What is Bank Reconciliation Statement?

What is Bank Reconciliation Statement?

A Bank Reconciliation statement is a process that explains the difference between bank balance as per pass book and bank balance as per our books of accounts or bank ledger.

A Bank Reconciliation statement is prepared at periodical intervals with view to indicate the items which cause disagreement between balance as per bank column in cash book and pass book on given date.

A Bank reconciliation statement is a statement prepared as part of the reconciliation which sets out the entries which have caused the difference between the two balances.

Causes for difference in pass book and our books of accounts or bank ledger

Following are the transactions which usually appear in our books of accounts record but not in the bank statement:

·         Deposits in transit- Deposits which have been given by the company to the bank    but have not been received by the bank at proper time.

·         Outstanding payments-: payment which have been issued by the company but were not presented or cleared before the issuance of bank statement.

Following are the transactions which usually appear in bank's records but not in the our books of accounts record:

·         Service charges: Service charges may have been deducted by the bank. Such charges are usually not known to the company before the issuance of bank statement.

·         Interest Income: If any interest income has been given by the company on its bank account, it is not usually entered in company's cash account before the issuance of bank statement.

·         Dishonor of cheque: In some cases of "not sufficient funds". The cheques deposited by the company in bank account but the bank is unable to receive payment on those cheques due to insufficient funds in the party account.

Why do we need of bank reconciliation?

As if our bank passbook mismatch with bank ledgers, then we need to compare and fix the cause of difference for the reason we do have bank reconciliation.  

Most of the time our bank ledger is not tallies with bank passbook that time then we need to verify our bank ledger with passbook.

Format of BRS (Bank reconciliation statement)

There are two types in (Bank reconciliation statement)

1. Considering Balance as per bank pass book as the starting point.

2. Considering Balance as per bank ledger book as the starting point.