BRS – Bank Reconciliation Statement


(Last Updated On: May 27, 2019)

 

Every person who is involved in the field of accounting or even uses the accounting information knows the importance of bank reconciliation statement and the purpose it serves for the user of such information. So let’s understand the meaning and why this tool of accounting is important.


Meaning

Bank reconciliation statement is a statement which reflects the differences between the balance of bank as per the passbook and the same as per the cashbook. It shows the transactions

  • for which the amount is not reflected either in Passbook or in books of accounts.
  • The balance of bank as per the passbook and cash book.

Importance of Bank Reconciliation Statement

  • Check on the Dishonest Behavior of Employees:

This Statement keeps a check on the embezzlements done by the employees, so considered as a system of internal audit.

  • Detection of Delays:

It detects the reasons behind the delay in differences between the bank balance as per the cash book and pass book.  

  • Updated Cash Book:

It enables the business to update the books of accounts of a business with the actual situation and conditions of the bank balance. Moreover, updates it with the entries that were not known prior but can be ascertained with the help of pass book.

  • Check on the Entries:

It enables the users of accounting information to keep a check on the entries for clerical errors and other mistakes or omission and make the Financial Information free from such error or misrepresentation.

  • Rectifying Incorrect Entries:

After checking the entries, corrections can be made in the entries which are wrongly entered or wrongly debited or credited.

  • Accuracy:

Bank reconciliation statement ensures the accuracy of the balances and entries made in both the pass book and cash book.

 


Reasons that lead to the difference in the balances of both the books are as follows:

  • Deposit in transit:

The cheques or amount that were received from the clients but not deposited with the bank are known as deposit in transit. Such amount or cheque received from the client has already entered in the bank side of the cashbook, but it is not yet reflected in the bank passbook.

  • Outstanding Cheque:

The cheque for the payment of the debt has been issued to the supplier but either not yet given to the supplier or not presented by the supplier to the bank.

  • Auto Debit / Credit Transactions:

The bank charges the interest, penalty, Bank charges, NEFT/RTGS charges, etc. and on the other hand the bank provides interest on deposits, FD, etc. which can only be known at the time of matching it with the bank’s statement.

 


Preparing the Bank Reconciliation Statement

  • Treating the effect of deposit in transit:

Some deposits must be pending for clearance in the banking channel hence their effect cannot be traced in the bank reconciliation. For understanding how to treat such adjustments while preparing BRS (Bank Reconciliation Statement) first, we need to understand the impact of the transaction. I.e., if the cheque or amount must have been deposited in the bank than the balance of the bank is to be increased by such amount. So it is advised to increase the bank balance in the books of account while carrying out the bank reconciliation.

  • Treating the effect of the outstanding cheque in the business:

If such cheque has been presented to the bank, then the balance of the account is reduced by the amount of such cheque. So it is suggested to reduce the amount of bank balance in the books of accounts.

  • Treating the effect of Auto Debit/Credit Transactions:

For dealing with such transactions, the accountant has to change the balance of the bank in the books of account depending upon the nature of such transaction. Suppose if it is a debit transaction than reduce the balance in books of accounts and if the transaction is of credit than increase the bank balance.

 


Pro forma for preparing the Bank Reconciliation Statement

Particulars Amount (Rs.) Amount  (Rs.)
(A) Balance as per Books of Accounts xxx  
Add:    
+ Cheques issued but not yet presented in the bank xxx  
+ Interested credited by bank in our bank account xxx  
+ Direct transfer of funds by our clients into our bank account which is not recorded in books xxx  
+ Any other amount credited by the bank but not recorded in the books of accounts xxx  
(B): Total Additions: xxx xxx
Total (C = A + B)   xxx
Less:    
‐ Deposit in Transit (Cheques received but not deposited or deposited but not cleared by bank) (xxx)  
‐ Bank Charges debited by the bank but not recorded in the books of accounts (xxx)  
‐ Any other amount debited by the bank but not reflected in the books of accounts. (xxx)  
(D) Total Deductions (xxx) (xxx)
(E = C D) Balance as per Bank Statement   xxx

CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.