BANK RECONCILIATION STATEMENT (BRS)

Let us begin the process of learning BRS for by defining Bank Reconciliation Statement (BRS).BRS, Bank Reconciliation Statement, is a statement usually prepared by a bank account holder on a particular date (usually on the last date of the month) to check (or reconcile) whether the balance shown by the bank Ledger account in the books of account holder and the balance shown in the account holder’s Pass Book as issued by the Bank.A close look at the above paragraph, especially the underlined words, brings to attention the following important points for taking forward the process of understanding BRS, the Bank Reconciliation statement format:

• BRS is a statement and not a ledger account.
• BRS should have two balances to be checked if they are same and if not to reconcile the differences by identifying and narrating the reasons for the difference. It is important here to state that the both accounts (ledger account and Pass Book) record the same transactions (one in the holder’s book and the other in Bank’s books) and, therefore, except for logical reasons as on a particular date, they cannot show different balances on any date.
• It is usually prepared by the Bank account holder, or his auditors and anyone who wishes to analyze the transactions during a given period.
• BRS is prepared always on a particular date, because any logical difference between the balances is due to difference in timing of recording the transactions. (This is explained by examples below).

Now let us list out the situations in which the difference in the timing of recording transactions. Once these situations are understood it becomes easier to reconcile the balances:

• Cheques issued by the Account Holder on the date that has not yet been presented to the Banker’s for payment till the date of BRS.
• Cheques deposited into the bank account by the holder has not yet been realized and credited by the Bank in to Holder’s account, till the date of BRS.
• Any transaction (like (i) interest, (ii) cash or cheques deposited by any person without the knowledge of the account holder, (iii) bank charges or any other taxes or levies or charges) entered by the Bank in the holder’s account, but not yet been recorded by the Holder in the Bank’s ledger account in the holder’s books of accounts till the date of BRS.
• Any accounting errors in recording in either of the books and not corrected till the date of BRS.

In any of the above situations the balances will differ on the date of BRS.

Before we go to the process of reconciling, let us appreciate that balances in the bank account of account holder’s books may be of two types- (i)Debit(DR) balance which means the holder has his money with the Bank, or (ii) credit balance (CR.) which means the holder has overdrawn from the bank (also known as overdraft balance). In the pass book the balance will appear in the opposite side, i.e….(i)Dr. balance in holder’s books should be Cr. Balance in the holder’s account in the books of the Bank; (ii)Cr. balance in holder’s books should be Dr. Balance in the holder’s account in the books of the Bank;

Lastly the process and the format for preparing the BRS statement is explained in the CMA course videos. All students are welcome to raise queries.

 

Browse video from here – BANK RECONCIALITION STATEMENT.

 

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