Bank Reconciliation Statement is a statement which is prepared on a particular date to reconcile the Bank Balance as per Cash Book and Bank Balance as per Pass Book or Bank Statement by showing reasons for differences between the two. Herein we will discuss the topic related to the preparation of BRS.
Preparation of BRS
Need for Preparation of BRS
A Bank Reconciliation Statement is needed and is important because of the following reasons:
- It helps in knowing the actual Bank balance.
- It helps in discouraging the staff from embezzlement.
- Helps in identifying the reason for differences in the Cash Book and the Pass Book.
- It helps in identifying any undue delay in the clearance of cheques.
- Helps in detecting and preventing frauds and errors in recording the Banking transactions.
- It helps in incorporating certain expenditures/income debited/credited by Bank in the books of accounts.
Methods of Preparation of BRS
There are two methods for the preparation of BRS:
- Rules of Addition and Subtraction
- Debit and Credit Method.
Steps in Preparing BRS
While preparing a Bank Reconciliation Statement one has to follow a systematic approach. They should ensure that the entries in the Cash Book are updated on a regular basis. Also, prepare the Bank Reconciliation statements at regular intervals.
Following are the steps in the preparation of BRS
- First, Identify the balances and the character thereof. In Cash Book, a debit balance means asset whereas a credit balance means a Bank overdraft. But, in Bank passbook, it’s reverse. In Pass Book, a debit balance means overdraft and a credit balance is a favorable balance. This must be carefully understood.
- Accordingly, start with the balance (or overdraft) as per one book and arrive at the balance (or overdraft) as per the other book. The items showing differences will be added to or deducted from the balance (or overdraft) with which the reconciliation is started.
- The end result should be the balance (or overdraft) as per the other book, e. g. if you start with balance as per Cash Book, then after adding or deducting items of differences, you should arrive at the balance (or overdraft) as per the Pass Book.
- While preparing BRS one has to make sure that all the items of differences from Cash Book as well as Bank book are taken into account in the reconciliation statement.
- Which items of differences should be added or deducted will depend on the sequence you follow.
This is shown in the following table given below:
|Particulars||Bal. as per CB||OD as per CB||Bal. as per PB||OD as per PB|
|Cheques deposited in Bank but not credited by the bank||Less||Add||Add||Less|
|Cheques issued but not presented for payment||Add||Less||Less||Add|
|Interest charged by the bank not recorded in the Cash Book||Less||Add||Less||Add|
|Payments by Bank debited in Pass Book only||Less||Add||Add||Less|
|Direct payment by the customer in Pass Book only||Add||Less||Less||Add|
|Bills discounted & dishonored in Pass Book only||Less||Add||Add||Less|
|Cheques deposited, dishonored in Pass Book only||Less||Add||Add||Less|
|Interest, Dividend, Commission not recorded in the Cash Book collected by Bank||Add||Less||Less||Add|
|Overcasting of payment side or Undercasting of Receipt
the side of Cash Book
|Undercasting of Payment side or overcasting of Receipts
the side of Cash Book
|Deposits recorded twice or excess amount recorded in
the Cash Book
|Undercasting of credit side or overcasting of the debit side of the Pass Book||Less||Add||Add||Less|
|Cheques deposited and credited without recording in the Cash Book||Add||Less||Less||Add|
|Wrong debit in the Pass Book for an issue of a cheque, Bank charges, etc.||Less||Add||Add||Less|
|Wrong credit in the Pass Book for deposit of cheque, interest, etc.||Add||Less||Less||Add|
|Cheques were drawn but not actually issued to the creditors||Add||Less||Less||Add|
|Bank charges recorded twice in the Cash Book||Add||Less||Less||Add|
|The amount was withdrawn from Bank not recorded in the Cash Book||Less||Add||Add||Less|
Solved Example for You
From the following particulars of M/Ramesh enterprises, prepare a Bank reconciliation statement:
(1) Bank overdraft as per Pass Book as on 31st March 2018 was `88,000.
(2) Cheques deposited in Bank for 58,000 but only 20,000 were cleared till 31st March 2018.
(3) Cheques issued were 25,000, 38,000 and 20,000 during the month. The cheque of `58,000 is still with the supplier.
(4) Dividend collected by Bank 12,500 was wrongly entered as 15,200 in Cash Book.
(5) Amount transferred from fixed deposit A/c into the current A/c 20,000 appeared only in Pass Book
(6) Interest on overdraft 9,300 was debited by Bank in Pass Book and the information was received only on 3rd April 2018.
(7) Direct deposit by M/s Rajesh Traders 4,000 not entered in Cash Book.
(8) Corporation tax 12,000 paid by Bank as per standing instruction appears in PB only.
Bank Reconciliation Statement as on 31st March 2018
|Overdraft as per Pass Book||88,000|
|(i) Cheques issued but not presented till 31st March||58,000|
|(ii) Transfer from fixed deposit||20,000|
|(iii) Direct deposit by M/s Rajesh Traders||4,000||82,000|
|(i) Cheques deposited but not cleared `(58,000 – 20,000)||38,000|
|(ii) Dividend collected excess recorded in CB ` (15,200 – 12,500)||2,700|
|(iii) Interest on overdraft debited in PB only||9,300|
|(iv) Corporation tax paid appeared in PB only||12,000||62,000|
|Overdraft as per Cash Book||1,08,000|