For recording cash and bank transactions, a business maintains a cash book; it contains both cash and bank column.
Similarly, the bank also maintains a record where transactions of the customer are also maintained. Deposits are added to the credit side and withdrawals made on the debit side.
In some instances, the balances according to cash book and bank statement do not match. In case the balance available in the passbook doesn’t seem to match the bank column of the cash book, it should be checked immediately to reconcile the differences.
For the purpose of reconciling the difference between balances of cash book’s bank column and passbook, a Bank Reconciliation Statement (BRS) is a statement is prepared.
Steps in preparing Bank Reconciliation Statement
The steps involved in preparing a Bank Reconciliation Statement are as follows:
- Compare the opening balance of the bank column of cash book with the bank statement for any discrepancy in the transactions.
- Compare the credit side of bank statement with the debit side of the bank column of the cashbook and vice versa.
- Check for entries that are missed to be recorded in the bank column of the cash book.
- Rectify any entries if detected
- Calculate the revised balance of cash book bank column
- Prepare a BRS or Bank Reconciliation Statement with the updated entries
- Add the cheques which are yet to be presented and deduct the cheques which are not credited.
- Make all the adjustments and check for bank errors in the bank statement, similarly check cash book of the firm for any errors.
- Now compare both the balance, it should be equal to each other.
Significance of Bank Reconciliation Statement
- It highlights the cause of difference between the two records maintained by the firm and bank.
- It reduces the chances of any fraud.
- It makes staffs of a firm to keep cash records always updated.
- The accurate position of bank balance can be determined with BRS.
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