What is BRS?
Suppose if you made a transaction in the bank no matter how small or big that is but you need to keep a record of the transaction that you have done and for that this BRS or more precisely this Bank Reconciliation Statement will play its role. A bank reconciliation statement records the difference between the bank statement and a general ledger. Now what is this ledger? Whenever any transaction is made in a bank it is recorded in the journal. After the statement is recorded in the journal it gets recorded in the principle book that is known as ledger.
There can be some cases in which the amount that is specified in the bank statement that a bank issues is different from the one that is mentioned in the accounting book of the company that is made by the charter accountant . So this bank reconciliation statement just checks the entities on the monthly basis so that there may not be any issued in the future for the company. In simple language you can regard this bank reconciliation statement or BRS to be a matching record for the cash account entry in correspondence to the statement issued by the bank. Bank Reconciliation Statement is going to check the differences that will be between them and then it will make the appropriate changes that are required. In this article you are going to get this brief information about Bank Reconciliation Statement, it's importance, the features that bank reconciliation statements have, and the reason why there are different cash books and bank's passbooks, how to make a bank reconciliation statement and other important points. Let's just have a look at all of them.
The record book or transactions of a bank account is known as a bank reconciliation statement. This statement allows the bank holders to keep a track of their funds and update transaction records they have made. In other words, the bank reconciliation statement is the bank's passbook. The balance given in the bank passbook statement should ally with the balance given in the cash book. In the statement, all the deposits shown in the credit column should be shown in a deposit column as well.
However, if the withdrawal is more than the deposits, it will show a debit balance (overdraft). Generally, saving’s bank account holder is given a passbook whereas current account business is given a Bank Statement.
Importance of Bank Reconciliation Statements
In most of the comparisons between the bank balance and the company’s cash book, the balance figure doesn’t tally. Therefore, it is important to know the reason for the difference and show it in the bank reconciliation statement and then tally the two balances. This statement reveals the cause of differences in funds in the bank balance and the company’s cash book. This also helps to understand the characteristics of bank reconciliation statements.
What are the Features of a Bank Reconciliation Statement?
A business entity or firm records the deposits of a bank on the debit side of the bank column in the cash book and withdrawals on the credit side of the bank column in the cash book. Likewise, all these transaction details are registered by the bank in their books. It is a little different as the bank records deposits on the customer’s credit side and withdrawals on the customer’s debit side.
The Features of a Bank Reconciliation Statement
The features of the bank reconciliation statement are given below:
The bank reconciliation statement (as the name suggests) is a statement.
It is not any type of account and doesn’t include part of the account’s process.
A firm can prepare it any time of the financial year when they require it.
The bank reconciliation statement is prepared on a particular day.
An individual or firm may prepare it to reconcile the reasons for the differences between the bank balance according to the passbook or bank balance according to the cash book.
Reasons for Differences Between Cashbook and Bank’s Pass Book
The main reason for the differences between the cash book and the bank’s passbook is the time in recording the transactions. There are many things that cause a difference in timing.
The cheque was paid in the bank but is not yet cleared.
The cheque is bank-issued but not yet deposited for payment.
Direct debit made by the bank from the customer’s side.
Interest and Dividends collected by the bank.
Direct deposition of an amount/ cheque in a bank account.
Bills discounted/ cheques deposited dishonoured.
Errors made by the bank or by the company.
In a few instances, the error in two balances can be made on the company’s cash book or from the bank side. The errors are as follows:
Errors made at recording the transaction by the company.
Errors made at recording the transaction by the bank.
Types of Bank Reconciliation Statement
There are two processes in which a bank reconciliation statement can be prepared:
Making documentation of bank reconciliation statements without modifying the cash book balance.
Filing for a bank reconciliation statement after making changes in the cash book balance.
Steps Involved in Making Bank Reconciliation Statement
At first, the statement’s record date is noted.
After this, the balance mentioned in the cash book is recorded in the statement. Sometimes, the balance mentioned in the bank’s passbook is recorded.
The deposited cheques that are not collected are removed.
