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TABLE OF CONTENTS
- Bank Reconciliation Statement (BRS) in Accounting—What Is It?
- The Purpose of a BRS
- Benefits of Bank Reconciliation Statements
- A Guide to Bank Reconciliation Statement Preparation
- Conclusion
- FAQs
Bank Reconciliation Statement (BRS) in Accounting—What Is It?
A BRS or Bank Reconciliation Statement is a bank reconciliation statement that an organization prepares on a specific date to match the bank balance as indicated in its cash book with the balance shown on the bank’s passbook. It’s a document used in determining the accuracy of accounting records and financial accounts. BRS is used by auditors, companies, and accountants to detect omissions or errors between accounting records and bank account balances.
The statement ensures the accuracy of internal records and helps identify and prevent fraud and losses. There is no fixed date to prepare a BRS, and it’s not compulsory to make one. Nonetheless, diligent finance teams will periodically perform bank reconciliations.
Mainly, they do this to check that all bank-related transactions are properly recorded in the bank column of the company’s cash book and by the bank in their books as well.
The Purpose of a BRS
The main purpose of preparing bank reconciliation statement is to detect errors in the transaction records. Moreover, it means that the business has an accurate and updated view of its exact bank balance on a particular date. This could help see any irregular or unusual payments that may indicate fraud.
Moreover, a proper reconciliation process ensures that there are no unauthorized changes to transactions during processing. Another purpose of preparing a bank reconciliation statement is that it puts a business in a strong position to mitigate risks, make informed decisions, and maintain the necessary financial health for long-term success.
How Often Should a BRS Be Done?
Reconciling bank statements should be done every month. Ideally, however, it should be done frequently, particularly for businesses and enterprises with high transaction volumes.
Check out the following detailed breakdown:
- Higher Frequency for High-Volume Businesses
Businesses with great volumes of transactions daily may want to consider reconciling on a daily basis or weekly for effective cash flow management.
- Minimum Frequency
Reconciling bank statements at least monthly is recommended to check errors or discrepancies early.
Why Regular Bank Reconciliation is Important
- Identifies discrepancies and errors
- Ensures financial accuracy
- Boosts the cash flow management
- Minimizes fraud risk
Why Should You Prioritize a BRS?
Bank errors, unauthorized withdrawals, and fraud are all possible outcomes for organizations that don’t do regular bank reconciliations. If unaddressed, these issues can lead to flow leaks that hinder operations and company growth. Furthermore, a business that does not conduct a regular banking and reconciliation process is more prone to electronic payments being rejected and bouncing checks
There is also a risk that partner and supplier relationships can be impacted if payments are not made on time, which results in more stringent payment terms and higher fees. Organizations can opt to perform bank reconciliations internally, or they can go for outsourcing bank reconciliation services. Service providers can help keep reconciliations consistent.
Benefits of Bank Reconciliation Statements
A BRS provides several benefits that go beyond correctness. A bank reconciliation statement format is a tool that not only helps synchronize financial records with bank statements, but it also offers various strategic benefits that boost overall financial management.
Here are some of the main benefits of creating and maintaining a BRS:
- Simplifies Financial Processes
Bank reconciliation streamlines financial processes because it ensures that all transactions are logged in uniformly and correctly across financial systems.
- Boosts Cash Management
Bank reconciliations create a clear picture of cash inflows and outflows, thus helping boost cash management. Furthermore, it enables businesses to optimize their liquidity and pay financial obligations on time.
- Minimizes Financial Risk
The reconciliation process lessens financial risk by identifying discrepancies early. Thus, it enables organizations to address possible issues before they become major problems.
- Improves Internal Controls
The reconciliation process tightens internal costs by setting in motion a routine check and balance system, which minimizes the chance of error and fraud within the organization.
- Supports Financial Analysis and Planning
A reconciled bank statement provides reliable data that forms the basis for effective financial analysis and planning that leads to strategic decision-making and enhanced forecasting.
- Facilitates Accounts Receivable and Payable Reconciliation
As a best practice, regular reconciliation leads to managing and tracking accounts receivable and payable with greater accuracy. It ensures timely payments and collections.
- Encourages Accountability
The discipline of regular bank reconciliation encourages employees’ financial accountability. This promotes a culture of responsibility and accuracy in the financial reporting landscape.
- Gives Assistance in Business Growth
Accurate financial records acquired through reconciliation provide a great foundation for business growth since they provide insights relevant in investment decisions and business expansion.
A Guide to Bank Reconciliation Statement Preparation
Typically, statements from the bank are received at the end of each month. The statement itemizes cash and other deposits made into the company’s checking account, as well as expenses paid. These include everything, from salaries and wages paid to employees to purchases, such as materials and equipment.
The statement from the bank also shows expenses that may not have been included in the financial statements, including bank fees for account services. When you receive the bank statement, follow this guide to reconcile.
1. Gather Your Documents
To perform a bank reconciliation statement format, the first thing you have to do is to gather financial records, including bank statements and any other internal records. These could include financial statements from checking accounts, general ledger, invoices, and cashbooks.
2. Compare Activity and Balances
The financial records and bank statement contain the opening and closing balances for the month. Compared the bank accounts’ ending cash balance to that of internal financial records. Match the deposits, like cash or checks, and credits to your bank account with your accounting records.
Furthermore, match the invoice payments, withdrawals, bank fees, and interest charges. Cross-reference the bank statement activity with accounting records, taking note of discrepancies or missing transactions, like a check cleared for an incorrect amount.
3. Scrutinize and Record Outstanding Transactions
Dig into discrepancies, which could be invoices, checks, or deposits recorded in the accounting records not reflected on the bank statement. In a similar way, identify bank account transactions that are not reflected in your internal records, including interest income, bank fees, and overdraft fees.
4. Do Adjustments and Reconcile Balances
Perform the necessary adjustments to the bank statement for missing or wrong transactions. For example, if there is an outstanding check that still has to be cleared, add it to correct the bank account balance. Then, compare the adjusted cash balances of the bank account to your accounting records. You have to repeat the process if there are still errors.
5. Keep Tabs of Changes
Keep records and documents of all changes, including details of reconcilement and adjustment. Take note of descriptions of accounting adjustments and errors for easy review of information later on. Detailed records help prevent future errors.
Conclusion
A BRS can help if the accounting records of an organization show different transactions than the bank statements. Keeping accurate financial statements is the simplest way to streamline the bank reconciliation process. At Munimji, you can learn how to track income and expenses and generate financial statements and reports accurately.
FAQs
1. What is the main objective of preparing a BRS?
The main objective of a BRS is to help business organizations identify errors that could impact their financial and tax reporting.
2. What is another name for a BRS?
BRS is also known as a bank passbook. The balance indicated in the bank passbook should tally with the balance in the cash book.
3. How often should bank reconciliations be done?
Reconciliations should be done monthly. However, in high-volume transactions, it’s preferable to do it weekly or daily for efficient cash flow management.
4. Who prepares the BRS?
The accounting or finance department of a company typically prepares the BRS, particularly the accountant or bookkeeper.
5. Why do I need bank reconciliation?
Bank reconciliation ensures that the cash balance is exactly as it is.
