Preparation of BRS

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 BR’s preparation. A Bank Reconciliation statement can also be prepared by the Accountant of any business. A bank reconciliation statement is usually prepared for the purpose of comparing the bank's records with the company records of any business. It is done every month whenever the bank statement comes forward.

How to Prepare BRS

Before you start preparing BRS, you need to know why we prepare BRS. The need to prepare for the BRS is as under. 

Need for BRS Preparation

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.

Different Methods to Prepare 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

Important Steps in the Preparation of BRS

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.

Important Points during the Course of Preparation of a Bank Reconciliation Statement

Bank Reconciliation Statement is made out either by beginning with the Bank passbook balance or in another case the Cash Book balance.

If the remaining balance of the Cashbook is taken into consideration as a beginning point then -the Cash Book balance is to be adjusted in compliance with the book entries that are passed in -the passbook of the bank and vice versa. For instance: If the balance is taken as according to -the Cash Book then the items that are mentioned below will be added:

• Cheques that were earlier issued but later were not presented for payment at the due time;

• The amount that is credited in Passbook but not shown in the entries of the Cashbook;

• Deposits that were directly made into the bank without any hindrance;

• Wrong credit information provided by the bank in any circumstance;

• The interest amount is after that credited in the Passbook.

• The items that are mentioned below will be subtracted:

•  Cheques that were deposited in the bank but were not cleared;

• Interest/Bank Charges that were debited by the bank in the due course

•  Direct payments were made by the bank and there was no entry in the Cashbook

• Cheques that were dishonored and no entry was made in the cash book

•  Wrong data on debits is shown by the bank's fault.

• If it is made with the Bank balance in accordance with the bank passbook, then the procedure mentioned above will be reversed i.e the items given here will be added to the passbook which was subtracted from the balance in the cash book and those items will be subtracted from the bank passbook balance that was earlier added to the balance in the cash book.

Steps Involved in BRS Preparation

• 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 favorable 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.

Who Prepares the BRS Statement?

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.

Information Required for the Formation of a Bank Reconciliation Statement

The formation of a bank reconciliation statement necessitates using both the statements of current and the previous month. Along with the closing balance of that account. The accountant generally prepares the bank reconciliation statement by making use of all transactions done throughout the previous day, as some transactions may still be in the course of occurring on the actual statement date.

Solved Examples

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 the 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.

MCQs - Solved

1. Bank reconciliation statement does comparison of  a bank statement with:

 A) Cash payment journal

 B) Cash receipt journal

 C) Financial statements

 D) Cashbook

Ans: D

2. ‘NSF’ letters marked in a cheque sent back means;

A) Cheque has been forged

 B) A bank couldn’t verify the identity

C) Not sufficient funds

 D) The cheque cannot be exchanged for money because it’s illegal 

Ans: C

3. In the cash book, there was no entry of bank charges of ₹8,000. Give the right cash book adjustment that must be done here:

A) It will be credited in the cash book

B) It will be debited in a cash book

C) No further adjustment is needed to be done in the cash book

D) Charges will be mentioned in the cash book balance

Ans: A