1. What is a bank reconciliation statement ? Why is it prepared ?

Bank Reconciliation Statement Bank Reconciliation Statement is a

statement prepared to reconcile the difference between the balances as
per the bank column of the cash book and pass book on any given date.
A bank reconciliation is a process that explains the difference between
the bank balance shown in an organization’s bank statement, as supplied
by the bank and the corresponding amount shown in the organization’s
own accounting records at a particular point in time.
IN this way, we can say that to reconcile the balances of cash book and
pass book, a statement is prepared which is called the 'Bank
Reconciliation Statement'.
Need of preparing Bank Reconciliation statement it is neither
compulsory to prepare Bank Reconciliation Statement nor a date is fixed
on which it is to be prepared.
It is prepared from time to time to check that all transactions relating to
bank are properly recorded by the businessman in the bank column of
the cash book and by the bank in its ledger account.
It is generally experienced that when a comparison is made between the
bank balances as shown in the firm's cash book, the two balances do not
tally.
Hence, we have to first ascertain the causes of difference thereof and then
reflect them in a statement called Bank Reconciliation Statement.
IN this way to reconcile (tally) the two balances. Bank Reconciliation
Statement is prepared.
If the two balances differ, the entries in both the books are compared and
the items on account of which the difference has arisen are ascertained
with the respective amounts involved so that the bank reconciliation
statement may be prepared. In this way, bank reconciliation statement
helps in detecting, if there is any error in recording the transactions and
ascertaining the correct bank balance on a particular date.
2. What are required in preparation of bank Reconciliation
Statement ?
✓ Current and previous month's bank statement
✓ The closing balance of the bank account
✓ Any outstanding payments or withdrawals (cheques that haven't
been processed yet)
✓ Any fees charged by the bank on the account
✓ Interest earned on the bank balance

3. What are the major steps of Preparation of BRS

✓ Compare the financial record on the company book to the bank
statement.
✓ For any errors ( unaccounted for deposits and represented
withdrawals) changes are made to the corresponding bank
statements
✓ Make necessary changes in the log book and bank statements for
fees, charges deducted and interest credited.
✓ The final step is to compare the two records - the company's own
financial statement and the account statement. If they are the same,
your bank reconciliation is done. If not repeat the process.

4. What are the benefit of BRS?

✓ A bank reconciliation statement ensures that all payments made by
the company are processed and all deposits are correctly made on
time.
✓ Bank reconciliation statements are great for detecting frauds in
financial transactions of large companies (which are difficult to keep
track of, otherwise).
✓ Bank reconciliation statements also help to analyze errors that can
affect the financial transactions of a company or business.
✓ Such statements help to assess the financial health of a company and
take adequate financial decisions for the betterment of business
✓ Bank reconciliation statements are also a key to accurate tax
reporting. Without a proper financial statement, a company may end
up paying too much or too less taxes.

5. What are the major Problems of BRS

Bank reconciliation statements, if done properly and accurately is
nothing but good for the financial record of a company. However,
when there are long gaps between reconciliation sessions, problems
can arise (like urgently required information may not be available at
the moment, or problems during tax filing). Inaccurate bank
reconciliation statements can cause problems with the financial
record. Therefore, it is advisable to use software for recording such
statements.

6. What are the Challenges Faced While Preparing Bank

Reconciliation Statements?

Businesses can gain a variety of advantages from effective

reconciliation processes. Without good reconciliation, it is difficult
determining which expected payments haven’t been made.

In addition to detecting fraud, cash book and bank reconciliation

statements allow you to quickly identify any potential disruptions in
your cash flow.

Effective bank reconciliation process offers various advantages to

businesses. It allows businesses to identify any expected payments
that haven’t been made, and detect fraud. Bank reconciliation can
also help businesses quickly identify any disruptions in their cash
flow.

However, even today, the bank reconciliation process is highly

manual in nature. The accountants are responsible for manually
comparing the digital passbook and e-cash book to prepare bank
reconciliation statements.
Additionally, sometimes due to the delay in cash being processed in
the bank, there is a difference between the passbook and the cash
book.

This might lead to multiple errors or inconsistencies in the bank

reconciliation statement. Let us explore the various problems in
bank reconciliation process and real-life examples of errors in bank
reconciliation:

• Cash-In Transit Not Being Reflected on Passbook

In case of electronic fund transfers such as wire transfers, and

credit card payments, the cash is not immediately reflected in
the bank, which leads to a difference in the passbook as
compared, wire transferred to the cash book.

• Outstanding Checks Not Being Reflected on Passbook

This is a predominant issue which leads to multiple errors in

bank reconciliation statements. If there is a delay in checks
getting deposited or being processed, the balance on the
passbook would not match the cash book balance.

• Manual Errors Related to Bank Reconciliation

As discussed earlier, bank reconciliation is a highly manual

process. The accountants might enter incorrect transaction
details or not add the bank fees or interest details mistakenly.
These human errors might lead to problems in the bank
reconciliation process and eventually the statement.
 7. What are the reasons behind difference in balance as per pass
book and cash book?
✓ Reconciliation of the cash book and the bank passbook balances
amounts to an explanation of differences between them. The
differences between the cash book and the bank passbook is caused
by:

➢ timing differences on recording of the transactions.

➢ errors made by the business or by the bank.

a. Timing Difference is caused by

➢ Cheques issued by the bank but not yet presented for payment

➢ Cheques paid into the bank but not yet collected

➢ Direct debits made by the bank on behalf of the customer

➢ Amounts directly deposited in the bank account

➢ Interest and dividends collected by the bank

➢ Direct payments made by the bank on behalf of the customers

➢ Cheques deposited/bills discounted dishonoured

B. Difference Caused by Error

➢ Errors committed in recording transaction by the firm

➢ Errors committed in recording transactions by the bank

8. What is the need for the reconciliation of bank statement with
cash book?
1. Detection of Errors: Reconciliation of Cash Book and Pass Book
helps in detecting any error. An error can be either made by the
bank in the Pass Book or by the businessman in the Cash Book.
When both the books are compared, then an error if any, can be
easily found.

2. Detection of Cause of Error: Bank Reconciliation Statement not

only helps in detecting the errors but also helps in detecting the
cause of that error. When both the books are compared, then the
cause can easily be found due to which wrong entry the balances
are not tallying.

3. Correction in Cash Book: With the help of Bank Reconciliation

Statement, corrections can be made in the Cash Book by comparing
it with the Pass Book. Cash Book can only be corrected when the
error and its cause is identified.

4. Knowledge of Bank Balance: Sometimes Cash Book shows less

balance, but in reality, bank account has not been debited yet. When
the actual bank balance is known to the business, it helps the
business in making future transactions in a better way.

5. Control over Misappropriation: Misappropriation of funds by

the personnel of the bank as well as the employees of the company
can be avoided if reconciliation is done at regular intervals.
Reconciliation helps in determining the actual position of the
balance company as any misappropriated figure can be detected
easily.

9. What are the major tips for efficient bank reconciliation?

• Firstly, it’s essential to have all the required documentation
and information in hand.
 • Avoiding common errors, such as:
✓ An error relating to duplication of entries.
✓ Not accounting for a transaction that would cause a
difference equal to the missed amount
✓ Errors while entering commas and dots, which cause
discrepancies that, could be of significant value. For
instance, instead of entering NRS 2,401.30, entering NRS
240.13.
✓ Transposition errors while entering figures in the books.
For instance, instead of entering NRS 221,200, entering NRS
212,200.

10. Format of BRS

11. Some Illustration of BRS