheques issued but not presented | 2,000 |
| Add: Direct credit by bank | 500 |
| Less: Cheques deposited but not credited | 1,500 |
| Less: Bank charges | 100 |
| Adjusted Balance | 10,900 |
- The adjusted balance of ₹10,900 should match the balance as per the Bank Statement.
7. Importance of Bank Reconciliation
- Ensures the accuracy of cash records and bank records.
- Helps detect and prevent errors and fraud.
- Provides an accurate picture of the business’s cash position.
- Assists in managing cash flows more effectively.
8. Common Adjustments in Bank Reconciliation Statement
- Outstanding cheques: Cheques written by the company that have not been cashed.
- Deposits in transit: Deposits recorded in the company’s books but not yet reflected in the bank statement.
- Service charges: Fees charged by the bank for account maintenance or other services.
- Interest income: Interest earned on the bank account that has not been recorded in the company’s books.
- NSF (Non-Sufficient Funds) checks: Checks received and deposited by the company that have bounced.
By understanding and applying these principles, students can ensure that their financial records are accurate and up-to-date, facilitating better financial management and decision-making.
