Definitions
U. P. Haldar: “A statement which is drawn up to show the cause for, disagreement between the bank balances as shown by the cash book and the balances shown by the passbook on a particular date is called “bank reconciliation statement.”
J. R. Batliboi: “Bank reconciliation statement is prepared at periodical intervals with a view to indicating the items which cause disagreement between the balance as per the bank columns of the cash book and the bank passbook on the given date.”
Key Takeaways
- A bank reconciliation statement compares the cash balance on a company’s balance sheet to the corresponding amount on its bank statement.
- It is a record book of the transactions of a bank account that helps account holders to check and keep track of their funds and update the transaction record that they have made.
- The balance mentioned in the bank passbook of the statement must tally with the balance mentioned in the cash book.
- All deposits will be shown in the credit column, and withdrawals will be shown in the debit column.
- The reconciliation statement explains the differences between the balance in the company’s records and the balance in the bank’s records.
- The need and importance of a bank reconciliation statement are due to several factors, including providing a mechanism of internal control over cash, bringing into focus errors and irregularities, reflecting the actual position in terms of bank balance, safeguarding against fraud, and detecting any mistakes in the cash book and bank statement.
- Bank reconciliation statements usually have a specific format. But if the cash book shows an overdraft, the statement takes a different format.
- The statement is prepared by the depositor (account holder). To overcome differences in the balances of the cash book and bank statement.
- A bank reconciliation statement is prepared at the end of the month and should show the correct cash balance.
- The entries in the statement stop being the cause of discrepancies after a few days.
The bank reconciliation statement is use to reconciled the bank statement balance with the cash book balance. It is prepare at regular intervals and lists the reasons for disagreement between the two balances.
Such as outstanding cheques, bank charges, or errors. The cash book receipts and payments are check against the bank statement, and a list of unpicked items on each side is made.
The cash book is adjust by recording items not in it but found in the bank statement. The statement can be prepare in two ways, starting with either the cash book balance or the bank statement balance.
Feature of Bank Reconciliation Statement
It is essential to note that a bank reconciliation statement is not an account. Instead, it is just a statement that helps you reconcile the discrepancies between your cash book and bank statement.
It is also important to mention that the bank reconciliation statement is not a part of the double-entry bookkeeping system.
To check the accuracy/efficiency of your financial records, you must go through a this process.
It is prepare for a specific day and not for a period. This means that you need to reconcile your accounts regularly, say every month, three months, six months, or as per the requirement of your company.
The preparation of the bank reconciliation statement is not the bank’s responsibility.
It is prepare by a person who has an account with the bank.
A Bank reconciliation statement explains the reasons for any discrepancies between your bank statement and cash book.
It helps you identify any missing or incorrect entries in your cash book that might have caused the disagreement.
There are two methods to prepare the BRS. So the first method starts with the cash book balance, and the second method starts with the bank statement balance.
Cash book balance
The first method involves adjusting the cash book balance for any deposits in transit, outstanding checks, and bank errors. Deposits in transit are the amounts received and recorded by the business but not yet record by the bank. So by adjusting the cash book balance, you can reconcile it with the bank statement balance.
Bank statement balance
The second method, Other hands, start with the bank statement balance and involves adjusting it for any outstanding deposits, outstanding checks, and bank errors. Basically this method is the reverse of the first method and also helps reconcile the cash book balance with the bank statement balance.
To prepare the bank reconciliation statement, you need to prepare a reconciliation form. So it usually includes the bank statement balance, the cash book balance, adjustments made, and the final reconciled balance.
How to Prepare Bank Reconciliation Statement?
it’s important to compare the receipts and payments recorded in your cash book with the transactions on your bank statement. Any items that are not marked on either side represent those that have not yet passed through the bank statement or the cash book.
To prepare your bank reconciliation statement, you will need to make a list of these items and adjust the cash book by recording any transactions. That they do not appear in it but are on the bank statement. This will help you compute the correct balance of the cash book.
Now, when it comes to reconciling the bank statement balance with the correct cash book balance, there are two approaches you can take. You can either start with the cash book balance or the bank statement balance.
If you choose the first method, you will start with the cash book balance. And adjust it according to the items that have not yet passed through the bank statement.
If you pick the second method, you’ll start with the bank statement balance. And adjust it according to the items that have not yet been recorded in the cash book.
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