Bank Reconciliation Statement – How to Prepare & Benefits

A bank reconciliation statement (BRS) is a statement that explains and reconciles the difference between the balance shown in your cash book’s bank column and the balance shown on the bank statement (passbook). It lists items like un-presented cheques, un-credited lodgments, bank charges, interest, and errors that cause the two balances to differ and adjusts the cash book or bank balance accordingly so both match as of a particular date. A typical BRS starts with the corrected cash book balance and then adds un-presented cheques and deducts un-credited cheques (or vice‑versa if starting with a credit balance) until the resultant equals the bank statement balance. Preparing a BRS regularly helps ensure your recorded cash position is accurate and catches mistakes or fraud early.

You should prepare a BRS every month because it detects errors, bank charges, fees and unrecorded receipts so your books reflect the true bank balance. Monthly reconciliation helps spot addition/subtraction mistakes, missed or double payments, interest or penalty entries by the bank, and potential fraud by employees. Regular BRS also ensures receivables and deposits are tracked and prevents small unreconciled items from accumulating into material discrepancies. For these reasons many businesses reconcile monthly or at least periodically after receiving the bank statement.

Prepare a BRS by first comparing opening balances in the cash book’s bank column and the bank statement, then tick off matching entries on both records and identify missing entries. Update the cash book for missed receipts/payments and correct any cash book errors, compute the revised cash book balance, and start the reconciliation with that updated balance. Add un-presented cheques (issued but not presented) and deduct un-credited cheques (lodged but not collected), make adjustments for bank errors (add amounts wrongly debited or deduct amounts wrongly credited), and the final figure should equal the balance per the bank statement. Keep a list of reconciling items so they can be followed up and cleared in subsequent periods.

Common causes include un-presented cheques (issued but not yet cleared), un-credited cheques (deposits not yet collected), bank charges or interest recorded by the bank but not in the cash book, and posting or arithmetic errors in the cash book. Transposition errors (e.g., recording INR 221,200 as INR 212,200), mistakes in commas or decimal places (e.g., INR 2,401.30 entered as INR 240.13), and duplicated or missed entries also create discrepancies. Banks may also make mistakes by debiting or crediting wrong amounts, so unexplained items should be taken up with the bank.

An un-presented cheque is a cheque issued by your business to a supplier or creditor that has not yet been presented to the bank for payment, and you should add it back to the cash book balance when reconciling to the bank statement. Because the cheque amount has already been recorded as a payment in your cash book but not yet cleared by the bank, it causes the bank statement balance to be higher; adding un-presented cheques adjusts the cash book-based reconciliation so both balances agree. Keep a running list of un-presented cheques and follow up with suppliers if they delay presenting them, and remove them from subsequent BRS once cleared.

An un-credited cheque is a cheque or deposit paid into the bank that has not yet been credited or collected by the bank, and you should deduct such amounts from the cash book balance when preparing the BRS. These deposits are recorded as receipts in your cash book but do not appear in the bank statement until the bank processes them, so deducting them ensures the reconciled balance matches the bank’s recorded balance. Maintain a list of un-credited items and confirm with the bank if they remain outstanding beyond the normal clearing period.

When the bank makes an error, adjust the reconciliation by adding amounts the bank wrongly debited or deducting amounts the bank wrongly credited so the reconciled figure matches the corrected cash book balance. If you begin the BRS with a debit balance in the cash book’s bank column, add bank errors where the bank wrongly debited you and deduct errors where the bank wrongly credited you; reverse the treatment if you start with a credit balance. Always follow up with the bank to get formal correction and documentary evidence, and record the journal entry in your books only after verifying the bank’s correction if required.

To make BRS efficient, keep all supporting documentation handy, avoid common data-entry errors (duplication, missed transactions, misplaced decimals), and maintain an up-to-date list of reconciling items so they don’t accumulate. Be aware banks can make mistakes, so query unexplained items promptly with the bank, and assign an independent person to perform reconciliations to reduce risk of internal fraud. Regular reconciliation, careful attention to commas/decimals and transposition errors, and timely posting of cleared items in the cash book will keep your reconciliations short and accurate.

If the reconciled balance doesn’t match, review for missed postings, errors in the cash book (including transposition and decimal mistakes), and un-presented or un-credited items you may have overlooked, then follow up with the bank for possible bank errors. Re-check arithmetic, compare every entry line-by-line, update the cash book for any bank charges or interest not recorded, and maintain a checklist of reconciling items to ensure none are forgotten. If unexplained differences persist after those steps, escalate to the bank with supporting evidence and consider having an independent reviewer re-perform the reconciliation to detect overlooked mistakes or fraud.