What is a bank reconciliation statement? Why is it prepared?

Bank Reconciliation Statement is a statement prepared for determining causes of differences and reconciling bank balance (as per the Cash Book) with the balance as per the Pass Book or vice versa.

In day to day affairs, an individual or organisation makes numerous transactions through bank. Along with the copy of bank statement (i.e., the Pass Book), an individual or organisation needs to maintain a separate book (Cash Book) for recording the banking transactions. When large number of transactions is made through bank, the balance of the Cash Book may differ from the balance of the Pass Book.

There can be many reasons of differences between the Cash Book and the Pass Book, such as below given ones.

  1. Deposit of cheque was recorded in the Cash Book at the time of deposit; however, was collected later or not collected by the bank.

  2. Cheque issued was recorded in the Cash Book; however, was not recorded in the Pass Book in the month of issue. It was entered in the Pass Book in the next month when it was presented for payment in the bank.

  3. Interest allowed by the bank is added in the pass book but not in the Cash Book.

Bank Reconciliation Statement (BRS) is prepared when the bank balance of the Cash Book is not equal to the balance shown by the Pass Book on the same date (when BRS is being prepared). In order to match the two respective balances, errors and omissions are to be located and rectified, which is the main rationale behind preparing the Bank Reconciliation Statement.

Specimen of Bank Reconciliation Statement

Particulars

Amount

Rs

(Add)

Amount

Rs

(Less)

Balance as per the Cash Book

 

Cheque issued but not presented

 

Cheque deposited but not collected

 

Balance as per the Pass Book

   
       

The need for preparation of Bank Reconciliation Statement is explained below.

  1. It helps in finding out the errors and omissions committed in the Cash Book and in the Pass Book.

  2. It shows uncleared cheques that have already been debited in the Cash Book but have not yet been recorded in the Pass Book.

  3. It helps in checking embezzlement of money from the bank account.

  4. It helps in measuring the accuracy of transactions recorded in the Cash Book.

  5. It facilitates in preparing revised cash book that reflects a true bank balance.

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