Bank Reconciliation Statement(BRS)

➥ Bank reconciliation statements reconcile a bank’s checking account balances with the bank’s financial statements.

➥ It helps identify possible sources of error by showing discrepancies between the two sets of numbers.

➥ A bank reconciliation statement summarizes the transactions of a bank account for the previous month. A transaction can include a deposit, withdrawal, or transfer.

➥ Keeping track of your finances and recording transactions properly can be made easier with this statement.

➥ It is typically done monthly, quarterly, or annually to prepare bank reconciliation statements.

➥ It is possible for the accounting staff of a bank to prepare bank reconciliation statements manually, or for the accounting system of a bank to create them automatically.

1. BRS, as its name implies, is merely a statement, not an account.

2. This is a periodical statement. As another feature of bank reconciliation, there is no fixed period for which it is prepared, unlike balance sheets and profit and loss accounts, which are prepared quarterly or annually.

3. Depending on how many bank transactions are generated by the company, the statement can be prepared weekly, fortnightly, monthly, or yearly.

4. The preparation of BRS is not mandatory.

5. Contrary to financial statements like balance sheets and profit and loss accounts that are mandatory, preparing a bank reconciliation statement is not mandatory.

6. The company prepares the BRS and the bank plays no role in this exercise, and the only thing the company needs to prepare this statement is the bank statement.

7. It is easy to determine what causes the disagreement between the two balances.

1. BRS helps to keep accounts in good standing.

➥ When you keep your account in good standing, you are less likely to overdraw it, which means withdrawing more money than the account has, when you are aware of what you can spend in your account.

➥ In addition to negatively affecting your credit score, overdrawing can result in bank fees.

➥ Overdraft protection is available at some financial institutions, but most often it comes with a fee. You will suffer worse consequences if you do not have such protection on your account.

2. BRS prevents from theft.

➥ Comparing your bank book’s transactions with the bank’s financial transactions, you’ll be able to identify transactions that are recorded by the institution, but aren’t in your record.

➥ In your reconciliation process, recording bank fees should be a standard practice, but it might be something you overlooked.

➥ These discrepancies will be revealed if the original documents are examined further.

➥ A bank transaction initiated by an unauthorized individual will be revealed, and this will allow you to catch them before your money is stolen.

3. BRS helps to avoid mistakes.

➥ An honest bank will implement procedures to prevent mistakes in your account, but mistakes still happen sometimes, with the most common being an entry error.

➥ When you point these mistakes out after your reconciliation is complete, banks can correct them.

4. BRS helps to detect Accounting Errors.

➥ The process of reconciliation helps you detect errors that commonly occur in business, such as double payments, addition and subtraction errors, missed payments, and lost checks, and to prevent them from happening in the future.

➥ When you reconcile your bank statements, you may discover that you have forgotten to write the check for an invoice that you mistakenly recorded as “paid” on your ledger.

➥ Even if you’ve already spent the money, you may be liable to return it if your bank made a mistake in your favor.

5. BRS achieves accurate balance.

➥ Cash transactions will be revealed by a bank reconciliation, as well as those that have yet to be cleared.

➥ It is most common for checks to remain open at the end of the statement period, however, the bank will not clear them if you make a deposit at the end of the month.

1. Checks created by BRS can be voided after clearing the bank.

➥ Checks that remain “un-cleared” for a long period of time may have to be void and replaced if you make transactions with your bank.

➥ In this case, if the original check has been cashed, the bank will reject it when the payee presents it.

➥ The payment must also be credited to your cash account if you failed to void it, and debited for the reason for the payment, such as a decrease in a liability account, an increase in a cash account or an expense account.

➥ If the replacement check has not been cashed, you should void the check with your bank at the ounce, otherwise you will be making a double payment that requires you to pursue repayment from the payee.

2. Uncleared checks can be issued by BRS if they are not presented.

➥ Bank reconciliation creates un-cleared checks, which are residual checks that have not been presented for payment for a long period of time or have never been presented for payment.

➥ For that reason, even if they are only un-cleared checks for a short time, you should still keep them in the list of un-cleared checks in your accounting for ongoing reconciliations.

➥ To determine whether you need to void the checks and issue new ones, you should ask the payee if they ever received the checks.

3. BRS risks changing the dates covered by bank statements.

➥ It is also possible to alter the dates of bank statements to include or exclude certain items in bank reconciliation, which can cause problems.

➥ Changing the closing date of your bank account can lead to fraud when someone at your company requests the change.

4. Checks deposited with BRS can be returned.

➥ It is possible that your bank will refuse to deposit your check if you have drawn it on a foreign account.

➥ To reduce your cash balance, you need to reverse the original entry on that deposit. Accounts receivable will increase in direct proportion to this increase.

5. There is a risk of missing transactions in the BRS.

➥ It is possible for bank reconciliations to have missing transactions.

➥ The reason for this can be transactions that have been modified while reconciliation is in progress or transactions that have been reconciled in another manner.

Bank Reconciliation Practice Problems pdf

References

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Smirti

(Founder of Management Notes)
MBA,BBA.

I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.

I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,

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