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Bank Reconciliation Statement ( BRS ) explained with example in easy way | Class 11th | CA | B.Com - YouTube
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Hello guys, I am back with another video but
before starting let me introduce myself first.
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I am lavish Gupta and in this video we are
going to study Bank Reconciliation Statement.
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So, Let's start
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So, in this video we are going to study three
things which are What is Bank reconciliation
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Statement?
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How to Prepare it and why we prepare it?
and also an Example of Bank Reconciliation
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Statement, so you guys can easily understand
it.
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To know about what is Bank Reconciliation
statement, you guys should have some basic
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knowledge of two things which are Pass Book
and Cash Book which is also known as Bank
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book.
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Now as you guys are studying Accountancy instead
of A, B, C, let me assume that you guys are
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grown enough to know what a pass book is.
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But still I know that there may be some people
among you guys who doesn't know what a pass
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book is because in India still many families
doesn't have a bank account.
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So, yeah for those who doesn't know, A pass
book is the record of deposit and withdrawals
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of a person made with the bank.
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That is when you deposit money in the bank,
it gets credited in your pass book and when
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you withdraw money out of your bank, it gets
debited from your pass book.
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And this pass book is maintained by the Bank.
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Okay, so this is what a pass book is.
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Now, the next thing is Bank Book which is
also known as Cash Book as I previously said
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and it is usually the Bank Column of the Cash
Book.
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So, cash book or Bank book is usually studied
before studying Bank Reconciliation statement.
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Therefore, most of you guys may already know
about it.
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For those who don't, a cash book is a book
in which receipt and payments of money are
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recorded.
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But unlike pass book, which is prepared by
bank, cash book is prepared by the customer
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of the bank or we can say it is prepared by
the business.
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Now Cash Book has two column, one is Cash
column and other is Bank column, but in bank
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Reconciliation Statement, we are only concerned
with Bank column because Bank Reconciliation
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is only about those transactions which are
related to Bank.
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So, from this we can say that both Pass book
and Cash book are the statements of receipts
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and payment but the only difference is that
Pass Book is prepared by the bank and the
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Cash book or Bank book is prepared by the
customer of the bank i.e Business.
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Now, the thing is that most of the time the
balance of pass book and the balance of cash
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book doesn't match, because of which we prepare
Bank Reconciliation Statement.
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So, we can say that Bank Reconciliation statement
is a statement which explains the difference
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among balances of a pass book and a bank book.
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Now as i said sometimes pass book and cash
book doesn't match, but the question is why?
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Let's understand
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See, as I said Bank book is prepared by Bank
which is usually correct and the cash book
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is prepared by the customer of the bank or
the business which can commit errors, so sometimes
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because of the error committed by the customer
or the business in recording the transactions
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in the bank column of the cash book, there
comes a difference among the balances of cash
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book and pass book.
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So, the reason of mismatch is Error in recording.
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Another reason of mismatch is Difference in
timing,
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For example- When we deposit a cheque in the
bank, we immediately Debit the cash book with
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the amount of cheque....but it takes time
by the bank to deposit the cheque in the account
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and if we check the balance of pass book and
bank book during such time, there will be
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a mismatch.
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Yet another reason is No information regarding
the transaction...
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For example - When bank pays Interest, it
credits the pass book but we do not know about
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such Interest until we check the pass book,
so we do not record it in the Bank book or
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in the Bank column of the Cash Book which
results in Mismatch.
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Now, let's study how to prepare Bank Reconciliation
statement which is also known as BRS with
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a problem.
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So, here is our problem where it is stated
Prepare Bank Reconciliation Statement of ABC
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Ltd. from the information given below.
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Let's show you guys how to solve it.
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Here is the format of Bank Reconciliation
Statement, and I want to tell you guys that
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there is no standard format of BRS, so you
guys can prepare it anyway, but this is still
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the best format according to me.
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So, we always start with either the balance
of cash book or the balance of pass book...
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It depends upon the problem.
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As you can see in this problem, we are given
Balance as per Cash book, so will start with
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this.
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Balance as per Cash Book Rs. 25,000
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Before going to next step, you guys need to
know what is the motive behind preparing Bank
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Reconciliation Statement.
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For example - Trading Account is prepared
to know Gross profit i.e the end result of
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Trading account is either Gross profit or
gross loss.
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Similarily end result of Profit and Loss Account
is either Net Profit or Net Loss.
