A bank reconciliation statement is a document that compares the cash balance on a company’s balance distance to the corresponding amount on its bank statement. coordinating the two accounts helps identify whether counting changes are demanded. Bank communion is completed at regular intervals to ensure that the company’s cash records are correct. They also help describe fraud and any cash manipulations.
Bank Reconciliations statements ensure payments have been reused and cash collections have been deposited into the bank. The Reconciliations statement helps identify differences between the bank balance and book balance, to exercise necessary acclimations or corrections.
Why are bank reconciliation statements prepared?
With the description of a bank reconciliation statement, you might be wondering why bank deals recorded in the books of accounts do not match the bank statement. There are a cornucopia of reasons and some of the common ones are listed below
- Cheques Issued but not cleared within the bank
- The dissimilarity in the cheque deposited and cheque credited date
- The date of cheque issued towards payment and the date on which it’s debited are different
- A cheque issued or entered is not presented to the bank for clearing
- Bank interests, charges, etc. are not reckoned for. Banks can also misapprehension debiting or crediting the deals
- Just like banks, you too can make misapprehensions in counting the bank deals in books of accounts and so on.
Due to the reasons listed above, the ending bank balance in your books of accounts and the factual bank balance as per the bank will not match. It means the bank balance that you suppose you have in your bank is not the bone available in the bank.
To avoid those situations, bank reconciliation statements are prepared. These statements simply match the bank deals as per company books with bank statements so that you always have an accurate bank balance reflected in the books of accounts.
When does a business prepare a bank Reconciliations Statement?
Depending on the volume and value of bank deals, the Reconciliations exertion is carried out daily, fortnightly, etc. still, and the Reconciliations exertion is carried out daily to alleviate the trouble of payment/ cheque bounce, If the volume or value of deals is advanced.
Preparation of BRS:
Need for Preparation of BRS:
- A Bank Reconciliations Statement demand and is important because of the following reasons
- It helps in knowing the factual Bank balance.
- It helps in disappointing the staff from embezzlement.
- Helps in relating the reason for the differences between the Cash Book and the Pass Book.
- It helps in relating any overdue detention to the concurrence of cheques.
- Helps in detecting and precluding frauds and crimes in recording the Banking deals.
- It helps in incorporating certain expenditures and income debited/ credited by the Bank in the books of accounts.
Steps in Preparing BRS:
While preparing a Bank Reconciliations Statement one has to follow a methodical approach. They should ensure that the entries in the Cash Book are streamlined on a regular basis. Also, prepare the Bank Reconciliations statements at regular intervals.
Following is how the medication for BRS:
First, Identify the balances and the character thereof. In Cash Book, a disbenefit balance means an asset whereas a credit balance means a Bank overdraft. But, in the Bank passbook, it’s the reverse. In Pass Book, a disbenefit balance means overdraft and a credit balance is a favorable balance.
IT must be precisely understood. Consequently, start with the balance( or overdraft) as per one book and arrive at the balance( or overdraft) as per the other book. The particulars showing differences will be added to or subtracted from the balance( or overdraft) with which the reconciliation is started.
The result should be the balance( or overdraft) as per the other book,e.g.However, also after adding or abating particulars of differences, you should arrive at the balance( or overdraft) as per the Pass Book, if you start with balance as per Cash Book.
While preparing BRS one has to make sure that all the particulars of differences from the Cash Book as well as the Bank book are taken into account in the Reconciliations statement.
Benefits of preparing a BRS:
Accounting crimes could lead to circumstances that are further than just disturbing when the cheques bounce or companies start getting annoying calls from creditors or suppliers for payments that are formally released. Bank rapprochements help you in spotting fraud and reduce the threat of deals that could beget penalties and late freights.
BRS offers several advantages to a business which include detecting crimes A bank Reconciliation helps you in spotting account crimes that are common to every business. These miscalculations include crimes similar to addition and deduction, missed payments, and also double payments. Tracking Interest and figure Banks might add interest payments, freights, or penalties to your account. Yearly Bank reconciliation allows you to add or abate similar quantities in your books.
Detecting Fraud You may not be suitable to help workers from stealing your plutocrat formerly, still, you could help it in the future. A bank reconciliation statement helps you in detecting and spot fraudulent deals. It’s judicious to employ an independent person to perform the rapprochements to preclude the account hand from falsifying your books and rapprochements. Tracking Receivables BRS allows you to confirm all your bills, aiding you to avoid awkward situations and also relating entries for bills that you didn’t deposit.
significance of Bank Reconciliations Statements:
It’s necessary to understand It bone in depth. Then are some simplified pointers that will help you understand the significance of bank reconciliation statements. Bank Reconciliations statements show crimes made in both the books by guests or banks and help to amend them.
It helps in making unborn deals secure with the bank if the client is sure about the correctness of the balance in the cash book. Any fraud made by the bank or any other party can be bared through it. For Example, If any staff shows any type of deposit in the bank but isn’t deposited, also it can be bared fluently with the help of an IT statement.
FAQ & Affiliated Questions:
1. Who’s responsible for preparing the bank Reconciliation statement?
A bank reconciliation statement is prepared by business associations.
2. What’s the Bank Reconciliations statement description?
A bank reconciliation statement is a financial statement prepared to attune the differences in the balance of the bank column of the cashbook and also the passbook by showing all the causes of differences between the two.
3. What Is A Bank Reconciliations Statement?
A bank reconciliation statement is a document that’s created by the bank and must be used to record all changes between your bank account and your account records. It shows what deals have cleared on your statement with the corresponding sale listed in your journal.
4. Who Are The Parties Involved In A Bank Reconciliations Statement?
There are three parties involved in a bank Reconciliation 1. You 2. The Bank 3. Accounting records( tally) Reconciling between these three parties is the purpose of the Bank Reconciliations Statement.
5. How Do I Prepare A Bank Reconciliations Statement?
To produce bank Reconciliations, you’ll need to gather your bank statements and also attune them with your account records( tally).
Conclusion:
BRS proves to be a useful tool in fixing inapplicable faults in bank statements. Bank statements are useful in huge deals and in making Income Tax Return( ITR) statements. We can call it an introductory medium of operation in banking.