What is Bank Reconciliation Statement?


Bank Reconciliation Statement (BRS)

The word reconcile means “making one thing consistent with another”. In case of business, a Bank Reconciliation Statement or BRS refers to a statement which is made to reconcile bank balance shown on the bank statement or passbook with the bank balance shown in the cash book. This helps a business to keep control of cash and get satisfactory explanations regarding differences between both balances.

These days cash book balances are generally extracted from the company’s accounting ERP and the bank statements are obtained from daily bank feeds. The reconciliation is either done manually with the help of MS-Excel or is partly automated with help of a few additional software packages.

Both the internal source (cash book) and the external source (a bank statement or a passbook) are reconciled with each other, then all the mismatches are identified and properly recorded.

Two Things to Remember are

  1. Bank Reconciliation Statement should be prepared when a bank statement is received or a passbook is updated.
  2. BRS is made and shown for a specific date.

Why Do We Prepare a Bank Reconciliation Statement (BRS)?

The differences in the two balances arise due to 3 main reasons: Timing, Errors, and Transactions only known to the bank. Overall, the main reason for preparing BRS is to have a strict internal control over company’s cash inflows and outflows. To be more precise, these are a few reasons why we prepare BRS.

 S.No.  Scope  Comments
1. Mistakes and Errors       Bank reconciliation statement helps to detect any errors and mistakes in cash or a passbook.
2. Explains Delay Any delay in clearance or collection of checks can be identified.  
3. Fraud Detection Timely reconciliations help prevent and find any frauds related to cash.
4. Actual Bank Balance It helps to identify the actual bank balance of a business.
5. Valid Transactions It helps in separating valid and invalid transactions such as a wrongly charged fee by the bank.

 

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