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So, the question is what is the motive behind
preparing BRS, what will be the end result
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of preparing BRS?
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What are we trying to find here?
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And the answer is as I previously said we
are trying to find the differences between
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Cash Book and Pass Book and we will reverse
them so that if we start with the balance
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of Cash Book, the end result will be the balance
as per Pass book and if we start with the
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Balance as per Pass book, the end result will
be Balance as per Cash Book.
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Therefore, the 2nd step will be to reverse
the entries which results in the difference
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among balances of pass book and Cash book.
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So, let's continue.
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So, our 2nd transaction is Withdrawn Rs.2000
from bank but recorded as Rs. 2500 in Cash
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Book.
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That means we have recorded 500 extra in Cash
book which results in the lower balance of
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Cash book as compared to Pass book because
as per pass book we have withdrawn only Rs
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2,000 but as per cash book we have withdrawn
Rs 2,500.
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So, we have deducted 500 extra from the Cash
book.
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So, to reverse the entry, we will add this
500 in the Cash book.
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Therefore, Add extra amount deducted from
Cash Book Rs.500
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I hope you got it.
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If not, nothing to worry you can go a little
back and watch this step again or you can
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continue and understand this concept in next
entries.
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Now, the third entry is Interest given by
bank Rs.50 and not recorded in Cash Book.
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When bank gives interest on our money, it
results in the increase of balance in the
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pass book.
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But the account holder will only come to know
of such Interest, when he see the pass book,
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therefore the balance of cash book becomes
less than the balance of pass book.
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So, to make the balance equal, we will record
the Interest given by the bank in the Cash
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book.
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Therefore, add Interest given by the Bank
Rs.50
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Now the 4th transaction is Cheque received
from Mohan deposited into the bank not yet
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cleared Rs.1000
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In this transaction, ABC ltd. has received
cheque from Mohan and deposited it into the
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bank which is not yet cleared as you guys
may know that sometimes bank takes time to
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clear cheques because of various reasons.
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So, here when ABC ltd. saw the pass book,
the cheque was not cleared although it was
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not aware of it and therefore recorded it
in the Cash book which results in the difference
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between Pass Book and Cash book as the balance
of Cash book got increases by the amount of
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cheque.
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Therefore, we will reverse the transaction
and will deduct such amount from the Cash
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book so that balance of both books gets equal.
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Therefore, Less Cheque received from Mohan
not yet cleared Rs.1000
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Now the 5th transaction is Cheque issued to
Ram not yet presented for payment.
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Rs 1500
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In this transaction, ABC ltd. has given a
cheque to Ram , therefore it will assume that
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Ram has presented it for payment and the money
is deducted from the bank.
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Therefore it has already deducted the amount
of cheque from the cash book.
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But when ABC LTD. sees the pass book, it comes
to know that tha cheque is still not presented
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for payment, therefore it has to reverse the
transaction in the cash book.
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As it has already deducted Rs.1500 from the
Cash book, now it has to add it back.
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Therefore, Add Cheque issued to Ram not yet
presented for the payment.
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Rs.1500
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Next entry is Deposited Rs.5000 in bank but
recorded as Rs 3500 in Cash book.
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Here in this entry ABC ltd has deposited Rs
5000 in bank but wrongly recorded it as Rs.3500
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which results in the difference between the
balances of both books.
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Therefore, to balance the both books we have
to add Rs 1500 in the cash book.
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Therefore, Add Less amount recorded in Cash
book.
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Rs.1500
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Now the 7th and last transaction is Cheque
received entered twice in Cash book Rs.2000
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So, when we receive cheque from someone, it
increase the balance of both pass book and
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cash book.
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But here, we have added such amount in the
cash book 2 times, therefore, we have to deduct
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Rs.2000 from the Cash book , so as to make
the balances of both books equal.
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Therefore, Less Cheque entered twice in Cash
book Rs.2,000
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Now what we have to do is to add all these
transactions first and then add the amount
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into the Balance as per Cash Book.
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So after adding all these, we get Rs.3,550
which when added to Rs.25,000 gets equal to
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Rs.28,550
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Now we have to subtract the below amount from
this 28,550 and after subtracting
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we get Rs.25550 which is our balance as per
pass book.
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That's all.
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Hope you guys got it.
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If not , do tell me what else I should explain
here and I will make a new video for that.
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