bank-reconciliation-statement

Bank Reconciliation | Definition, Example, Free Excel Template

Bank Reconciliation | Definition, Example, Free Excel Template

Bank Reconciliation | Definition, Example, Free Excel Template

What is a Bank Reconciliation Statement?

A bank reconciliation statement (BRS) is a statement of the document which measures and compares the cash balance (respective company’s balance sheet) to the corresponding amount on the respective bank statement. The main purpose to compare those accounts, i.e., to reconcile those accounts is to, identify whether there is any need for accounting changes.

 

Bank reconciliation will be measured and closed at the regular interval of time. It helps the company or an organization to make sure that all their cash records are correct. Thus, it is easy for a company to detect in case of any cash manipulation or even fraud.

 

The BRS outlines every activity affecting a bank account such as deposits, withdrawals, and so on, for a particular period of time.

In simple words, a bank reconciliation statement (BRS) is a document that will be prepared for reconciling the dissimilarities between the balance as per the passbook given respective date and cash books bank column.

 

Why Prepare a Bank Reconciliation statement?

There is no compulsion or mandatory to prepare a bank reconciliation statement. Additionally, there is no proper fixed date to prepare the bank reconciliation statement.

The bank reconciliation statement is prepared as per the company/s periodical basis. It just checks, whether all the bank correlated transactions are recorded correctly in the cashbook’s bank column and  additionally by the respective bank in their book. 

Thus, the bank reconciliation statement helps you 

  • In tracking errors on the recorded transactions.
  • Measuring the accurate bank balance as on the mentioned date.  

Example of Bank Reconciliation: 

Let’s consider some examples for understanding bank reconciliation.

Bank Reconciliation Example: 1

Let’s consider a company XYZ. XYZ has a balance as per the passbook of $2000 as of 30th April 2021. It has a balance as per the cash book as of 30th April 2021 of $2150. Additional details are given below.

  • A cheque worth $500 was deposited. But it was not collected by the bank.
  • Recorded – $100 as bank charge in the passbook. But it is not recorded on the cash book.
  • $300 cheque worth has been processed and issued. But it is not presented for payment.
  • Recorded – $150 as bank interest in a passbook. But it is not recorded on the cash book.

Solution:

Particulars

Amount

Amount

PassBook Balance
-

$2000

Add: Deposited, but was not collected check

$500

-

 The charges of the bank not recorded on the cash book

$100

$600

Less: Issued check not presented for the payment

$300

-

Received bank interest. But not recorded in cash book

$150

($450)

Cash Book Balance

-

$2150

Bank Reconciliation Example: 2

Let’s consider a company ABC. ABC has a balance in a passbook for $15,000 as of December 31st, 2021. The other details are below.

  • There are 3 cheques deposited on December 30th, 2020 in the bank, worth $1000, $2500, and $3000. But the bank statement is recorded on 2021st of January.
  • A cheque was issued on December 31st, 2020, worth $1000. But it is not mentioned or presented for payment.
  • In a bank account, it was credited as a dividend of $1,500 on stocks. But the point is not recorded on the cash book.
  • A customer made a direct deposit of $500 in the bank account. But this is also not recorded on the cash book.
  • The charges of the bank entered only on bank passbook, worth $200.
  • As per the Cash Book balance, December 31st, 2020 is $18700
Solution: 

Particulars

Amount

Amount

Passbook Balance

-

$15000

Add: Deposited cheques (But which is not collected by the bank) ($1000 + $2500 + $3000)

$6500

-

The charges of the bank entered only on bank passbook

$200

$6700

Less: Issued cheque not presented on payment

$1000

-

Bank collected dividends

$1500

-

Direct deposit (not recorded in cash book)

$500

($3000)

Cashbook Balance

-

$18700

Bank Reconciliation Example: 3

 

Company ABC has a difference in balance as per the bank statement and Cash Book on April 30th, 2020. Now you are requested to make a Bank reconciliation statement on the date with the below information.

 

  • Balance as per Bank Statement is $9000 on April 30th 2020. The Cash Book balance is $900.
  • A cheque of $1500 and $1000 issued as of April 30th, 2020. But it is not cleared yet.
  • An insurance premium of $500 paid by the bank, not recorded yet in the cash book.
  • An outing cheque was recorded twice in the cash book, worth $3000. It is recorded perfectly on a bank statement.
  • $500 cheque worth payment recorded in passbook for twice.
  • Dividends received $600. It is recorded on the bank statement and not recorded on the cash book.
  • A cheque worth $900 was deposited on April 28th, 2020. But was not collected.
  • Bank charges of $200 debited only in Bank PassBook.

Solution

 

Particulars

Amount

Amount

Passbook Balance

-

$9000

Add: Bank's - Paid premium insurance

$500

-

Deposite cheque (But not collecte yet)

$900

-

In passbook, cheque recorded for twice

$500

-

Charges debited on passbook but not cashbook on bank

$200

$2100

Less: Issued cheque (not presented for payment- $1500 $1000)

$2500

-

Cheque recorded in cashbook for twice

$3000

-

Received dividends recorded on bank statement only

$600

($6100)

Cash Book Balance

-

$800

Importance of Bank Reconciliation

It is not mandatory to prepare a bank reconciliation statement. But bank reconciliation statement helps you to detect cases of any cash manipulation or even fraud. 

Below points are some of the importance of bank reconciliation:

  • First and foremost is to watch out for errors. It might happen in the cash book in connection with bank transactions. If you want to trace those errors or mistakes that could be made simple and easy with the help of a bank reconciliation statement.
  • Regular bank reconciliation statements research helps you in preventing fraud.
  • The bank reconciliation statement is not only important to the internal auditors but also the management. Management must take corrective action against accounting staff after receiving comments from internal auditors.
  • A bank reconciliation statement is a process of comparing bank withdrawals, deposits, and credits against the Cash Book to check that they agree with each other. It helps you in cash book updation by discovering some not recorded entries yet. 
  • You can maintain a healthy relationship between the banks and their respective customers, when you maintain a healthy bank reconciliation book. Sometimes, bank reconciliation of your books is critical to maintain the financial integrity of your business
  • With the help of a bank reconciliation statement, it is easy to maintain all your up-to-date records. It helps you to manage and avoid unnecessary delays in both payment and collections.

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Bank Reconciliation | Definition, Example, Free Excel Template

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