1. What is a Bank Reconciliation Statement?
A Bank Reconciliation Statement (BRS) is a schedule that compares the bank balance shown in a company's ledger (cash book) with the balance reported on the official bank statement on a specific date, explaining every rupee of variance.
2. Common Causes of Discrepancies
Variances usually stem from two sources: Timing differences and Unrecorded items:
- Timing differences: Cheques issued to suppliers that have not yet been presented for clearing at the bank.
- Unrecorded bank items: Automated ECS debit payments, loan EMIs, bank service charges, merchant gateway discount fees (MDR), and direct NEFT/RTGS customer receipts.
3. The Hidden Dangers of Skipping Reconciliation
Failing to reconcile monthly often leads to bounced cheques due to false assumptions about available funds, undetected fraudulent bank charges, distorted profit figures on the balance sheet, and severe audit delays during tax finalization.
4. Recommended Monthly Routine
Always perform BRS within the first 5 working days following the end of each month. Post adjusting journal entries for bank charges and interest before locking monthly financials.