bank reconciliation (copy)

Bank Reconciliation Statement (BRS)

A statement that matches the balance in the Cash Book with the Bank Statement.

Purpose of BRS

To find differences between Cash Book and Bank Statement balances.

Frequency of BRS preparation

Typically prepared monthly.

Legal requirement of BRS

Not compulsory by law, but highly recommended.

Alternative name for Bank Statement

Passbook.

Passbook contents

Transactions recorded by the bank.

Cash Book records

All receipts and payments maintained by the business.

Main purpose of BRS

To ensure accuracy of cash and bank records.

Favourable balance

When the Cash Book shows debit and the Bank Statement shows credit.

Overdraft balance

When the business owes money to the bank.

Objective of BRS

To detect missing entries.

BRS and bank errors

BRS helps find bank errors.

BRS and fraudulent withdrawals

Yes, BRS identifies fraudulent withdrawals.

BRS impact on internal control

BRS improves internal control.

BRS updates the Cash Book

Yes, BRS updates the Cash Book.

Effect of cheques issued not presented

Cash Book shows less balance, Bank Statement shows more balance.

BRS adjustment for issued cheques not presented

Added to the BRS.

Effect of cheques deposited not cleared

Cash Book shows more balance, Bank Statement shows less balance.

BRS adjustment for cheques deposited not cleared

Deducted in BRS.

Effect of bank charges deducted

Deduct from the Cash Book balance.

Effect of direct deposits by customers

Add to the Cash Book balance.

Methods of preparing BRS

1. Without adjusting Cash Book 2. With adjusting Cash Book.

Modification of Cash Book in the without adjusting method

No, it is not modified.

First update in with adjusting method

Cash Book.

Accuracy in bank balance

More accurate in the with adjusting Cash Book method.

Journal entry for bank charges

Bank Charges A/c Dr. To Bank A/c.

Journal entry for direct customer deposits

Bank A/c Dr. To Customer A/c.

Journal entry for dishonoured cheques

Debtor A/c Dr. To Bank A/c.

Journal entry for interest credited by bank

Bank A/c Dr. To Interest Income A/c.

Example 1 Cash Book balance

Rs. 50,000.

Adjustment for cheques issued not presented in Example 1

Add Rs. 15,000.

Final balance as per Bank Statement in Example 1

Rs. 59,500.

Monthly BRS preparation

True, BRS is typically prepared monthly.

BRS and trade discounts

False, trade discounts are not recorded in BRS.

Effect of direct deposits on bank balance

True, they increase the bank balance.

Effect of dishonoured cheques

True, they reduce cash balance.

BRS adjustments for cheques issued not presented

False, they are added, not deducted.

Compulsory nature of BRS

No, BRS is not compulsory.

BRS's role in fraud detection

Yes, BRS can detect fraud.

BRS's role in accounting accuracy

Yes, BRS improves accounting accuracy.

Balance used for BRS preparation

Either Cash Book or Bank Statement.

Recommended frequency for BRS preparation

Monthly.