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Bank Reconciliation Statement | Introduction and Trick to solve BRS | Letstute Accountancy - YouTube
Channel: Let'stute Accountancy
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Hey!
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welcome to a new accounting session.
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So far we covered how postings are done from
a journal to a ledger.
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But are we sure that whatever we have done
so far is true ? is correct � Not sure there
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may always be clerical/human errors ..We can
check this internally by going back to source
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documents and verifying each and every thing
. Once it is correct from our end .. how do
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we double check.... we have to reconcile with
third party .... Because there may be a mistake
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in internal evidence �
Let me tell you some problems that Daniel
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faced this month with his bank related records
even when he checked all his internal evidences.
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1.He was checking his bank ledger A/c and
remembered he was to receive certain amount
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from a customer, but it has still not been
received.
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He called the customer and reminded him for
payment but they said that they had already
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deposited the amount in Daniel�s bank A/c
2.
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He also saw that in his ledger that he had
paid MR B ..But Mr. B said had still not received
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this amount.
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3.
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He had also to receive interest on his fix
deposit �But he was not sure if it has come
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into his bank A/c
So what do you think is the problem here??
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Daniel had not confirmed his records with
the external party that is the bank to see
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if this money had really come into his account
or deducted from his A/c.
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So Like we get external confirmation from
debtors and creditors to reconcile balances
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with them, In the same manner, we need to
reconcile our records with the bank .
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BANK BOOK AND PASSBOOK
So To check such transactions ,A bank needs
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to send its customers a regularly updated
statement showing how his account stands in
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their books �This statement is called as
the Passbook or the Bank Statement.
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If Daniel would have compared his bank A/c
in his ledger or his bank subsidiary book
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to the bank passbook he would have found out
exactly how much amount has the bank debited
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or credited.
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� This bank A/c ledger or Bank book is bank
a/c. in our books of a/c. whereas bank passbook
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or a bank statement is nothing but our account
in the books of bank
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� These two books generally show a difference
in amounts even if there is no mistake just
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because of processing time or sometimes no
intimation from the bank .. sometimes due
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to errors and omissions.
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� These delays usually do not matter as
sooner or later entries are made both by the
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bank and by the business
� So ideally bank book and pass book should
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be like mirror image reflecting all entries
in both the books �.
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But like we said they both will not be matching
on a particular date so there must be a statement
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just to explain this difference or reconcile
this difference even if there may be no mistake
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.. Such a statement is called the �bank
reconciliation statement� .It can be prepared
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weekly, monthly,or quarterly depending on
the number of bank transactions.
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This is a very important step to perform before
finalizing annual accounts..
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So let�s take a look at our bank book and
the bank passbook
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We see that the balances are not matching.
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To travel from point A to point B ..to reconcile
.We have to to copy or mimic or repeat what
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the bank has done .. just follow their footsteps..We
are not making any changes in any of the books
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just preparing this BRS statement to bridge
the gap..to check for accuracy and explain
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this difference.
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so we have to think like an accountant from
the business point of view ..
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So we will write down the balance we have
as per our cash book (1575) ..we generally
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write negative numbers in accounting in brackets
instead of writing the minus sign for convenience
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and to avoid calculation mistakes.
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..We have to reach to the balance 225.
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How do we read the bank book ..as we debit
what comes in .. debit sides are deposits
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whereas we credit what goes out so all the
amounts on credit side will be our payments
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�and on this passbook it is the opposite
withdrawals are on the debit side and deposits
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are on the credit side because �(when we
deposit cash in bank �Bank becomes receiver
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from our point of view so we debit bank �
But from bank�s point of view we are their
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givers so they credit our A/c (debit receiver
credit the giver)
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Okay coming back ..we deposited cash 500 . .Bank
to cash is the entry �in both the books
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..then we paid for wages 200(the balance reduces
in both the books).. we withdrew again for
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drawings 600 (balance is reduced even more)
it has gone in minus as we have used excess
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amount than what was in our bank .This is
called as an overdraft facility where up to
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a limit excess amount can be withdrawn from
our account for a fee .. (may be given to
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some current A/c holders) So far the entries
are same in both books.
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1.On 19th there is an entry in the pass book
which is not in bank book we got a direct
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deposit from a third party for 1,000 and we
did not get intimation so we did not record
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that in bank book ...
Since the balance in our passbook has increased
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we should also add this amount 1000 in the
statement.
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We are just copying them.
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REASON: This is a Direct deposit in bank .. not
recorded in bank book
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2.On the 24th there is again withdrawal of
675 to pay for purchases.
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this is same in both books
3.On 25th payment is made to supplier Harry
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traders by check but this is not in our passbook.
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What could this mean?
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This means a check was issued to Harry Traders
but he may have still not presented the check
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in his bank so the check is still not cleared.
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This means the passbook balance has not been
affected yet..
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But we credited it in our bank book�so to
cancel out this effect to match their balance
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we will give debit effect means add it in
the statement.
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REASON: So this was a check issued but not
presented for payment.
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4.What is next on 26th bank has charged us
a fee and they deducted the amount directly
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no intimation so it is not recorded in our
bank book.
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now that we have checked the passbook we know
that bank has reduced our balance by charging
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a fee so we have to subtract this in our statement
REASON: Bank charges not recorded in bank
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book �bal negative 25
5.ON 26th the bank has directly deposited
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250 as interest on Fix deposit directly.
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So again after confirming with passbook we
know that bank balance has increased so we
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add this 250 .
REASON: Interest on fix deposit credited in
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passbook .Not recorded in bank book
Now we have the same results as our passbook.
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Balance is 225 �.We have reached our desired
point B ..which means our balances have been
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reconciled with the bank.
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So let�s quickly revise the Reasons we saw
for mismatch and how it showed on our reconciliation
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statement
With this we now are clear with the various
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reasons of difference in both books and the
need to prepare reconciliation statement before
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proceeding .Now we will need to go back to
all our books journal and ledger and pass
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the necessary entries for which transactions
took place and intimation was not given.
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