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Bank Reconciliation Statement

What is Bank Reconciliation Statement?

A bank reconciliation statement means nothing but a summary of business and banking activity that reconciles an entity’s bank account with its financial records. The statement defines the withdrawals, deposits, and other tasks affecting a bank account for a certain period of time. A bank reconciliation statement of a bank is a beneficial financial internal control tool that is used to prevent fraud. 

Why is a Bank Reconciliation Statement Required?

As a matter of fact, bank transactions are tracked in the books of accounts but it does not match with a bank statement. A BRS is made into use for the following reasons given below:

  • The difference in the fate of cheque credited and cheque deposited
  • Cheques issued which not cleared in the bank
  • Cheque received or issued is not taken to the bank for clearing
  • Banks can even make errors in crediting or debiting the transactions
  • The date of cheque issued towards payment and the date on which it is debited are distinct.
  • You can even make mistakes in recording the bank transactions in books of accounts just like banks.
  • Charges, bank interests, and so on are not accounted for and the reason will not be known till you reconcile.

The above-mentioned are the reasons why the actual bank balance and the closing bank balance in your books of accounts as per the bank do not match. It simply means that the bank balance which you think you have in your bank is not the one there in the bank. Therefore, the book balance simply confuses you about the situation. Hence, bank reconciliation statements are made to avoid such situations. These statements match the transactions of the bank in accordance with company books so that you can know about the actual bank balance in the books of accounts. 

Details Required to Create a Bank Reconciliation Statement

Both the previous month’s statements and the current statement like the account’s closing balance are required to form a bank reconciliation statement. However, the accountant normally creates the bank reconciliation statement using all transactions of the previous day as transactions might still be undertaken on the actual date of the statement. 

Steps Involved in Creating Bank Reconciliation Statement

Have a look at the steps involved in the bank reconciliation statement which are as follows:

First Check

Initially, the very first step is to compare the records in the ledger cash account and the company’s bank statement. And then to check the matching records whether all the records in the ledger match with the bank account statement. At this stage, the reconciliation statement removes huge mistakes.

Deposit Check

Once it is done with the initial check, then it involves marking all items that remain in the ledger. Then you need to add any transit deposits that are accounted for in ledgers that may not be there in the bank statement. Therefore, the transit deposits case occurs due to transactions undertaken prior to non-working hours or bank holidays.

Earned Interests

Then to add the earned interests by making a note of accurate interest rates. It only applies to interest-bearing accounts.

Bank Errors

Obviously, the officers operating in the bank are 100% human, hence they can make mistakes by interchanging records for two distinct account statements, or else they may record faulty entries. So delete or add bank errors according to it.

Outstanding Checks

From the overall balance, it is needed to deduct outstanding checks. 

Check Ledger Mistakes

A bank renders various provisions such as late payment charges, account maintenance charges, transfer charges, etc. for which it charges. So bank service charges have to be deducted from the ledger.

Check Reconciliation

Ledger might include posting a payment that did not reach completion and then make essential amendments. Then, check everything properly before adding it to the bank statement. 

Equate Final Balance

The total balance should match to conclude reconciliation.

Journal Entries

Being a part of this procedure, you might need to prepare some journal entries to correct mistakes. These mistakes are those which obstruct the comparison of general ledger and bank statements. 

Reconciliation Statement Format

Check out the bank reconciliation statement format given below:

Bank Reconciliation Statement as on …

BRS Bank Reconciliation Statement Format

Points to Remember:

To solve the problems on Bank Reconciliation Statement, the below-given points should be noted:

  1. The heading of the format will appear as “Bank Reconciliation Statement as on …………………”
  2. Every item added in the statement is grouped together and displayed in the inner column and the total is brought to the outer column for addition (B).
  3. Every item deducted in the statement is grouped together in the inner column and the total can be displayed in the outer column for the purpose of deduction (D).
  4. A favourable balance is nothing but the passbook will have a credit balance and the cash book will have a debit balance.
  5. An unfavourable balance or bank overdraft is nothing but the passbook having a debit balance and the cash book having a credit balance.

Below given are the transactions that normally appear in bank statements but not in the cash account of the company:

  • Interest Income: If any income of interest has been obtained by the organization on its bank account, it is not usually entered in the cash account of the company before the issuance of a bank statement.
  • Service Charges: Service charges that have been deducted by the bank are not generally known to the company prior to the issuance of a bank statement. 

FAQs on Bank Reconciliation statement

1. What is the key advantage of preparing a bank reconciliation statement?

The key advantage of preparing a bank reconciliation statement is that it is prepared to correct an error that occurs in the transaction that took place in the bank statement and cash book.

2. Why is a bank reconciliation account not considered a ledger account?

A bank reconciliation account is not considered a ledger account as there are no credit and debit sides like a ledger.

3. Before I advanced the GL period and entered transactions, the current bank reconciliation was in balance. Now I am not able to advance the bank reconciliation to the next statement. What should I do?

  • Choose File from the CSA main window and then Select Period to process and set your GL period back to the previous reconciled period.
  • Enter the transactions.
  • Select Tasks and then Bank Reconciliation and then press the Advance to Next Statement tab.
  • Again select File from the CSA main window and then choose Period to Process and advance the GL period to the present period. 

4. A few of my checks are not showing in Bank Reconciliation. What should I do?

If your deposits or checks are not available in the Tasks in the Bank Reconciliation window, you have to carry out the following:

  • Make the verification that the transaction is assigned to the right GL account number (Cash Account).
  • Make the verification that your chequebook has the right GL account number (in the GL account #field on the General button of the Setup>Checkbook dialogue).
  • Enter transactions by clicking F5 from the Tasks in the Transaction Entry window.
  • From the window of Bank Reconciliation, select Assign Orphan Checks from the F3 or from the Edit menu or right-click the context menu and view if the checks are displayed. If yes, then apply them to the right chequebook. 
  • If the transactions are still not present in the Tasks in the Bank Reconciliation window, then select Rebuild Uncleared Transactions from the F3 or from the Edit menu or right-click context menu.