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Bank-Reconciliation-Statement-(BRS)

 

Bank Reconciliation Statement (BRS)

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Introduction-

Bank reconciliation statement (BRS) is a report which compares the bank balance with the balance stated in the books of accounts of the assesse on a particular date. Sometime the transactions are accounted for in the bank's financial system before the company incorporates them into its own accounting system. Such timing differences appear as reconciling items in the Bank Reconciliation Statement.

Always keep in mind the balance of two books must tally with each other, if we credit any transaction in our books it will be debited by bank in our account, for example- When money is withdrawn from the bank, firms enters it on the credit side of the bank column of the cash book and at the same time banks also enters it on the debit side of the firms account in its book.  On the other hand if the firm has deposited any amount in bank, the firm enters it on the debit side in his books of accounts and bank also enters it on the credit side of the firms account.

 
Benefits of BRS-
  • BRS help us against detecting fraudulent transactions committed either on the part of the customer or the bank.
  • BRS help us to keep watch on all transactions like bank charges, bank interest etc.
  • BRS help us to make proper entries in our books of accounts regarding their receipts from debtors etc. i.e. payments received through NEFT/RTGS/IMPS etc which can be reconciled with the bank statement.
  • BRS help to keep our attention on all payments made through cheque, whether they cleared or not till the date.
  • BRS also help us to reduce errors like double entry, transactions not accounted for or missing entries etc.

 

How to prepare a BRS-
  1. First, to compare opening balances of bank account shown in our books of accounts with the bank statement on a particular date. If there is any difference in opening balance take previous reconciled BRS or watch the difference, which could be due to wrong entry in back date, pending cheques etc, update the same in current BRS.
  2. Then compare credit side of the bank statement with debit side of the bank account shown in our books of accounts, note the difference between them.
  3. Then comes to debit side of the bank statement with the credit side of the bank account in our books of accounts, note the same as above.
  4. Analyze the above entries shown above.
  5. Pass/correct the necessary entries in your books of accounts and keep watch on unusual transactions.
  6. The resultant figure must be equal to the balance as per the bank statement.
A bank reconciliation statement can be started from any of the balances are as under-
  • Debit Balance (Favourable balance) as per books of accounts of assesse
  • Credit Balance (Unfavourable balance or Overdraft balance) as per books of assesse
  • Debit Balance (Unfavourable balance or Overdraft balance) as per bank books
  • Credit Balance (Favourable balance) as per bank books
 
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Format of Bank Reconciliation statement-

Particulars

Debit

Credit

Balance as per our books of accounts

xxx

 

Add:-

· Cheque issued but not presented for payment

· Amount credited by bank but not debited by us for example (Interest received, dividend received, direct deposit by customers, RTGS, NEFT, IMPS etc.)

xxx

 

Less:-

· Cheque deposited  but not cleared

· Amount debited by bank but not credited by us for example Service charges (Interest, commission, Stock audit fees, Insurance etc.)

 

xxx

Balance as per bank books

 

xxx

Total

xxx

xxx

 

Example 1-

From the following particulars of M/s Ram Timber Industries, prepare bank reconciliation statement as on November 30, 2018

1. Bank balance in our books of accounts Rs.1,33,500 (Debit)

2. Cheques deposited into bank but not credited till the date

  • 22.11.2018 Cheque No. 325006 of Rs.9,500
  • 25.11.2018 Cheque No. 000251 of Rs. 18,200

3. Cheques issued but not presented for payment

  • 15.11.2018 Cheque No. 251005 for Rs. 12,500
  • 25.11.2018 Cheque No. 251009 for Rs. 19,300

4. Bank credited dividend through Electronic Clearing System for Rs. 3,500 on 24.11.2018

5. Bank charges debited by Bank

  • On 01.11.2018 Rs. 325
  • On 15.11.2018 Rs. 250
  • On 23.11.2018 Rs. 125

6. Balance as per bank statement as on 30.11.2018 Rs. 1,40,400

 
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Answer- First method of reconciliation after taking balance as per our books-

Particulars

 

 

Debit

Credit

Balance as per our books

 

1,33,500

 

Less: Cheque deposited but not cleared-

 

 

27,700

Cheque No. 325006 dt.22.11.18

9,500

 

 

Cheque No. 000251 dt. 25.11.18

18,200

 

 

Add: Cheque issued but not presented for payment-

 

31,800

 

Cheque No. 251005 dt. 15.11.18

12,500

 

 

Cheque No. 251009 dt. 25.11.18

19,300

 

 

Add: Amount credited by bank but not debited in our books-

 

3,500

 

Dividend received

3,500

 

 

Less: Amount debited by bank but not credited in our books-

 

 

700

01.11.2018

325

 

 

15.11.2018

250

 

 

23.11.2018

125

 

 

Balance as per Bank Statement

 

 

1,40,400

Total

 

1,68,800

1,68,800

 

We should pass necessary entries in our books of accounts, these are as below-

S.No.

Date

Particulars

Debit

Credit

1

24.11.2018

Bank A/c Dr.

To Dividend Received

(Being amount of dividend received)

3,500

 

 

3,500

2.

01.11.2018

Bank Charges A/c Dr.

To Bank Account

(Being amount of bank charges)

325

 

 

325

3.

15.11.2018

Bank Charges A/c Dr.

To Bank Account

(Being amount of bank charges)

250

 

 

250

4.

23.11.2018

Bank Charges A/c Dr.

To Bank Account

(Being amount of bank charges)

125

 

 

125

 

Or

Answer-Second method of reconciliation after taking bank balance -

Particulars

 

 

Debit

Credit

Balance as per Bank Statement

 

 

1,40,400

Add: Cheque deposited but not cleared-

 

 

27,700

Cheque No. 325006 dt.22.11.18

9,500

 

 

Cheque No. 000251 dt. 25.11.18

18,200

 

 

Less: Cheque issued but not presented for payment-

 

31,800

 

Cheque No. 251005 dt. 15.11.18

12,500

 

 

Cheque No. 251009 dt. 25.11.18

19,300

 

 

Less: Amount credited by bank but not debited in our books-

 

3,500

 

Dividend received

3,500

 

 

Add: Amount debited by bank but not credited in our books-

 

 

700

01.11.2018

325

 

 

15.11.2018

250

 

 

23.11.2018

125

 

 

Balance as per our books

 

1,33,500

 

Total

 

1,68,800

1,68,800

 

What are the reasons of difference between balance with banks and balance with our books of Accounts-

1. Difference due to time gap in recording the transactions

  • Cheque Issued but not presented for payment- These cheque’s are issued by us for payment to creditors, repayment of loan, purchase of assets or against expenses etc., but  not  presented for payment in the bank as on date.
  • Cheque Received but not cleared- These cheque’s are received from debtors, but not cleared as on date.
  • Payment received through electronic form like RTGS/NEFT/IMPS etc.- These payments are received in the electronic forms, which can be taken in our books of accounts on receipt basis.
  • Service Charges- The entries of service charges like Bank charges, commission, insurance payment, stock audit etc. charged by bank directly from our account.
  • Interest/ Dividend received- Any amount of Interest/Dividend etc. directly credited by bank in our account.

2. Difference due to errors i.e. wrongly entered/ double entered

  • Wrongly/Double Entry- Any entry which can be taken by mistake/ wrongly or entered by twice a time either by bank or by an account in our books of accounts, for example cheque issued to creditors but not recorded in books of accounts or cheque received but not recorded in books of accounts by the firm etc.



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