Bank Reconciliation Statement

To keep a record of business transactions, a Bank Reconciliation Statement (BRS) comes into play. Bank Reconciliation Statement is a statement which records differences between the bank statement and general ledger. The amount specified in the bank statement issued by the bank and the amount recorded in the organization’s accounting book maintained by Chartered Accountant might differ. A BRS checks entries on a monthly basis to avoid any future discrepancy. A BRS means matching records for a cash account entry corresponding to the bank statement. BRS checks the dissimilarity found between the two and makes appropriate changes.

A bank reconciliation statement is a summary of business activity that reconciles financial details. It ensures that payments have been processed and money has been deposited on the same date. An accountant prepares the reconciliation statement once a month.

Bank Reconciliation Format
Particulars	Amount (rs.)
Balance as per passbook (positive) (Favourable)		10,000
Add. 2) Cheque deposited but not credited 4) Bank charges unrecorded	2,000 10	2,010
Less: Cheque issued but not cleared Bank interest received unrecorded in cash book	5,000 50	12,010   5050
Calculate Balance as per Cash Book (Dr) (Positive) (Fovourable)		6960

The bank prepares a bank statement including cash deposits and withdrawals for a month. Whereas, accounting record book records the same entries by the hands of the accountant.

Due to the difference in publishing firms, errors might creep in. Bank reconciliation helps in substituting those differences. In simple words, to eradicate two different versions of the same document.

Difference Between Bank Reconciliation Statement and Company’s Ledger

Cheque issued by the company not delivered for payment

Before the end of the month (i.e. time of BRS generation) if a company issues a cheque and it is not handed for payment, it would not be counted as debit amount. This might become a discrepancy.

Deposits entered in ledger but not stated in the bank statement

The depositor might submit some amount in his account. If the payment is not recorded in the bank statement, it will make a difference. Whereas a depositor will never forget to add an entry for the same.

Interest rates may differ

The interest rates differ from bank to bank. Ledger may contain entries with a slight difference in interest. Also, interests on some entries might out in ledger!

Service charges might not be applied properly

Banks provide various services to their users with applicable service charges. Like interest rates, service charges can be missed.

NSF Check might cause an error

NSF (Not Sufficient Funds) is a highlighted issue. Bank officials add money in beneficiary’s account after receiving a cheque.

If a sufficient amount is not present in payee’s account, it deducts the amount from the beneficiary’s account.

The bank returns the cheque to the payee with NSF Check. The entry might be saved as an added amount and causes an error in the company’s ledger.

Steps to Prepare Bank Reconciliation Statement

Initial Check

First of all, compare the records in the company’s bank statement and ledger cash account. Check off records that match. Check whether all records in ledger clear the bank account statement. Reconciliation at this stage removes major faults.

Deposit Check

Once the initial check is complete, mark all items remained in the ledger. Add any transit deposits accounted in ledgers that might not appear in the bank statement. Hence, the case of transit deposits occurs due to transactions made just before bank holidays or non-working hours.

Transit deposits are deposits that are currently in pending status and therefore, bank statement can’t note them.

Interests earned

Add the interests earned noting accurate interest rates. It applies only to interest-bearing accounts.

Bank errors

After all, officials working in the bank are humans like us. They might mistakenly interchange entries for two different account statements. Or they might record wrong entries. Add or delete bank errors accordingly.

Outstanding Checks

Deduct outstanding checks from overall balance.

Check ledger errors

A bank provides facilities for which it charges. Like transfer charges, account maintenance charges, late payment charges, etc. Deduct bank service charges from the ledger.

Check Reconciliation

Ledger may contain posting a payment that didn’t reach completion. Make necessary amendments. Check it carefully before adding in the bank statement.

Equate Final Balance

The overall balance must match to finalize reconciliation.

Journal Entries

As a part of this process, you might require to prepare some journal entries to correct errors. These errors are those which interrupt during bank statement and general ledger comparison.

Importance of Bank Reconciliation Statement

There’s no point in saying that banks aren’t trustworthy. But there is no harm in double-checking the bank statements with ledgers. After all, bank accounts hold our assets.

Segregation of duties makes it possible to rectify errors at a better speed. Hence, the identification and correction of errors are necessary. Neither bank nor you would like to meet a loss. Reconciliation also assists in monitoring the flow of cash in a business.

Usually, a general schedule suggests a monthly reconciliation. For example, you are handling a large scale business with transactions over 50 in a week. Cash accounts require some reconciliation schedule. A reconciliation can occur in 15 days or weekly.