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What is a Bank Reconciliation Statement? Step-by-Step Guide

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# What Is a Bank Reconciliation Statement (BRS) with an Example? 

The word reconcile means “to make one thing compatible with another”. A bank reconciliation statement(BRS) is a summary of banking and business activity that reconciles an entity’s bank account with its financial records. The statement outlines deposits, withdrawals, & other activities affecting a bank account for a specific period. It ensures that the payment is processed and the money is deposited on the same date. An accountant prepares a reconciliation statement once a month. 

In the case of business, a bank reconciliation statement is made to reconcile the bank balance shown on the bank statement or passbook with the bank balance shown in the cash book. It helps a business to control cash and get a satisfactory explanation about the difference between the two balances. To ensure that the company’s cash records are correct, bank balances are completed at regular intervals. They help detect fraud and any cash manipulation.

Both the internal source like  (cash book) & external source like (bank statement or passbook) are merged with each other, then all mismatches are identified and properly recorded.

Example:- Accounting Software like Vyapar helps you to check all details in Bank statements, categorize them based on custom rules, and reconcile them in bulk,Sorting out the time and effort spent on manual tracking. With the help of accounting software, you can manage all banking and business activity that consolidates an entity’s bank account with its financial statement.

# Why do we Prepare a Bank Reconciliation Statement?

Preparation of bank reconciliation statements(BRS) is not mandatory and there is no fixed date for the preparation of BRS. Bank Reconciliation Statement(BRS) is prepared on a periodical basis for checking that bank-related transactions are recorded properly in the cash book’s bank column and also by the bank in their books. BRS helps to detect errors in recording transactions and determining the exact bank balance on the specified date.

The differences in the two balances arise due to 3 main reasons: Timing, Errors, & Transactions only known to the bank. Overall, the main reason for preparing a bank reconciliation statement(BRS) is to have strict internal control over the company’s cash inflows and outflows. To be more precise, these are some of the reasons why we prepare BRS.

  • Detect Mistakes and Errors:- Bank reconciliation statement(BRS) helps to detect any errors & mistakes in cash or a passbook.

  • Explains Delay:- Any delay in clearance or collection of checks can be identified.

  • Fraud Detection:- Helps prevent timely reconciliation and prevent any cash related fraud.

  • Actual Bank Balance:- It helps to identify the actual bank balance of a business.

  • Valid Transactions:- It helps in separating valid & invalid transactions such as a wrongly charged fee by the bank.

# When does a Business Prepare a Bank Reconciliation Statement?

Reconciliation activities are carried out daily, weekly, fortnightly, etc., depending on the volume and value of bank transactions. If the transaction volume or value is high, reconciliation activities are carried out daily to reduce the risk of payments and check bounce.

# What is the General Entry for Bank Reconciliation Statements?

General entries are required in a Bank Reconciliation statement when there are adjustments to the balance as per both cash books and passbooks. These adjustments result from items appearing on the bank’s statement that have not been recorded in the company’s general ledger accounts. 

Common adjustments or General entries to the balance per books include:

  • Bank fees or service charges for maintaining the account, fees for returned checks, processing wire transfers, check to print, etc.

  • Bank interest earned

  • Loan payments

  • Electronic charges and remittances from suppliers and others 

  • Customer’s checks which were deposited but are now being refunded due to insufficient funds

The entries for the bank fees would debit Bank Service Charges.

This entry for the customer’s withdrawing cash from the bank recorded; amount will be debited from bank and will be credited to cash balance

The entry records for the customer will show the cash deposit in the bank, the amount will be debited from the cash balance and will be credited to the bank account.

The entry for a customer’s check that was returned due to insufficient funds will debit Accounts Receivable.

Interest earned by the company will be recorded with a credit to Interest Income.

# Types of Bank Reconciliation Statement?

Bank Reconciliation or bank statement reconciliation is the process of verifying the bank balance in a business’ books of account by comparing them with the statement of account issued by its bank. Here, each and every transaction in the bank statement is compared with the company’s internal records (normally cash account) to check both records are matching. Periodic bank reconciliation is important to overcome missed payments and calculation mistakes. It will also help identify theft and fraud and track the payments and receivables of accounts.

  • Vendor Reconciliation:- A vendor reconciliation statement is prepared to ensure that the accounting entries passed in the books of the vendor are in line with the accounting entries passed in our books.

  • Customer Reconciliation:- A customer reconciliation statement is similar to a vendor reconciliation. It is prepared to check whether the customer’s books are in sync with our books. Most corporate customers consider reconciliation as a priority over vendor reconciliation.This is because money is receivable from customers, and it is always better to reconcile so that payments are not pending due to some issues regarding accounting entries.

  • Credit card Reconciliation:- Credit card reconciliation is almost identical to bank account reconciliation. Here, an organization matches the credit card receipts with the state of the credit card issued by a financial institution. This helps institutions ensure that the amount billed in the credit card statement matches the original payments. If the credit card company makes an error, it should be reported and corrected.

