How to prepare a bank reconciliation statement?

Every business has a record of cash transactions and also the bank’s transactions. The cash book is a record of transactions showing the inflows and outflows of cash. It has a cash column that shows available cash in the business and a  column showing cash at the bank. 

Whether it is an individual or business entity, banks maintain records of every customer in the books. On the credit side, all deposits are entered into the accounts and all the withdrawals are recorded on the debit side of the account. Based on the customer’s requirement, the bank will send bank statements periodically to the customer’s address on record. If the customer wants only a soft copy then an email will be sent to the customer. 

There will be many different types of business transactions and it may happen that the bank balance in the cash book & bank statements will not match. In this situation, the cashier or the accountant should identify reasons for the difference and reconcile the statement. This reconciliation statement is known as the Bank Reconciliation Statement(BRS). The difference between cashbook and passbook is reconciled as on that date.   

Requirement of BRS

It is not mandatory to prepare a BRS statement but is advisable to prepare this statement. There is no fixed timings and date for preparing the Bank Reconciliation statement. It is a periodical statement that is used to cross-check the bank transactions and the cash book entries. BRS is a statement which is required to identify the errors while reconciling transactions. It helps in finding out the exact balance as per the bank balance on a particular date. 

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Preparation of BRS

The first step is to cross check the opening balances of bank columns of the cash book and also the bank statements. 

  1. Difference between the cash book and the bank statement may arise because of various and among them it can be unrealised cheques, unpresented cheques from the date of issue. 
  2. By comparing the credit side of the bank statement with the debit side of the cash book you will get to know if all the entries are posted as per date. If there are any entries missing they can be rectified. It is advisable to tick all entries one by one so that you will not miss any. 
  3. Analysis of the entries from bank passbook and cash book should be done to find out any entries missed out during the monthly postings. List down all the entries and make necessary corrections. 
  4. Rectify the errors which appear in the cash book, calculate and check total balances. Once all the manual errors are corrected start BRS with the latest cash book balance.
  5. Add all the cheques which are issued to suppliers and not submitted to the bank for realization.
  6. Deduct cheques which are presented in the bank and not collected which become an income for business
  7. Pass all the adjustments required for bank entries erroneously. If BRS starts with debit balance as per bank column under cash book then add amts credited by the bank by mistakes. Similarly, reduce the amounts credited by the bank for balance which starts with credit balance. 
  8. Once the balance as per cash book and passbook matches then the BRS is correct. 

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Advantages of BRS

Rectification of errors can be done with the help of this statement. 

  1. Frauds can be identified and it will reduce the risk of late fees and penalties by banks.
  2. Uncleared cheques or unrealised income can be identified by preparing the bank reconciliation statement
  3. Double entries, entries missed to enter in books, missed payments, penalties and others can be rectified. 
  4. Banks add interest payment on accounts, deduct bank charges and these are not included in the cash book. BRS will help to rectify these entries. 
  5. False transactions can be rectified and unrealised receivables can be rectified. By preparing bank reconciliation statements you will be able to come out of the awkward situations in business. 
  6. Common mistakes can be avoided such as Double entries, no entries in books, missing digits while entering numbers, transposition errors can be avoided and others.
  7. Bank mistakes can also be identified with these statements such as the bank may incorrectly debit your account. First, consult the bank and get clarification and then enter in your books.   

Information remains the key in the preparation of financial statements and effective bank reconciliation statements. Ensure that you have all required documentation and also the information available to you. Once you have all information with you then you will be able to look at things in better detail. 

Take away

Bank reconciliation statements are a way to rectify your mistakes and to ensure that accounting is accurate. BRS helps in the rectification of errors and ensures the accuracy of business. If errors are identified and not rectified then there is no use in preparing this statement. It is required to keep a constant check on the transactions and meticulously prepare the bank reconciliation statement. 

Meet the author
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Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It’s a commercial mortgage banking company. He has a “Doctoral Degree in Commerce” and two master’s degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.







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