Bank Reconciliation Statement in Financial Accounting

This PPT explains about the concept of Bank Reconciliation Statment. It also called as BRS. Bank Reconcilation is prepared for the purpose of to identify the reasons for differences between the total of Cash as per Pass Book and Cash balance as per Pass book.

1. Bank Reconciliation Statements

2. Bank Balance in the company’s books very often does not correspond to the balance in the Bank Statement issued by the bank. There are many reasons for this difference. Some require adjusting the Cash Book while others need to be explained in a statement. The statement is known as a Bank Reconciliation Statement. Therefore, preparing a Bank Reconciliation Statement will help to bridge the gap between the conflicting balances in the business and in the eyes of the bank. INTRODUCTION

3. It is more often than not for there to be differences between the book and bank balances. It is important for the business entity to identify and track the differences and adjust the company’s books accordingly to ensure that the balance shown is correct. An incorrect bank balance in the books may lead to an overdrawn account and avoidable overdraft fees. A bank reconciliation statement is also an important document during annual audit procedures. Importance of Bank Reconciliation Statements

4. There are three main reasons for this difference: T he transactions have been recorded in the cash book but not in the bank statement. The transactions have been recorded in the bank statement but not yet recorded in the cash book. Bookkeeping errors may be made either by the bank, the business or both. Csuses for Differences Between Book Balance and Bank Balance

5. Transactions that have been credited in the cash book, but have not yet been debited in the bank statement (e.g. unpresented cheques) Transactions that have been debited in the cash book, but have not yet been credited in the bank statement (e.g. uncredited cheques/uncredited lodgements) Transactions recorded in cash book (but not in bank statement)

6. Transactions that have been credited to the bank statement, but not yet debited to the cash book, (e.g. interests from the savings, credit transfer from debtors, dividends received by the bank on behalf of the business) Transactions that appear on the debit side of the bank statement, but no recording has yet been made on the credit side of the cash book (e.g. charges on various services by the bank, payment for chequebooks, interests on overdrafts, dishonoured cheques) Transactions recorded in bank statement (but not in cash book)

7. Misstatement in the cash book (e.g. RM563 recorded as RM356, other transactions that are posted wrongly) Details in the bank statement may have been wrongly stated (e.g. wrong amounts of payment recorded, wrong accounts debited by mistake) Errors in cash book and/or bank statement