Bank Reconciliation Statement

BANK RECONCILIATION STATEMENT

The purpose of bank reconciliation statement is to explain any difference between the bank balance appearing on the bank statement provided by the bank..

Reasons For Difference:

Sometimes it so happen that some entries are made in cash book but they are not recorded in the bank. Like.
1. Cheques deposited but not credited in the Bank.
2. Cheques issued but are not presented in the bank.

Sometimes it so happens that some entries are made in bank statement but they are not recorded in cashbook. Like.
1. Direct deposits in the bank by our customers
2. Direct collections made by the bank on our behalf
3. Direct payments made by bank
4. Interest allowed by the bank and charged by the bank
5. Dishonoured cheques.

Therefore a statement is prepared to reconcile this difference. This statement is called as “Bank Reconciliation statement”.

Methods Of Preparing Bank Reconciliation Statement:

Step I: Compare the bank column of the cashbook with the bank statement. Tick all those receipts and payments which can be found in both the cash book and the bank statement, when this has been done, there remains some unticked items in cash book and the bank statement.

Step II: Make Adjusted cash book by taking into account all the existing cash book entries plus the unticked bank statement items into the cash book and calculate the new balance. This balance is considered as the true bank balance of the business and this figure will be shown in the balance sheet as bank balance.

Step III: Prepare Bank Reconciliation Statement.
Note: When we prepare B.R.S. we do not look at the entries of bank statement. We just take into account the entries which are in Cash Book but not in Bank Statement.
1. Start with the balance shown in the Adjusted cash book..
2. Add the entries that are credited in the cash book but not debited on the bank statement. (unpresented cheques)
3. Deduct any items that are debited in the cash book but are not credited in the bank statement.
The resulting figure should be equal to Bank Statement balance.

Reasons For Preparing bank Reconciliation Statement:

1. To ensure that the cash book entries are complete.
2. To discover bank errors.
3. To discover errors in cash book.
4. To check Fraud and embezzlement.
5. To discover dishonoured cheques.