what is BRS explain with meaning, definition,need, importance of it....
Answers
Explanation:
Bank reconciliation statement is a report or statement prepared by the business to match the bank transactions recorded in the books of accounts with the bank statement. The bank reconciliation statement helps to check the correctness of the entries recorded in the books of accounts and thereby, ensures the accuracy of bank balances.
Why bank reconciliation statements are prepared?
With the definition of a bank reconciliation statement, you might be wondering why bank transactions recorded in the books of accounts do not match with the bank statement? There are plenty of reasons and some the common ones are listed below:
Cheques Issued but not cleared in the bank
Difference in cheque deposited and cheque credited date
Date of cheque issued towards payment and date on which it is debited is different
Cheque issued or received is not presented to the bank for clearing
Bank interests, charges etc. are not accounted for. Reason being it is not known till you reconcile.
Banks can also do mistake in debiting or crediting the transactions
Just like banks, you too can make mistake in accounting the bank transactions in books of accounts and so on….
Answer:
Bank Reconciliation Statement is a record book of the transactions of a bank account. This statement helps the account holders to check and keep track of their funds and update the transaction record that they have made. Bank Reconciliation statement is also known as bank passbook. The balance mentioned in the bank passbook of the statement must tally with the balance mentioned in the cash book. In the statement, all the deposit will be shown in the credit column and withdrawals will be shown in the debit column. However, if the withdrawal exceeds deposit it will show a debit balance (overdraft).
Also Explore: Important Questions for Bank Reconciliation Statement
Importance of Bank Reconciliation Statement
Generally while making a comparison between the company’s cash book and bank balance, the balance does not tally. Therefore, it is important to determine the cause for the difference and display them in the bank reconciliation statement and then tally the two balances. The bank reconciliation statement helps in explaining the differences in the amount between the company’s cash book and bank balance. The cash book and the bank passbook differences are caused by:
The difference in timing recording the transactions: The difference in timing can be caused by many factors which are:
Bank-issued cheque but not yet deposited for payment
Paid cheque in the bank but yet not cleared
Bank made direct debit from the customer’s side
Cheque/ amount deposited directly to the bank account
Dividends and Interest collected by the bank
Bank made direct payment from the customer’s side
Cheques deposited/bills discounted dishonoured
Errors made by the company or by the bank: In a few occasions, the error in two balances can be made from the bank side or in the company’s cash book. Few errors are as follows:
Errors made while registering the transaction by the company
Errors made while registering the transaction by the bank
Additional Reading: DK Goel Solutions for Bank Reconciliation Statement
Types of Bank Reconciliation Statement
The Bank Reconciliation Statement can be prepared in 2 ways:
Documenting of bank reconciliation statement without adjusting the cash book balance.
Filing of bank reconciliation statement after adjusting the cash book balance.
Steps to Prepare Bank Reconciliation Statement:
First, the date on which the statement is recorded is mentioned.
After which the balance displayed in the cash book is mentioned in the statement. Sometimes, the balance mentioned in the passbook can also be mentioned.
The deposited cheques which are not collected are deducted.
Then the cheques issued but the deposited for payment, but amount directly deposited in the bank account are recorded
All the transactions like overdraft interest, amount debited by the bank but not recorded in the cash book, cheques and bills dishonoured are deducted.
All the credits and profit collected by the company and directly deposited in the bank is added.
Adjustments of errors are made
Now the balance between the cash book and statement should be equal or the same.