Most people have come across a bank reconciliation statement or BRS. According to the meaning of BRS in accounting, it is issued on a particular date for reconciliation of the bank balance according to the Cash Book or Pass Book. The bank statement is also prepared by providing reasons for the differences between Cash Book and Pass Book. Let us discuss some of the topics related to BRS preparation.
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Before you start preparing BRS, you need to know why do we prepare BRS. The need to prepare for the BRS is as under.
The reasons mentioned below describe why we prepare BRS.
A BRS helps the customers to know the final balance present in the bank.
It does not allow the bank staff to embezzle the customers.
It enables the customers to understand the differences between a Passbook and a Cash Book.
BRS helps in denoting if there is any uncalled delay during the process of cheque clearance.
If there are any fraudulent actions or problems related to bank transactions, they will be reflected in the BRS.
If there is any income or expenditures transacted by the bank in the accounts book, they will be reflected in the BRS.
Since you have understood the need to prepare BRS, now it is time to know how BRS is prepared. In general, there are two proven methodologies to prepare BRS. They are
Subtraction and Addition rules
Credit and Debit method
After knowing the types of BRS, let us know how to prepare a BRS statement. In this process, people have to follow the system rules. They must ensure to update the Cash Book regularly. They must also generate the BRS regularly.
The first step in BRS preparation is to identify the characters and balance involved in the account. A credit balance is identified as a bank overdraft in a Cash Book, while a debit balance is considered an asset. However, in a Passbook, the terminologies have the reverse meaning. In such a scenario, the credit balance is considered a favourable balance, while a debit balance is identified as an overdraft. The students must understand these terminologies according to the scenario.
According to the other one, to generate the BRS, it is important to initiate with the overdraft according to one book and end at the overdraft. If any items show differences, they will be deducted from or added to the balance accordingly for which the reconciliation was considered.
The final result of such calculations is the balance of the subsequent book. For example, if you initiate with the balance from the Pass Book, you need to add or deduct all the items of differences, after which you must arrive at the balance of the Cash Book.
During the process of BRS preparation, one has to consider all the differential items from both the Pass Book and the Cash Book in the BRS.
The sequence will determine the addition or deduction of such items that the person preparing the BRS statement will follow.
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By this time, you have learned how to prepare a BRS statement. However, in real life, you do not have to prepare a BRS statement on your own. Generally, the BRS is prepared by the bank accountant.
Prepare a BRS From the Particulars of Mukesh Enterprises:
Bank overdraft according to the Pass Book as of 31st March 2016 was 80,000.
Cheques were deposited in the bank for 48,000, but only 10,000 were cleared by 31st March 2016.
During the month, Cheques amounting to 25,000, 38,000, and 20,000 were issued. The cheque of 48,000 remained with the supplier.
Bank collected a dividend of 12,400 but wrongly entered it as 14,200 in the Cash Book.
An amount of 20,000 was transferred from the fixed deposit account into the current account. Such transfer was reflected only in the Pass Book.
The bank debited Interest on an overdraft of 8,300. It is mentioned in Pass Book, and the information was received only on 3rd April 2016.
Mukesh Traders made a direct deposit of 5,000, which did not have an entry in the Cash Book.
The bank paid a corporation tax of 15,000 according to the standing instruction. Such changes are shown inPass PassBook only.
1. What is BRS, and Why is it Prepared?
Ans: BRS stands for Bank Reconciliation statement. According to the Pass Book or the Cash Book, it is the list of statements issued on a date for reconciling the bank balance. It also takes into consideration the differences between the Cash Book and the Pass Book.
BRS is mainly prepared for the following reasons.
BRS helps in understanding the final balance.
The bank staff have no chance to embezzle or trick the customers.
It provides the customers with a list of differences between the Cash Book and the Pass Book.
BRS also reflects any delay in the process of cheque clearance by the bank.
Any kind of fraudulent activity or errors related to the transactions will be reflected in the BRS.
The BRS will also include any kind of income or expenditure exercised by the bank. For example, the bank pays the corporation taxes as per the standard rule, and such payments are reflected in the BRS.
2. Who Prepares BRS, and What are the Steps Involved?
Ans: In general, the customers do not have to take the tension of preparing the BRS. It is the duty of the bank accountant to do so. In the procedure of preparing the BRS, the following steps are involved.
The first step is to recognize the characters as they appear on the Cash Book or the Pass Book. For example, the credit balance is considered as bank overdraft in Cash Book while as an asset in Pass Book. The opposite is true for debit balance in both the books. It is important to understand every terminology as it appears in these books.
The statement begins with the overdraft of one book and ends with the overdraft of the other book. All items of differences are considered while preparing the BRS. The sequence of addition or deduction of items in the statement depends on the person preparing the statement. All the items of differences in both the books are considered in the BRS.