Bank reconciliation statement is a document, which makes it possible to compare the records of a firm with those of the bank. Therefore, it is one of the significant elements in taking charge of accounting for business organizations in a way that would ensure all the transactions are matched accurately and any errors are detected. In this blog, you will be able to learn what BRS is, its format, how and who prepares it, and a practical example.
What is a Bank Reconciliation Statement?
A Bank Reconciliation Statement is a report that shows difference between company’s cash balance and balance in its bank account. The major function of BRS is to ensure that the records from the company correspond with those of the bank. So, it helps to arrive at the difference in the form of bank charges, interest, errors, or missing transactions. Businesses need to prepared it monthly, so that the books of accounts regarding bank transactions stay up-to-date.
Bank Reconciliation Meaning in Accounting
In general, bank reconciliation is an accounting process that compares the integrity of data between a bank statement and the books of a company. It helps maintain financial records correctly and represents an early discrepancy detection system while deterring fraud at the same time. By reconciling their bank account on a regular basis, businesses could keep up to date on their cash movements.
Bank Reconciliation Statement Format
The format includes
- Opening balance as per the company’s books
- Additions: Deposit in transit not yet credited by bank
- Deductions: Outstanding checks not cleared or cashed by bank
- Adjustments: Bank charges, interest fees, or errors
- Closing balance as per statement
How to Prepare a Bank Reconciliation Statement
- Take the bank statement balance at the end.
- Add any deposits in transit.
- Subtract any outstanding checks.
- Add Bank charges, errors, or omissions.
- The total amount should be matching with the balance of the cash book of the company.
Here, the important items that will include are deposits in transit, outstanding checks, and bank charges.
Who Prepares the Bank Reconciliation Statement?
Ordinarily, accounting or finance officers of the business have to prepare a Bank Reconciliation Statement. In small-scale businesses, business owner or an employee of the business owner usually do the work. To check the correctness, the owner or managerial level should review the BRS.
What Does a BRS Compare?
A BRS merely matches all the transactions in the ledger of a company with the transactions appearing on the bank statement. Some common discrepancies include the following:
Errors: In the company’s ledger or bank statement.
Missing Entries: direct deposits or other credit and debit activities that may not have been recorded yet in the company’s books.
Bank Charges or Fees: Charges or fees maybe identified during reconciliation.
Bank Reconciliation Statement Example:
The following is an example of how a BRS would look:
Bank Statement Ending Balance: $ 10,000
Add: Deposits in Transit – $ 1,500
Less: Outstanding Checks – $ 800
Less: Bank Fees – $ 100
Adjusted Bank Balance: $ 10,600
This is complete only if it matches with the balance of the cash book of the company. Otherwise, businesses have to carry out further checks to find and rectify the difference.
Final Note
Bank Reconciliation Statement is a very essential tool in updating financial records and ensuring that all transactions. Bank reconciliations carried out with frequency can help organizations discover any misstatements, frauds, or errors. So, these can also help organizations to maintain good health in monetary concerns. It is a very good practice for businesses to do this kind of reconciling quite often, which helps in checking their financial health and integrity.
You can also contact FastLane HR, and consult with the professionals to boost your businesses’ financial health.