A bank reconciliation statement or BRS is a form that allows individuals to compare their personal bank account records to that of the bank. BRS is prepared when the passbook balance differs from the cashbook balance.
Now this is a typical answer. What you should do here is elaborate on it. Follow these tips before moving on to the sample answer.
Explain how a bank reconciliation statement helps identify discrepancies between a company’s accounting records and the bank statement.
You could further describe the steps involved in preparing a bank reconciliation statement and the key components included in the statement.
Sample Answer : “The main purpose of a bank reconciliation statement is to identify and rectify discrepancies between the cash balance shown in the company’s books and the balance reported by the bank. These discrepancies may arise due to various reasons, such as outstanding checks, deposits in transit, bank fees, or errors in recording transactions.
The process of preparing a bank reconciliation statement involves the following.
* Obtain the latest bank statement from the financial institution and collect the company’s cash balance as recorded in the general ledger.
* Compare each transaction recorded in the bank statement with the corresponding entry in the company’s cash account. Identify any differences or discrepancies.
* Outstanding checks, which have been issued but not yet cashed by the recipients, and deposits in transit, which have been made but have not yet been credited by the bank, are the common items causing discrepancies.
* Make adjustments for outstanding checks and deposits in transit to reconcile the cash balance between the bank statement and the company’s records.
* Account for any bank fees, service charges, or interest earned that may not have been recorded in the company’s books.
* After making all necessary adjustments, update the company’s cash balance to match the reconciled amount.
* Summarise the adjustments made during the reconciliation process in a formal document known as the bank reconciliation statement.
A bank reconciliation statement is a critical control mechanism for a company’s financial management. It helps ensure the accuracy and integrity of financial records by detecting errors, unauthorised transactions, or fraudulent activities.
Additionally, a properly reconciled bank statement aids in providing a more accurate depiction of the company’s actual cash position, which is crucial for making informed financial decisions and maintaining financial stability.”
