GNDU B.Com (Bachelor of Commerce)

Chapter 5: Bank Reconciliation Statement: Causes and Preparation

Summary

A Bank Reconciliation Statement (BRS) is a statement prepared to reconcile the balance shown by the cash book (bank column) with the balance shown by the bank pass book or bank statement on a particular date. The two balances often differ because of timing differences and errors. Timing differences arise from cheques issued but not yet presented for payment, cheques deposited but not yet collected and credited, bank charges and interest debited only by the bank, interest or dividends collected directly by the bank, and direct deposits or standing-order payments recorded by one party before the other. Errors may also occur in either the cash book or the pass book. The need for reconciliation is to detect these differences, locate errors and frauds, and confirm the true bank balance, and it is usually prepared periodically. Preparation begins from either balance: items that cause one balance to be higher are added or subtracted as appropriate to arrive at the other balance. For example, starting from the cash book balance, cheques issued but not presented are added and cheques deposited but not cleared are deducted, while bank charges are deducted and direct credits are added. A correctly prepared BRS reassures the firm that its records and the bank's records agree once timing items clear.

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