What is BRS ? What is the purpose and importance of BRS?


brs-importanceNowadays, the banking sector is closely attached to the business. Every business concern has their own accounts in banks. Banks prepare a statement at the end of a particular period, business concerns also maintain a record of a bank account in their own book. The amount of balance shown by the passbook and the cash book should be balanced. If there is any difference between the two, the business concern will prepare a statement called  Bank Reconciliation Statement to find out the reasons for differences.

What do you mean by BRS?

BRS or Bank Reconciliation Statement is a statement prepared on a particular day which compares the bank balance as per company’s accounting records with the balance stated on the bank statement. In other words, it is the process that explains the difference between the bank balance shown on the bank statement and the balance shown in the depositor’s accounting record for a particular period of time. It is a statement prepared by the account holder. I.e., the bank’s customer and it provides a check on the accuracy of entries made in both the books (pass book and cash book).

Why does a company prepare BRS?

Bank Reconciliation Statement is prepared for the following reasons

  • To ensure that the amount of cash reported on the company’s balance sheet is the correct amount. The additions and deductions on the bank statement are compared with the items that are entered in the company’s general ledger cash account. If there are any differences made such as outstanding cheques and uncredited cheques, it will be noted as simply timing differences.
  • To detect the missing transactions which are not entered in the cash book.
  • To identify the data entry errors in a cash book.
  • To ensure that all transactions which have been recorded in your bank statements are accurate.
  • To identify the bank errors which is made by bank personnel.
  • To identify the dishonoured cheques.
  • To identify the stale cheques (Cheque presented at the bank after six months of its payment date.
  • To detect frauds and the misappropriation of funds.
  • To ensure the financial review.

Importance of BRS

Bank Reconciliation Statement is a statement of balance comparison between the cash account balance and the bank account balance. As it is a very important technique, it should be prepared with great concentration.

Listed below are the basic points related to the importance of Bank Reconciliation Statement.

  • Bank Reconciliation Statement helps in ensuring the accuracy of the balances shown by the pass book and cash book.
  • Bank Reconciliation Statement helps in verifying the accuracy of entries made in both pass book and cash book.
  • Bank Reconciliation Statement helps in identifying the missing transactions which are not yet recorded.
  • Since most of the companies use double-entry bookkeeping facility, this Bank Reconciliation Statement helps in verifying the accounts.
  • Bank Reconciliation Statement helps in updating the cash books of the company.
  • Bank Reconciliation Statement helps in identifying the fraudulent activities as it is prepared at frequent intervals (daily, weekly, monthly).
  • Bank Reconciliation Statement helps in pointing out the mistakes in the cash book and the passbook.
  • Bank Reconciliation Statement is considered as an important technique of control.
  • Bank Reconciliation Statement helps in identifying the delay reasons for collection and clearance of some cheques as it maintains the daily date records
  • Bank Reconciliation Statement helps in avoiding fraudulent misappropriation of funds.
  • Bank Reconciliation Statement assists in calculating the actual bank balances.
  • Bank Reconciliation Statement assists in finding out the disagreement between Cash book and Passbook balances.

Thus, Bank Reconciliation Statement explains the difference between the cash reported on the bank statement and cash balance in depositors accounting records.

 

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