Notes BRS

Bank Reconciliation Statement
Introduction
A businessman maintains a Cash Book with a bank column in his ledger,

recording all banking transactions. This column represents the bank's current
account. The bank, in turn, records these transactions in its ledger, known as the
Pass Book.
● When the businessman deposits money or a cheque into the bank, it's
recorded on the debit or receipt side of the Cash Book. The bank records it
on the credit side of the Pass Book.
● When the businessman issues a cheque for payments, it is recorded on the
credit or payment side of the Cash Book. The bank records it on the debit
side of the Pass Book.
Ideally, the balance in the Cash Book's bank column should match the balance in
the Pass Book. The only difference is that if the Cash Book has a debit balance, the
Pass Book will show a credit balance, and vice versa.
Definition
A Bank Reconciliation Statement (BRS) is a statement that explains the causes of

any differences between the bank balance as per the Cash Book and the balance
in the Pass Book. It reconciles these balances by listing all the causes for
discrepancies.
Need and Importance of Bank Reconciliation Statement
1. Clarifies Discrepancies: It helps explain the differences between the

balances in the Cash Book and Pass Book.
2. Error Detection: Identifies errors or omissions in both the Cash Book and
Pass Book.
3. Prevents Fraud: Reduces the chance of fraudulent activity by staff
handling cash.
4. Ensures Accuracy: Verifies whether the bank has made proper entries for
all transactions.
5. Improves Internal Control: Encourages staff to maintain an up-to-date
Cash Book.
6. Financial Oversight: Provides insight into cash inflows and outflows,
contributing to better financial control.
Benefits of Bank Reconciliation Statement
1. Error Detection: Identifies and corrects any errors in both the Cash Book
and Pass Book.
2. Fraud Prevention: Reduces the risk of fraud by ensuring accurate and
consistent records.
3. Transaction Monitoring: Provides periodic checks on the status of banking
transactions.
4. Accurate Balances: Ensures that the correct bank balance is maintained in
the financial records.
Reasons for Differences Between Cash Book and Bank

Statement Balances
Timing Differences
Differences arise due to delays between recording transactions in the Cash Book
and the bank’s record, as each records certain transactions on different dates.
1.Cheques Issued but Not Yet Presented for Payment
When a cheque is issued, it’s recorded in the Cash Book immediately. However,
the bank only records it when the cheque is actually presented for payment.
2.Cheques Deposited but Not Yet Cleared
When a cheque is deposited, it’s recorded in the Cash Book right away. However,
the bank only credits the amount after the cheque clears, which may take a few
days.
Bank-Recorded Transactions
Certain transactions, like interest or bank charges, are recorded directly by the
bank and may not be immediately known to the account holder.
3. Interest Credited by the Bank
● Bank credits interest before account holder records it, causing the Bank
Statement to show a higher balance.
4. Bank Charges & Interest Charged by Bank
● Bank debits fees or overdraft interest before account holder updates Cash
Book, making Bank Statement balance lower.
5. Interest and Dividends Collected by the Bank
● Bank collects and credits interest/dividends on behalf of the account

holder, leading to a temporarily higher balance in Bank Statement.
6. Direct Payments by the Bank
● Bank pays items like insurance and deducts the amount; account holder
records later, making the Bank Statement balance lower.
7. Direct Deposits by a Customer
● Customer deposits directly into a bank account, recorded by the bank first,
creating a higher Bank Statement balance.
8. Dishonour of a Bill Discounted
● Bank debits the account if a bill is unpaid, with the account holder
recording it later, causing a higher Cash Book balance.
9. Bills Collected by the Bank

● Bank collects payment on behalf of the account holder, crediting their
account, which raises Bank Statement balance before Cash Book updates.
Errors
Mistakes by either the bank or the account holder in recording or carrying forward
amounts can lead to discrepancies in the balances.
10. Errors and Omissions
Mistakes in the Cash Book or Bank Statement, such as recording incorrect

amounts or posting entries to the wrong accounts, can create differences
between Cash Book and Bank Statement balances.
Examples:
● A cheque of 1,000 mistakenly recorded as 10,000 in the Cash Book.

● Entry for one account mistakenly posted in another account by the bank.
Performa of BRS
Process of Preparing BRS
Bank Reconciliation Statement clarify that BRS is made at the time we get the duly
filled Pass Book from the bank.
At the time of receiving the Cash Book:
a) Debit side entries of the Cash Book are tallied with the credit side entries of the
Pass Book and vice versa.
b) The items appearing in the Cash Book and Pass Book must be ticked properly.
c) The items remaining unmarked will be the points of difference.
d) Lastly, the Bank Reconciliation Statement should be prepared by taking into
account either the amount shown in the Cash Book or Pass Book as a beginning
point.

Notes BRS

Uploaded by

Copyright:

Available Formats

Notes BRS

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Notes BRS

Uploaded by

Copyright:

Available Formats

Bank Reconciliation Statement

A businessman maintains a Cash Book with a bank column in his ledger,

A Bank Reconciliation Statement (BRS) is a statement that explains the causes of

Need and Importance of Bank Reconciliation Statement

1. Clarifies Discrepancies: It helps explain the differences between the

Benefits of Bank Reconciliation Statement

Reasons for Differences Between Cash Book and Bank

1.Cheques Issued but Not Yet Presented for Payment

3. Interest Credited by the Bank

4. Bank Charges & Interest Charged by Bank

5. Interest and Dividends Collected by the Bank

● Bank collects and credits interest/dividends on behalf of the account

6. Direct Payments by the Bank

7. Direct Deposits by a Customer

8. Dishonour of a Bill Discounted

9. Bills Collected by the Bank

10. Errors and Omissions

Mistakes in the Cash Book or Bank Statement, such as recording incorrect

● A cheque of 1,000 mistakenly recorded as 10,000 in the Cash Book.

At the time of receiving the Cash Book:

You might also like