What is Bank Reconciliation Statement?

Definition of Bank reconciliation statement (BRS)

A bank reconciliation statement reconciles an entity's bank account with its financial records by summarizing banking and commercial activity. The statement details the deposits, withdrawals, and other transactions that have occurred in a bank account over a given time period. A bank reconciliation statement is a valuable financial internal control tool for detecting and preventing fraud.

The Bank Reconciliation Statement: An Overview

Payments have been processed, and cash collections have been put into the bank, according to bank reconciliation data. The reconciliation statement aids in identifying discrepancies between the bank and book balances so that appropriate changes or repairs can be made. Daily or once a month, an accountant processes reconciliation statements.

TAKEAWAYS IMPORTANT

• A bank reconciliation statement reconciles an entity's bank account with its financial records by summarizing banking and commercial activity.

• Payments have been processed, and cash collections have been put into a bank account, according to bank reconciliation statements.

• A reconciliation statement must account for all costs levied by a bank on an account.

• The balance on a bank reconciliation statement should equal the bank account's ending balance after all adjustments.

For Bank reconciliation statement, you'll need the following information.

A bank reconciliation statement needs the use of both the current and prior month's statements, as well as the account's closing balance. Because transactions may still be occurring on the actual statement date, the accountant normally creates the bank reconciliation statement utilizing all transactions from the previous day.

Adjusting the Balance in the Books

The cash account balance in an entity's financial records may also need to be adjusted. A bank, for example, may charge a fee to open an account. The bank usually automatically withdraws and processes the fees from the account. As a result, any fees deducted from the account must be accounted for by creating a journal entry when compiling a bank reconciliation statement.

Interest earned is another factor that needs to be adjusted. After a specific period of time, interest is automatically paid into a bank account. As a result, the accountant may need to make an entry to increase the amount of cash currently recorded in the books. After all, adjustments to the books are made, and the amount should equal the bank account's ending balance. A successful bank reconciliation statement has been prepared if the statistics are equal.

Bank Statement v/s Company’s Accounting Record

The bank's ending cash balance and the company's ending cash balance are virtually always different when banks provide companies a bank statement that includes the company's beginning cash balance, transactions during the period, and ending cash balance. The following are some of the causes behind the disparity:

• Cash and checks that have been received and recorded by the company but have not yet been registered on the bank statement are referred to as Deposits in transit.

• Checks that have been issued by the corporation to creditors but have not yet been processed are known as outstanding checks.

• Banks charge fees from consumers' accounts for services rendered, however these fees are typically minimal is known as Bank service fees.

• Banks pay interest on some bank accounts, which is known as Interest income.
• When a customer deposits a check into an account but the issuer's account does not have enough money to cover the check, the bank deducts the check from the customer's account. The check is returned to the depositor as a non-sufficient funds check (NSF).

Procedure of Bank reconciliation statement:

• To discover uncleared checks and deposits in transit, compare the company's list of issued checks and deposits to the checks reflected on the bank statement.

• Add back any deposits in transit using the cash balance stated on the bank statement.

• Subtract any unpaid checks.

• The altered bank cash balance will be displayed as a result of this.

• Then, add any interest earned and the amount of notes receivable to the company's ending cash balance.