What is Bank Reconciliation Statement (BRS)?

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What is Bank Reconciliation Statement (BRS)?

A statement showing all the items of difference between the bank column of the Cash Book and the bank balance depicted in the Pass Book on a particular date and for a particular period of time is called Bank Reconciliation Statement.

All businesses have their bank accounts in the form of Fixed Deposit Accounts, Savings Accounts, or Current Accounts. A Current Account is most preferable for businesses because there is a greater limit for holding balance and doing transactions in a day as compared to Savings Account.

 

Purpose of Bank Reconciliation Statement

The reconciliation statement is the most common tool used by organizations for reconciling the balance as per books of company with the bank statement and is made at the end of every month.

 

The need and importance of the bank reconciliation statement may be given as follows:

  • The reconciliation process helps in bringing out the errors committed either in Cash Book or Pass Book.
  • Bank reconciliation statement may also show any undue delay in the clearance of cheques.
  • Sometimes the cashier may have the tendency of cheating, like he makes entries
    in the Cash Book,

need of Bank Reconciliation Statement

When any transaction related to the bank happens, say, cash is deposited in the bank. The businessman records this transaction in the bank column of the Debit side of the Cash Book and the Bank records the same on the Credit side of the Pass Book. Similarly, when cash is withdrawn from the bank, it is recorded in the bank column of the Credit side of the Cash Book by the businessman and the Debit side of the Pass Book.

Therefore, the opposite side of the Cash Book and Pass Book should always equal. 

If this does not happen and some difference is found between the opposite sides of the Cash Book and Pass Book, then it means that there is some error or mistake.

Need for Reconciliation:

Detection of Errors: 

Reconciliation of Cash Book and Pass Book helps in detecting any error. An error can be either made by the bank in the Pass Book or by the businessman in the Cash Book. When both the books are compared, then an error if any, can be easily found.

Detection of Cause of Error: 

Bank Reconciliation Statement not only helps in detecting the errors but also helps in detecting the cause of that error. When both the books are compared, then the cause can easily be found due to which wrong entry the balances are not tallying. 

Correction in Cash Book: 

With the help of Bank Reconciliation Statement, corrections can be made in the Cash Book by comparing it with the Pass Book. Cash Book can only be corrected when the error and its cause is identified.  

Knowledge of Bank Balance: 

Sometimes Cash Book shows less balance, but in reality, bank account has not been debited yet. When the actual bank balance is known to the business, it helps the business in making future transactions in a better way.

Control over Misappropriation: 

Misappropriation of funds by the personnel of the bank as well as the employees of the company can be avoided if reconciliation is done at regular intervals. Reconciliation helps in determining the actual position of the balance company as any misappropriated figure can be detected easily.

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