  • Cash Reconciliation:- This is the process of confirming if the amount of cash in the cash register matches the actual cash on hand at the close of the business. Each of the reconciliation types mentioned above has a unique workflow. There are several reconciliation solutions that are heavily customized to meet each of the requirements. There are also new age reconciliation solutions that can handle the reconciliation of any account with ease and accuracy.

  • Inter-company Reconciliation:- Group companies (holding, subsidiaries, etc.) have to prepare consolidated books of accounts. These books are required to terminate inter-company transactions in the form of a sale from the holding company to its subsidiary. For this, it becomes extremely important that their books of accounts are always in sync and, therefore, must be reconciled regularly before the consolidation process is completed. 

  • Business-specific Reconciliation:- In addition to the above-mentioned reconciliation types, each and every business needs to prepare other reconciliations based on specific needs. The cost of Goods Reconciliation is a good example here. A business that has any form of inventory should prepare this reconciliation statement to match the balance on the cost of sales of goods calculated using two methods:

Cost of goods sold = Opening Stock + Purchases – Closing Stock

Cost of goods sold = Sale – Profit

These two methods of calculation should lead to the equal amount. If not, records are to be examined to find out the reasons for imbalance.

# How a Bank Reconciliation Statement is Prepared?

These are some steps in preparation of BRS.

  1. The first step is to compare both the balance of the bank statement along with the bank column of the cash book; these could be different due to un-credited or unpresented cheques from a previous period.
  2. Now, compare the credit side of the bank statement with the debit side of the bank column of the cash book and the debit side of the bank statement with the credit side of the bank column of the cashbook. Keep a tick against all items that appear in both the records.
  3. Analyze the entries both in the bank column of the cash book as well as the pass book and look for entries which have been missed posting in the bank column of the cash book. Make a list of such entries and make necessary adjustments in the cash book.
  4. Correct if any mistakes or errors appear in the cash book.
  5. Calculate the corrected and revised balance of the cash book’s bank column.
  6. Now, start a bank reconciliation statement with updated cash book balance.
  7. Add the unpresented cheques (cheques that are issued by the business firm to its creditors or suppliers, but not presented for payment – Expenses) and deduct uncredited cheques (Cheques paid at the bank but not yet collected – Income)
  8. Make all the necessary adjustments for bank errors. If the bank reconciliation statement begins with the debit balance as per bank column of the cash book, add all the amounts erroneously credited by the bank and deduct all the amounts erroneously credited by the bank. Do vice-versa in case it starts with a credit balance. The resultant data should be equal to the balance as per the bank statement.

# Benefits of Using Accounting Software for Preparing Bank Reconciliation Statements(BRS)

Comparing the two statements with a long list of transactions is tense and an error in using the manual and traditional method of bank reconciliation. 

The only way to overcome this is to ‘automate’ the bank reconciliation process using accounting software like Vyapar. This saves time and effort in day-to-day operations. More importantly, you get accurate and real-time information about bank balance in books of accounts. 

Here, automating bank reconciliation is nothing other than using accounting software to record the business transactions, including bank transactions, such as bank reconciliation statements, is generated automatically. Also, accounting software will help you automatically reconcile bank statements with minimum efforts.

These are the following benefits of automating the bank reconciliation process using accounting software.

  • Easy to reconcile: Using accounting software will help you to automatically prepare bank reconciliation statements and reconcile them with minimal effort.

  • Saves time and efforts: No matter whether there are 100 or 200 transactions, the efforts and time to reconcile is the same. Since it is reconciled automatically, you will save a lot of time and efforts in reconciling the bank transactions.

  • Detecting unaccounted transactions is easier: Learn about new transactions (unaccounted) such as bank charges or bank interests etc. and make account and reconciliation easily.

BRS provides several advantages to a business which includes:

Detecting errors: A bank reconciliation helps you in spotting accounting errors that are common to every business. These mistakes include errors such as addition and subtraction, missed payments & double payments.

Tracking Interest and Fee: Banks can add interest payments, fees or penalties on your account. Monthly bank reconciliation allows you to add(+)  or subtract(-)  such amounts in your books. 

Detecting Fraud: You may not be able to help employees from stealing your money once, however, you could prevent it in future. Bank reconciliations help you in detecting & spotting fraudulent transactions. It is advisable to employ an independent person to perform the reconciliations for preventing the accounting employee from misreading your books and reconciliations. 

Tracking Receivables: Bank Reconciliation Statements allows you to confirm all your receipts, helping you to avoid awkward situations and also identifying entries for receipts which you did not deposit. Tracking Receipts: BRS allows you to confirm all your receipts, helping you avoid awkward situations and also identifying entries for receipts that you did not submit.

# Tips to ensure efficient Bank Reconciliation Statement (BRS) 

1. First of all, all the necessary documents and information are required to be on hand. That means, if all the necessary documents and information are at your disposal, you get a better view of things.

2. Avoiding common errors, such as:

  • Error related to duplication of entries. 

  • There is no accounting for transactions that will cause a difference equal to the missed amount.

