Profile
Settings
Refer your friends
Sign out
As we know two copies are ever the same, no two record-keeping accounts can ever be similar. There are several reasons for the differences in BRS (Bank Reconciliation Statement). It keeps track of the causes of BRS differences and aids in their repair. Reconciliation records the discrepancy in BRS for better accounting. Although it appears to be a simple task, it necessitates careful attention. You are free to manage other business matters once you have resolved the sources of differences in BRS.
Bank Reconciliation Statement
A bank statement and a cash book prepared by a business entity may differ in several ways. A rescue operation, such as a Bank Reconciliation Statement, might help fill in the gaps. It is not always essential for the Bank to bear the brunt of the differences. Businesses may make mistakes from time to time. For accounting to run smoothly, the disparities must be eliminated. The amount reported in the bank statement and the amount shown in the cash book for a given account must match. However, the two records are not identical and must be reconciled.
Purpose of Reconciliation
The figures in the bank statement and the cash book of the firm are reconciled to explain the disparities between the two. To compare the entries and note differences, we’d need both a bank’s cash book and a passbook. As a result, we reconcile to present the balance amount with a validated document. Furthermore, reconciliation removes extraneous errors and generates a clean copy following the comparison.
Differences in Bank Reconciliation Statements
A reconciliation statement is a book that keeps track of the changes that occur in both books (cash book or passbook). Two broad terms encompass major problems that may result in differences:
Errors made by a bank or a company
When recording an entry, there is a time difference. When comparing entries, there is sometimes no discrepancy since there is a discrepancy in publishing. This results in a discrepancy between the bank balance statement and the balance indicated in the cash book.
Errors made by the Firm
Some notable negatives include incorrect totalling of notes while depositing, omission or incorrect recording of amounts of cheques issued, and so on. This fundamental issue is addressed and resolved in the reconciliation.
Errors made by the Bank
A disparity in the cashbook and passbook is caused by incorrect recording of transactions relating to the cheque while posting it or incorrect totalling.
Time Differences in Recording Entry
Due to the time difference, there are numerous errors when a bank compares a bank statement to a business cash book.
The following are the factors that influence this time gap:
The bank has issued cheques that have not yet been presented for payment.
To provide faster service, the bank prepares ahead of time. When it detects a check, it deposits funds into the beneficiary’s account. It then searches the supplier’s account for the credited money. It deducts from the beneficiary’s account and returns the check with fault costs if it is unable to locate the outstanding amount. The bank statement does not show it, although it could have been noted in the cash book. As a result, there is a time difference.
Cheques were written but not collected.
When a business receives a check, the cash book records the transaction. A bank, on the other hand, takes 3-4 days to clear a check, after which the entry appears on the bank statement. On working days, no less. It could take a while. Because of the time difference, there is a disparity in the bank balance and cash book entries.
Direct debits made by a bank
A bank’s services are paid for with a little fee. Without the firm’s knowledge, the bank deducts funds from its account. The bank statement informs the firm immediately about this. For instance, interest on an overdraft, costs for a bounced or stopped check, incidental expenses, and so on. As a result, the passbook balance will be lower than the cash book balance.
Amount placed in the bank directly
A situation may arise in which a debtor deposits funds into a firm’s account but the firm receives no notification. In this case, the passbook balance increases while the cashbook amount remains unchanged.
The bank’s interest earnings
The bank immediately adds interest to a company’s account, and the bank statement is its only source of information. Following the issuance of the bank statement, the company records the interest. They are recorded in the cash book’s final balance additions.
Conclusion
We must double-check with the bank while keeping the above considerations in mind. The quantity of deposits, withdrawals, and current interest rates must all be verified. Aside from that, we should prepare a BRS on a regular basis to confirm transactions and be on the safe side.The entire procedure gives the company a sense of relief. While completing a BRS, double-check that you have received a valid bank statement. Gather your papers and schedule a BRS scan. It will undoubtedly boost your company.
