In accountancy, a bank reconciliation statement is a part of financial and banking activities. It is a summary of these activities that do not coincide with the business financial records. A bank reconciliation statement reconciles withdrawals, deposits, transfers as well as other associated activities with banking institutions and other parties. It is a crucial financial tool implemented in the internal affairs of a firm that reduces the possibility of fraud. These statements confirm the transactions that have been processed. A bank reconciliation statement also provides records of cash deposits in the firm’s bank account. 

Bank Reconciliation Statement

This keeps all documents relating to transactions and collection of financial activities between a firm and its bank account. It is a vital area of study for CA and Banking examinations. The bank reconciliation statement depicts the fees charged by the bank and it must be accounted for by the company’s history of financial transactions. 

Requirements of Bank Reconciliation Statement

There are certain rules and norms that bank reconciliation statements must adhere to to be authentic and permissible. These requirements are:

• Use present and prior statements of each month in the calculation
• The account’s closing balance must also be undertaken
• Previous day’s transactions have to be taken into consideration for preparing the BRS
• The debit balance mentioned in the cash book has to be mentioned as deposits of firm
• Debit balance refers to favourable balance as per cash books
• Credit balance refers to an unfavourable balance in cash books

Purpose of BRS

A bank reconciliation statement is a comparative tool whose purpose is to reconcile transactions between the business entity and its bank account. The closing balance of the company in its books is known as book balance while in the bank’s books is known as bank balance. It checks if there are differences between them related to transactions recorded and entries made in accordance. 

Causes for Difference between Transactions recorded in Pass Book and Cash Book

Passbooks and Cash books balances differ due to the following reasons:

• Interest provided by the bank
• Cheques issued but not taken to the bank for payment
• Cheques that are paid to the bank for the collection but are not credited in books
• Cheques that are dishonoured at the bank but recorded as paid in books 

Table 1 shows the causes of differences

Bank Reconciliation Statement MCQ

Bank reconciliation statement MCQ that appears in CA and banking examinations tend to be very factual and objective. It is related to bank reconciliation statements and the various components of it, like cash and passbooks.  Following are some examples of bank reconciliation statements MCQ for practice. 

Question 1. In the situation when the bank does not pay the cheque it is known as what?

1. endorsed
2. dishonoured
3. honoured

(Answer: b. dishonoured)

Question 2. Bank reconciliation is for?

1. Ledger account
2. Reconcile records
3. Memorandum statement

(Answer: b. reconcile records)

Question 3. A bank statement is also known as a?

1. cashbook
2. passbook
3. debit book

(Answer: b. passbook)

Question 4. Cheques that are not collected are called?

1. Outstation cheques
2. Uncleared cheques
3. Both a and b

(Answer: c. both a and b)

Question 5. What is the meaning of Unfavourable Balance?

1. Debit balance in cash book
2. credit balance in cash book
3. none of the above

(Answer: b. credit balance in cash book)

Conclusion

A bank reconciliation statement is a crucial process for keeping and managing bank records and financial records. The differences found between the reported balances have to be reconciled, rectified, or examined. The differences between a company’s book of account and a bank’s account may come up due to differences in the timing of recording these particulars, errors made during entries, and transactions that are recorded by the bank but perhaps not by the entity account.