Bank Reconciliation Statement
A Bank Reconciliation Statement (BRS) is a special report used to match the cash balance in a company's books with the balance in its bank statement. In simple terms, a business keeps a record of bank transactions in its 'Cash Book'. At the same time, the bank keeps a record in its 'Passbook'. Ideally, these two balances should be the same. However, they often differ due to timing gaps or small mistakes. The BRS is a tool to identify and explain these differences.
Concepts (3)
These are entries made by the bank without the immediate knowledge of the account holder. Banks often charge fees for services (Bank Charges) or pay interest on the balance. Sometimes, a customer might deposit money directly into the bank account.
These are entries made by the bank without the immediate knowledge of the account holder. Banks often charge fees for services (Bank Charges) or pay interest on the balance. Sometimes, a customer might deposit money directly into the bank account. The business only finds out about these when they receive the bank statement. To reconcile, the business must update its Cash Book to include these amounts.
Timing differences occur because transactions are recorded at different times in the Cash Book and the Bank Statement. For example, when you issue a cheque, you record it immediately.
Timing differences occur because transactions are recorded at different times in the Cash Book and the Bank Statement. For example, when you issue a cheque, you record it immediately. However, the bank only records it when the receiver presents it for payment. This gap can last for a few days. During this time, your records will show a lower balance than the bank records. Another example is a cheque deposited but not yet cleared by the bank.
Errors can happen in either the business's records or the bank's records. A clerk might record a Rs. 500 deposit as Rs. 50. Or, the bank might mistakenly deduct a charge from the wrong account. While bank errors are rare, they do happen.
Errors can happen in either the business's records or the bank's records. A clerk might record a Rs. 500 deposit as Rs. 50. Or, the bank might mistakenly deduct a charge from the wrong account. While bank errors are rare, they do happen. The BRS helps in detecting these mistakes so that they can be corrected in the accounting books or reported to the bank for rectification.
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Start Lesson: Direct Bank Transactions