What is bank reconciliation statement and why is it prepared?

What is a bank reconciliation statement and why is it prepared

Bank Reconciliation Statement Meaning

A bank reconciliation statement is a book that keeps track of a bank account's transactions. This statement assists account holders in checking and tracking their funds as well as updating their transaction records. The bank reconciliation statement, also known as the bank passbook, is a document that shows how much money has been transferred from one account to another. The balance in the bank passbook of the statement must be the same as the balance in the cash book. All deposits will appear in the credit column on the statement, while withdrawals will appear in the debit column. However, if the withdrawal exceeds the deposit, the account will be debited (overdraft).

Why it is Prepared

It‘s not compulsory to prepare a BRS and there’s no fixed date for preparing BRS. BRS is prepared on a periodical basis for checking that bank-related transactions are recorded properly in the cash book’s bank column and also by the bank in their books. BRS helps to detect errors in recording transactions and determining the exact bank balance as on a specified date.

BRS is a statement and not a ledger account.

BRS should have two balances to be checked if they are the same and if not to reconcile the differences by identifying and narrating the reasons for the difference. It is important here to state that both accounts (ledger account and Pass Book) record the same transactions (one in the holder’s book and the other in Bank’s books) and, therefore, except for logical reasons as on a particular date, they cannot show different balances on any date.

It is usually prepared by the Bank account holder, or his auditors, and anyone who wishes to analyze the transactions during a given period.

BRS is prepared always on a particular date because any logical difference between the balances is due to the difference in the timing of recording the transactions.

Let's go over some of the scenarios where there is a variation in the timeliness of recording transactions. It becomes easy to reconcile the balances if these conditions are understood:

Cheques issued by the Account Holder on the date that has not yet been presented to the Banker for payment till the date of BRS.
Cheques deposited into the bank account by the holder have not yet been realized and credited by the Bank into Holder’s account, till the date of BRS.

Any transaction like

Interest
cash or cheques deposited by any person without the knowledge of the account holder
bank charges or any other taxes or levies or charges) entered by the Bank in the holder’s account, but not yet been recorded by the Holder in the Bank’s ledger account in the holder’s books of accounts till the date of BRS.

For More Details about Bank Reconciliation Statement Read Here.

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