In the business world, having correct and accurate information about the company provides an extra edge to the business. The management follows various rules and regulations and also prepares many kinds of reports so that it receives correct information about the company. One such report or statement is the Bank Reconciliation Statement (also known as BRS).
To understand the Bank Reconciliation Statement, we first need to understand the meaning of the word reconciliation. Reconciliation means to restore or to make things equal. Here we check if all the records of the business match with the singles provided by the bank. If not, then some journal entries are passed, which will help in the adjustment.
What is the Bank Reconciliation Statement (BRS)?
Bank Reconciliation Statement can be defined as a report or a statement that will compare the bank balance of the company, which is mentioned in the accounting books and the balance which is mentioned in the bank statements. If both are perfectly balanced, then the chances are that the business is in good shape.
The primary purpose of a Bank Reconciliation Statement is to find out and inconsistencies between the accounting records of the company and the accounting records of the bank. If any discrepancy arises, this would mean that either there is an error in the records of the business or the bank.
Importance of Bank Reconciliation Statement (BRS)?
A bank reconciliation is essential to find out any discrepancies in the cash flow records of the business. It helps in the quick identification and correction of irregularities in the books of accounts. The importance of Bank Reconciliation Statement is mentioned below:
- One of the most significant advantages of the use of the Bank Reconciliation Statement is that it reduces the chances of fraud being conducted in the business. As the Bank Reconciliation Statement deals with the cash flow of the business, all the cash related frauds undertaken in the business are reduced significantly.
- The Bank Reconciliation Statement helps the management to understand any discrepancy in the accounting records. The administration can pass the necessary journal entries to remedy the situation.
- Maintaining a Bank Reconciliation Statement will help the staff of the organization to remember to always update the financial records of the business. I the business records are not updated from time to time, the frauds in the company can increase, and the company will also not comply with the regulations of the jurisdiction.
- The bank balance mentioned in the accounting books must be equal to the bank balance in the writings of the Bank. This will help the management if finding out the correct bank balance of the company.
Because of these four reasons creating, maintaining, and updating the Bank Reconciliation statement is an essential task for the business.
It is a part of the excellent accounting practices to reconcile all the financial documents of the business with the records mentioned in the bank. There are mainly two different ways of combining the business; these are:
- Documentation Review
This is a process in which a comparison is made of the number of transactions coming in or going out of the business. All the transactions should be present in the books of both the company as well as the bank.
Reconciling the records of the business and the banks periodically is an excellent option as it will help the individual to catch hold of any discrepancy as it may relate to fraud in the accounts.
- Analytics Review
In this method, the management looks into the past history of the business and accordingly estimates the current level of accounts. This will not be a very accurate method, but this will provide the management with a ballpark value.
These are the two methods that are used by a business to understand and reconcile their business numbers.
If you are looking to prepare and maintain a Bank Reconciliation Statement for your business, then you should look into the services provided by JAXA Chartered Accountants. The experts at JAXA will first understand the cash flow situation of the company and then offer solutions accordingly. JAXA also offers a number of services that will help the management to increase profitability. To get more answers about the services JAXA provides, Contact Us. We will provide you solutions which will help your business.