A Bank Reconciliation Statement (BRS) is a document that matches the balance in a company's cash book (bank account as per books) with the balance shown in the bank statement. Differences arise due to timing differences, errors, and unrecorded transactions. Preparing a BRS regularly is a fundamental accounting control that every business must follow.
Why is Bank Reconciliation Important?
- Detects errors in the cash book or bank statement (including bank errors)
- Identifies fraudulent transactions or unauthorised debits
- Ensures all bank charges, interest, and ECS transactions are recorded in books
- Provides accurate cash position for financial decision-making
- Required for statutory audit — auditors verify BRS as part of cash and bank audit
- Helps in GST reconciliation — bank credits can be cross-verified with sales
Common Causes of Difference Between Cash Book and Bank Statement
| Cause | Effect on BRS |
|---|---|
| Cheques issued but not yet presented for payment | Cash book balance lower than bank balance |
| Cheques deposited but not yet cleared | Cash book balance higher than bank balance |
| Bank charges debited by bank but not recorded in books | Cash book balance higher than bank balance |
| Interest credited by bank but not recorded in books | Cash book balance lower than bank balance |
| ECS/NACH debits not recorded in books | Cash book balance higher than bank balance |
| Direct deposits by customers not recorded in books | Cash book balance lower than bank balance |
| Errors in cash book or bank statement | Varies |
How to Prepare a Bank Reconciliation Statement
- 1Obtain the bank statement for the period and compare it with the cash book entry by entry
- 2Tick off all matching entries in both the cash book and bank statement
- 3List all unmatched entries — these are the reconciling items
- 4Start with the balance as per cash book (or bank statement)
- 5Add: Cheques deposited but not cleared, direct deposits not in books, interest not recorded
- 6Less: Cheques issued but not presented, bank charges not recorded, ECS debits not in books
- 7The adjusted balance should match the balance as per bank statement (or cash book)
- 8Investigate and correct any remaining differences
BRS Format (Starting from Cash Book Balance)
| Particulars | Amount (₹) |
|---|---|
| Balance as per Cash Book (Dr) | XXXXX |
| Add: Cheques deposited but not cleared | XXXXX |
| Add: Interest credited by bank not in books | XXXXX |
| Less: Cheques issued but not presented | (XXXXX) |
| Less: Bank charges not recorded in books | (XXXXX) |
| Less: ECS/NACH debits not in books | (XXXXX) |
| Balance as per Bank Statement | XXXXX |
Common Errors Businesses Make
- Preparing BRS only at year-end instead of monthly — makes reconciliation extremely difficult
- Not following up on stale cheques (cheques issued more than 3 months ago but not presented)
- Ignoring small differences — these can accumulate and indicate systematic errors or fraud
- Not recording bank charges and interest in the cash book promptly
- Using incorrect dates when recording transactions
- Not reconciling multiple bank accounts separately
How Often Should You Reconcile?
For businesses with high transaction volumes, daily or weekly reconciliation is ideal. At a minimum, every business should prepare a BRS at the end of each month. Year-end BRS is mandatory for statutory audit purposes.
Modern accounting software like Tally, Zoho Books, and QuickBooks have built-in bank reconciliation features that can auto-match transactions, significantly reducing the time and effort required.
Accurate bookkeeping and timely reconciliation are the foundation of good financial management. Bhowal Associates provides professional bookkeeping and accounting services for businesses of all sizes.