Bank Reconciliation Statement: What is a Bank Reconciliation Statement? In the context of banking, a bank reconciliation statement is a formal statement that is prepared for reconciling the differences between balances as stated in a passbook and a cash book’s bank column on a given date. In other words, the bank balances in the bank statement and cash book may not match and the business or the entity should figure out the reason for the mismatch. In such cases, a bank reconciliation statement is prepared to identify the reason for the differences.
Why Should a Bank Reconciliation Statement Be Prepared?
As stated above, a bank reconciliation statement helps to identify potential differences between a bank’s book and a cash book’s bank column. However, there is no statutory law that requires the preparation of the statement. It is made purely to detect errors and also to identify the exact bank balance on a particular date.
How Do You Create a Bank Reconciliation Statement?
The process of creating a Bank Reconciliation Statement is as follows:
- Compare the opening balances of the bank statement as well as the cash book’s bank column. If the columns do not match, it could be because of an unpresented cheque or un-credited
- Next, we need to compare the bank statement’s credit column to the debit side of the cash book’s bank column.
- The bank statement’s debit column must also be compared with the credit column of the cash book’s bank column. Place a mark on the items that appear in both these records.
- Next, the entries of the cash book’s bank column, as well as the passbook, needs to be analysed. If any missing entries exist, you need to make a list of the same and then make the necessary adjustments in the cashbook.
- If you happened to find any errors in the cash book, make necessary rectifications
- Next, calculate the updated balance in the bank column of the cash book
- Now you can start the process of bank reconciliation with the revised cash book balance
- If there are any unrepresented cheques, add them.
- Similarly, if there are any uncredited cheques, deduct them
- Make the required changes for any type of bank errors. In situations where the bank reconciliation statement begins with the debit balance as per the bank column of the cash book, then add the erroneously credited amount by the bank and deduct the erroneously credited amount by the bank. In case it starts with a credit balance, does the vice versa.
- The updated figure must reflect the bank statement’s balance.
Advantages of Creating a Bank Reconciliation Statement
Following are some of the advantages of preparing a bank reconciliation statement:
- Accounting errors are easily detectable (such as duplicate entries, and double and missed payments)
- Tracking fees and interest becomes possible
- Bank Reconciliation Statements also help to track receivables
- A firm or a business can detect employee fraud – such as stealing money and falsifying books and reconciliations.
FAQ’s on Bank Reconciliation Statement
Question 1.
What is a Bank Reconciliation Statement?
Answer:
A bank reconciliation statement is a formal statement that is prepared for reconciling the differences between balances in a passbook and a cash book’s bank column on a given date.
Question 2.
Why Should a Bank Reconciliation Statement Be Prepared?
Answer:
A bank reconciliation statement helps to identify potential differences between a bank’s book and a cash book’s bank column. Moreover, accounting errors become easily detectable. Tracking fees and interest also become possible. Lastly, it can be helpful in detecting financial fraud by an employee.
Question 3.
Are Bank Reconciliation Statements a statutory requirement?
Answer:
There is no statutory law that requires the preparation of the statement. It is created to detect and rectify errors and also to identify the exact bank balance on a particular date.