In bookkeeping, the Bank reconciliation statement is a record form as part of the company which includes out the entries which have created the difference between the two balances. For modifying the balances as presented in the passbook and cashbook a settlement record is prepared known as Bank Reconciliation Statement. In this article we will understand all about BRS in brief and its benefits of doing every month or year.

Understanding the concept of Bank Reconciliation Statement

A firm addresses a cash book to record both banks and cash transactions. A Cashbook has a bank column that represents cash at a bank and a cash column that represents cash available with the firm. Bank maintains an account for all consumers in their books. All the withdrawals are on the debit side of their account. And deposits record on the credit side of the consumer’s account. An account statement transfers daily to the customers by the bank.

At times the bank statement and bank balance as per cash book and are not equal. In fact, the bank column of the cash book at the time does not match balance available in the passbook, the firm must identify the causes for the same. It is necessary to settle the differences in bank and cashbook. Log into the website for more expert guide today.

Who prepares the Bank Reconciliation statement?

Bank reconciliation statement is usually prepared by the company accountant or the bookkeeper to match the bank’s records with your business records. It is done every month whenever the bank statement arrives. This statement is expected to find out errors and mistakes if any and helps in knowing frauds and misappropriations in business funds. A complete year-end bank reconciliation statement must retain so that they are readily available when needed during the company year-end audit.
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Why the bank reconciliation statement is made?

Bank reconciliation is the process of checking the uprightness of data within a company’s financial records and bank records. It begins with balancing the balances in entity data on a bank statement. Plus, accounting documents for a cash account that requires the same.

The basis for the preparation of a bank reconciliation statement is:

  • Direct Debit is a great reason for bank reconciliation statement preparation. In many instances, the firm provides regulations to the bank to pay the amount outstanding immediately to the payee on the due date. This is a way out, the bank debits the firm’s account. The firm skips doing an entry in the cash book.
  • The error in Registration of the transactions. While doing cash book entries the firm may perform some errors. The error can be like wrong balancing, leaving out sale entry or other related transactions and recording transactions in separate ledgers which must be recorded in the cash book. All these points to the variation in balances among the passbook and cash book
  • The Credit Transfer is likewise a reason for making a bank reconciliation statement. Many times without providing any information to the firm the debtor’s deposit money into the firm’s bank account. In that case, the bank credit the transaction to the firm’s account and doesn’t record in the cash book that creates a large variation.
  • Cheques shifted into the bank are debited by the firm immediately that in change and increases their bank balance. In this situation, the bank credits the firm’s account when these cheques are really noticed after a few days. So, the change continues until thee-cheques are settled.

How to prepare a bank reconciliation statement?

As per the understanding, it’s clear that bank reconciliation is the balancing of both the bank account balance with the company’s cash account balance. Their so no stake in making bank reconciliation statements as a little and huge both firms have to do perform the statements transactions. Even the small banks and payments banks need bank reconciliation statements, it’s necessary. For preparing a bank reconciliation statement you have to understand important steps.

Step 1

Firstly, an auditor /accountant need to check that the opening balances of bank book are equal to bank statement with the balances as per earlier bank reconciliation statement.

Step 2

Going on the cash balance presented on the bank statement, attach after all deposits in transition are made.

Step 3

Tick upon all the items matching in both the records. Check the debit side of the bank statement with the credit side of the bank column of the cash book. After that credit side of the bank statement with the debit side of the bank column of the cash book.

Step 4

Examine the records both in the bank column of the passbook and cash book. See for records that mismanage to post in the bank column of the cash book. Build a record of such entries and get important alterations in the cash book. Right, all mistakes or omissions resemble in the cash book. Discover the edited and refreshing balance of the cash book’s bank column.

Step 5

Attach all the deducted un-credit cheques and un-presented cheques.

Step 6

Formulate all the necessary changes for bank errors. If the bank reconciliation statement begins with the debit balance as per the bank column of the cash book, determine the sum of the values wrongly credited by the bank. It will reduce all the values wrongly credited by the bank.

Step 7

As a result, all the figures must be equal to the balance as per the bank statement.

Benefits of preparing a BRS

Accounting errors can lead to conditions that are more than just confusing when the cheques bounce. Also, businesses start getting irritating calls from creditors or suppliers for payments that are already done. Bank reconciliations help you in detecting fraud and reducing the risk of transactions which those cause fines and late fees. BRS offers numerous advantages to a business which involves:

Detecting errors

Bank reconciliation benefits you in finding accounting errors that are common to all businesses. These errors include errors such as addition and subtraction, avoided payments and double payments.

Tracking Interest and Fee

Banks may add interest payments, fees or fines on your account. Monthly bank reconciliation enables you to add or deduct such amounts in your books.

Detecting Fraud

 You may not be ready to stop employees from withdrawing your money once. But, you can prevent it in the future. BRS assists you in detecting and detecting fraudulent transactions. It is prudent to employ an independent person to perform the reconciliations for checking the accounting employee from misrepresenting your books and reconciliations.

Tracking Receivables

 Even, it enables you to settle all your receipts, helping you to evade awkward circumstances and also knowing entries for receipts which you didn’t deposit.

Rules of credit and debit

The amount withdrawn by the consumer is debited in his account. And the amount given by its consumer is credited to his account in Bank’s ledger. When a credit balance is huge than the debit balance, it is called credit balance as per the Pass Book.

The idea of making a bank reconciliation statement is it shows the real bank balance status. Re-tick omissions in passbook and cashbook. It restricts fraud in recounting banking transactions. It identifies the legal transaction entered by the company or business.

When Is the Best Time to Settle the statements?

It’s smart to examine your accounts in the shortest monthly. For high-volume businesses or states with a higher risk of fraud, you may require to reconcile your bank transactions even more frequently. Some companies settle their bank accounts every day.

You can also increase protection into your bank accounts, and your bank can give useful ideas. For example, many banks give a solution name “Positive Pay”, which prevents your bank from allowing payments out of your account unless you expressly give instructions to allow individual payments in advance.

Tips to ensure efficient BRS

  1. Firstly, it’s necessary to have all the required documentation and data in hand. That means, if all the necessary documentation and information are at your order you get a larger picture of things.
  2. Evading common errors, such as:
  3. An omission relating to duplication of entries.
  4. Not accounting for a transaction that will create a variation equal to the missed amount
  5. Mistakes while inserting commas and dots, which cause errors that, could be of important value. For instance, instead of entering INR 2,7501.30, entering INR 2750.13
  6. Transposition mistakes while registering figures in the books. For example, rather of entering INR 251,200, entering INR 215,200.
  7. Banks can make mistakes too:Your bank may commit a mistake. They may debit wrong amounts from your account or credit deposits that don’t belong to you. For this purpose, in case you see mistakes for which you don’t find any information, or for which you’re in doubt, the best thing is to ask your bank.
  8. Reconciling items: Listing disputes and reconciling them and then ignoring it is possible. In case disputes keep on growing with no action taken, your bank reconciliation will become insignificant. It needs that a regular check is kept on the settled transactions so that they are shown in the right way in the bank column of the cash book and the bank statement.

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