Then the cheque is issued but deposited for payment, and the amount directly deposited in the bank account is noted.
It deducts all the transactions like amounts debited by the bank and overdraft interests not recorded in cash books, bills discounted, and cheques.
All the profits and credits collected by the firm and deposited in the bank directly gets added.
Adjustments related to errors and mistakes are made.
After implementing these steps, the balance between the cash book and bank statement should be the same.
Did You Know?
When the total debit column of the cash book exceeds the total credit column of the cash book, it is called a debit balance. This debit balance is also termed as a favourable balance. For an account holder, a favourable balance is an asset. Favourable balance explains a situation when an account holder has an abundance of deposits over withdrawals.
Conclusion
From the above article we can easily conclude that it is necessary to have a bank reconciliation statement. There can occur faults in the bank statements and at that time these BRS are going to be a great help for you. If you are looking to make huge transactions or even for making an Income Tax return statement, bank statements are going to be helpful for you. This bank statement is the basic medium of transaction in any bank. If the basic documents are having problems then it is obvious for the other ones to have some issues so it is necessary for any organisation to justify the basics.
Reconciliation statement is going to make the bank statement error free and along with this any additional charges will be cleared. Therefore before closing accounting the reconciliation is going to check whether the statement is safe and error free.
FAQs on Features of Bank Reconciliation Statements (BRS)
1. What is the need for a bank reconciliation statement?
This is a solved example on features of BRS will help to answer the question. We also get to know the characteristics of a bank reconciliation statement. The need to prepare a bank reconciliation statement arises due to the following reasons:This helps to understand the actual bank balance of the individual or the firm. It helps to identify all the mistakes made in the cash book or passbook to that of the bank statement. It detects and prevents the errors and frauds made in recording the banking transactions.It incorporates specific income/expenditures/ that are credited or debited by the bank in the books of accounts.It shows the interest and dividends mentioned by the bank but not registered in the cash book.
2. What differences arise due to errors and omissions in the recording?
The differences arise mainly due to the errors and omissions in the recording of transactions that are made in the bank’s passbook or the cash book of the company. We can understand this from the perspective of a solved example on features of BRS. (i) The error committed by the bank in recording the transactions: Wrong credit or debit entry in the bank’s column of the account holder. Recording the bank interests and charges that are already made.(ii) The error committed by the business entity or firm in recording the transactions. Cheque issued but not registered in the cash book of the company. Cheques deposited into the bank but overlooked to register in the cash book of the company. Miscalculating in balancing or tallying of the bank column of the cash book.
3. For private firms, who is going to prepare the bank reconciliation statement?
All the private forms mostly have their own Charter accountant for making these bank reconciliation statements. To handle all the business issues and the payments they have specially appointed these chartered accountants. For business accounts, every month when the bank statement arrives the chartered accountant of the firm moves on with his work on making this bank reconciliation statement so that there may not be any error in their payments or bank details that the firm has received. Here the charter accountant will focus on making it error free by clearing all the problems that it may hold.
4. What kind of accounts do you need to reconcile on a monthly basis?
Just like in the bank their passbook needs to get updated in the same way this reconciliation needs to be done. It is mandatory to reconcile the data that you are provided with just in order to avoid future discrepancies or further issues. But to further look into the matter this all is up to you how you do that. However there are certain accounts that you need to reconcile on monthly basis like cash accounts, prepaid expenses, inventory accounts, payroll liabilities, loans and other debt accounts are the ones that you should reconcile as soon as you can
Mostly on the monthly basis they should be reconciled so that there may not be any further issues that you face in the near future.
5. Where can I get more information about BRS?
If you want to have more information about this bank reconciliation statement or BRS you can visit Vedantu app. They have provided you with the maximum information if BRS that you can have. They not only give you the basic detail but also prepares for the further details so that you just get clarity of a particular topic that you want bank reconciliation statement is a tricky topic it involves various thing like how should create it, what it's importance is and so on and that information you can get from this vedantu app. It is specially designed by the experts so that all your queries can be easily cleared only at one place.
