Preparation of Bank Reconciliation Statement

Bank Reconciliation Statement (BRS) is a document that helps reconcile the differences between the bank balance as per the bank statement and the balance as per the company’s cash book. This statement is essential for ensuring that a business’s financial records align with the actual transactions processed by the bank. It helps identify discrepancies due to timing differences, errors, and omissions.

Purpose of Bank Reconciliation Statement:

1. Error Detection:

It helps in identifying errors made in either the bank’s records or the company’s cash book.

2. Fraud Prevention:

Regular reconciliations can help uncover unauthorized transactions.

3. Cash Flow Management:

By maintaining accurate cash records, businesses can better manage their cash flow.

4. Financial Reporting:

It ensures that financial statements reflect the true financial position of the business.

5. Bank Charges and Interest:

It helps track any bank fees or interest that may not have been recorded in the cash book.

Steps to Prepare a Bank Reconciliation Statement:

1. Gather Bank Statements and Cash Book:

Obtain the latest bank statement and the cash book balance for the same period.

2. Compare Balances:

Start by comparing the ending balance in the cash book with the balance in the bank statement.

3. Identify Differences:

Note down any discrepancies. Common differences include outstanding checks, deposits in transit, bank charges, direct deposits, and errors.

4. Adjust the Balances:

Adjust the cash book balance and bank statement balance to reflect the correct figures.

5. Prepare the BRS:

Present the findings in a structured format.

Example of Bank Reconciliation Statement Preparation

Let’s say a company has the following balances:

• Cash Book Balance: ₹50,000
• Bank Statement Balance: ₹48,000

Identified Differences:

1. Outstanding Checks: ₹10,000 (checks issued but not yet cleared by the bank)
2. Deposits in Transit: ₹12,000 (deposits made but not yet reflected in the bank statement)
3. Bank Charges: ₹2,000 (bank fees not recorded in the cash book)
4. Direct Deposits: ₹2,000 (money received directly by the bank not recorded in the cash book)

Bank Reconciliation Statement Format:

Explanation of Each Entry

1. Balance as per Cash Book: This is the balance available in the company’s cash book as of the date of reconciliation.
2. Deposits in Transit: These are amounts that have been deposited by the company but are not yet reflected in the bank statement. Adding this amount adjusts the cash book balance upward.
3. Outstanding Checks: These are checks issued by the company that have not yet been cleared by the bank. Subtracting this amount adjusts the cash book balance downward.
4. Bank Charges: These are fees charged by the bank for account maintenance or other services. If these charges are not recorded in the cash book, they need to be subtracted from the cash book balance.
5. Direct Deposits: These are amounts received directly into the bank account that have not yet been recorded in the cash book. Adding this amount adjusts the cash book balance upward.
6. Adjusted Cash Book Balance: After making all adjustments, this is the reconciled cash book balance.
7. Balance as per Bank Statement: This is the ending balance shown in the bank statement as of the date of reconciliation.

8. Adjusted Bank Balance: After accounting for deposits in transit and outstanding checks, this is the reconciled bank statement balance.