BRS Full Form

What is a Bank Reconciliation Statement?

A bank reconciliation statement is a statement where banking and business activities are summarized, reconciling an entity’s bank account with its financial records. It also confirms that payments have been processed and cash collections have been deposited into a bank account. All fees charged on an account by a bank must be accounted for in a reconciliation statement. This also states that the balance on a bank reconciliation statement should equal the ending balance of the bank account.

What are the Benefits of Reconciling a Bank Account?

1. It helps to keep a clean record of all the transactions happening in an account. It also ensures a user can get hold of knowing all the transaction details or any problem from their side to avoid overdrafts later on.
2. It provides a clearer picture of financial health or account standing. Over time one can observe their money transactions to compromise on their spending or initiate saving money.
3. It can help one to avoid any unnecessary fees or suspicious activity. By staying on proper observations of all banking transactions, one can catch any issues early and solve them quickly.

Steps to do a Reconciliation Statement

Reconciling a bank account is necessary to catch up on any errors or frauds. It will be helpful to the user if they reconcile their account every month or before their bank statement arrives.

1. Choosing methods for Reconciliation: Performing bank reconciliation depends on tracking the money. Some rely on accounting software or mobile apps to track financial transactions or reconcile banking activities. Others use a paper checkbook and balance every month to record any written checks and other transactions. Some also opt for spreadsheets. But taking proper steps is important, what the process is.
2. Comparing Deposits: Comparing personal transaction records with the most recent bank statement. The deposits should all be recorded in the account details. If not, the missing deposits should be added to the records and total account balance. Also, one should investigate the reason behind records missing, if they happen. The deposit could have been received after the cut-off date for the monthly statement release. Once solved, one must be sure that the records reflect the deposits as needed
3. Comparing Withdrawals: Comparing personal transaction records with the most recent bank statement. The deposits should all be recorded in the account details. If not, the missing deposits should be added to the records and total account balance. Also, one should investigate the reason behind records missing, if they happen. The deposit could have been received after the cut-off date for the monthly statement release. Once solved, one must be sure that the records reflect the deposits as needed.
4. Banking Adjustments: There are possibilities that transactions might be unaccounted for in personal financial records because of bank adjustments. This occurs if one is subjected to fees, like a monthly maintenance fee. A bank adjustment could be the amount of interest that one has earned over the statement period for interest-bearing accounts. Finding any bank adjustments and recording them in personal records to adjust the balance is also important. 

Problems with Bank Reconciliation

1. Cheques  that are not checked continue not to be presented. There will be a residual number of cheques that are either not presented to the bank for a long time or never presented for payment. One should contact the payee to see if they ever received the cheque in the long term.
2. If a cheque remains unclear for a long time, one will probably void the old cheque and issue a replacement cheque. But if one did not avoid it with the bank, then the record must be checked with a credit to the cash account and a debit to indicate the reason for the payment. Otherwise, the payment will be pursued with the second payee.
3. Deposited cheques are returned. There are cases where the bank will refuse to deposit a cheque, usually because it is drawn on a bank account located in another country. In this case, one must reverse the original entry related to that deposit, a credit to the cash account to reduce the cash balance, with a corresponding debit (increase) in the accounts receivable account.

Conclusion

Bank reconciliation statements are useful for checking and balancing the tools used to detect errors or fraud. Frequent reconciliation helps companies avoid fraud before serious damage occurs and prevents errors from compounding. It is also a simple and invaluable process to help manage cash flows. Bank reconciliation helps to identify errors that can affect tax and financial reporting.