Bank Reconciliation Statements - A Comprehensive Guide

20 March, 2023

While it is not mandatory for you as a business owner to prepare a Bank Reconciliation Statement (BRS), it is advisable to do so. BRS helps you keep track of bank-related transactions and see that they are properly recorded in the cash book and bank book. It can help you detect errors in transaction records and figure out the bank balance on a specific date. Continue reading to learn more about BRS and how to prepare one.

What is a Bank Reconciliation Statement?

Businesses keep cash books that enable them to record cash and bank transactions. The cash column indicates the cash available with the business, and the bank column shows the cash stored at the bank. Similarly, banks also keep books wherein they keep a note of customers’ bank accounts. They record deposits on the credit side and withdrawals on the debit side. Banks send account statements to customers regularly.

However, sometimes the balances in the cash book and the bank book do not match. In such instances, as a business owner, you need to identify the reasons for such errors. A reconciliation statement is prepared to reconcile your banking and cashbook balances. This is known as the Bank Reconciliation Statement.

Basically, a BRS helps you reconcile the differences between balances as per bank passbook and cash book if any.

How to Prepare a Bank Reconciliation Statement?

If you want to go about preparing a Bank Reconciliation Statement, you can follow the steps given below:

• Firstly, compare the opening balances of the cashbook bank column and bank statement. There could be differences between the two due to uncredited or un-presented cheques from before.
  
  

• Next, compare the credit side of the bank statement with the cashbook debit column. Also, compare the debit side of the bank statement with the cashbook credit column. Note the items that appear in both books.
  
  

• Analyse both books to look for entries that are present in the bank passbook but not in the bank column of the cash book. Create a list of such entries and make the required adjustments in your cashbook.
  
  

• Correct any errors or mistakes in the cashbook.
  
  

• Next, calculate the revised balance on the bank column in the cashbook.
  
  

• You can then start the BRS with an updated cash book balance.
  
  

• Add the un-presented cheques (issued by you to creditors/supplies but not presented for payment) and deduct uncredited cheques (cheques presented to the bank but not yet collected).
  
  

• Make adjustments for bank errors. If the BRS begins with the debit balance of the cashbook bank column, then do the following. Add the amounts mistakenly credited by the bank and deduct the same. Do the opposite if the BRS starts with the credit balance.
  
  

• In the end, the resultant figure must be the same as the balance in the bank statement.
  
  

What are the Benefits of Preparing BRS?

A BRS can help you with the following:

• Detecting Errors: It helps you spot mistakes that are commonly found in any business, such as addition, subtraction, missed payments, etc.
  
  

• Tracking: BRS helps you track interest and fees, especially when banks add penalties or charges to your account.

• Detecting Fraud: BRS, especially when prepared by an outsider, can help you spot employee theft or fraud and prevent it in the future.
  
  

• Tracking Receivables: With BRS, you can confirm your receipts and identify the ones you have not deposited.
  
  

Now that you know about the importance of BRS, you can use it to ensure that your books are accurate and match the bank’s records.

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Click Here To Read More About Cashflow Statements.

*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. HDFC Bank SmartHub Vyapar is available to only Individual & Sole Proprietorship entity and for select Current Account variants only. For other entity types, please connect with the nearest branch.