  • Errors while entering commas and dots, which cause discrepancies that can be of significant value. For example, instead of entering INR 2,401.30, entering INR 240.13. 

  • Transposition errors while entering figures in the books. For example, instead of entering INR 221,200, entering INR 212,200.

3. Banks can also make mistakes: It is possible that your bank might have committed a mistake. They can debit incorrect amounts from your account, or credit deposits which do not belong to you. For this reason, In case you find errors for which you do not find any explanations, or for which you’re in doubt, the best thing is to consult your bank.

4. Reconciling items:It is possible to list and consolidate differences and then forget them.In case differences keep on accumulating with no action taken, your bank reconciliation would become meaningless. It is essential that a continuous check is kept on the reconciled transactions so that they are reflected in the right way in the bank column of the cash book and in the bank statement. 

# Who prepares the Bank Statement?

It is the process of matching the balance in the accounting records of an entity to a cash account for related information on a bank statement. The bank’s statement (BS) is prepared by a person or business with a financial institution. The statement includes deposits, charges, withdrawals, as well as beginning and ending balance for the period. 

A bank statement is a document (also known as an account statement) that is usually sent each month by the bank to the account holder, which summarizes all transactions of an account during the month.

# How can Vyapar help you in preparing a Bank Reconciliation Statement?

VYAPAR is a business management software, exactly that you used to manually reconcile and create a bank statement but the only change is, it is automated for you. 

Vyapar auto bank statements will minimize the time spent & the risk of errors during the bank recociling. Bank statment in Vyapar provides a simple and no-frills method of reconciling your company bank books with the bank statements.

Vyapar shows you complete details of any unaccounted transactions, like bank charges or bank interests etc. and helps you easily account those transactions from the same screen.

It is quick, simple, accurate & stress-free. It saves your time, manpower & money.

Some steps: How to create a bank account, how  to do Bank account adjustments and How to get a Bank Statement?

How to Create Bank Account?

To enter opening capital in form of bank balance you can add a bank account and simultaneously update the opening balance of the account by following these steps:

  1. At home screen Click on “Cash & Bank” in “Left menu” > “Bank Accounts” 

2. On the screen of Bank account list Click “Add your first bank A/c“ button 

Enter all required details here – 

  • Account name – Mention the name you want to see in the Vyapar app as (either holder name OR Bank name)

  • Bank Name – mention the bank name here, for example, ICICI Bank, HDFC bank, etc. 

  • Account number – mention the bank account number (optional) just for own reference

  • Current Balance – You can mention opening balance if any as on the date you want to start business management in Vyapar

  • Enter date – the date of the balance you mentioned in the current balance (it can be an old date if mentioned balance belongs to old date)

  • Click on the “Save” button. (You can click on “Save & new” button if you want to add one another bank account)

Note: You can create multiple bank accounts in the Vyapar by following the same steps.

How to do Bank Account Adjustments?

  1. Increase Balance

In case you receive interest from a bank you need to do entry here-

At home screen Click on “Cash & Bank” in “Left menu” > “Bank Accounts” 

On the screen of bank account list Click on “Account name” > “ Transfer money” > “ Adjust Bank Balance”

Enter all required details here –

  • Account name – Select the bank name in which you received the amount (for example interest received) 

  • Entry Type – Here select “increase balance” 

  • Amount – mention the amount you want to increase balance with

  • Adjustment date – you can change the date if the transaction belongs to the other date. (it can be an old date if mentioned amount belongs to old date)

  • Description – Anything needs to be mention for own reference (Like- interest received, it is optional)

  • Click on the “Save” button

2. Reduce Balance

In case of bank cutoff any charges you need to do entry here-

At home screen Click on “Cash & Bank” in “Left menu” > “Bank Accounts” 

On the screen of bank account list Click on “Account name” > “ Transfer money” > “ Adjust Bank Balance”

Enter all required details here –

  • Account name – Select the bank name amount deducted from (For example Charges applied by bank)

  • Entry Type – Here select reduce balance 

  • Amount – mention the amount you want to reduce balance with

  • Adjustment date – you can change the date if the transaction belongs to the other date. (it can be an old date if mentioned amount belongs to old date)

  • Description – Anything needs to be mention for own reference (Like- Cheque bounce charges, it is optional)

  • Click on the “Save” button

Note: such kind of direct transactions needs to be done by bank adjustment

How to get a Bank Statement?

  1. At home screen Click on “Reports” in “Left menu” > Click on “Bank Statement” under heading business status


Select the Dates OR Time Duration you like to see the details on.

Shows the list of all transactions you’ve made within this duration along with the transaction date.

Shows the Description along with the amount of withdrawal & deposit

Shows the Total Balance of bank account

 You can export these details as PDF or XLS format and share it with people who matter. For example, from top right corner click on the print option > Click on print description > Click on Ok

# What Is the Purpose of Bank Reconciliation?

The purpose of the bank reconciliation statement is to carry out and uncover & correct any errors in the recording of payments made from the bank account and amounts recorded in the bank account. It will also highlight any transactions initiated by the bank which are not yet recorded in the business accounting records.

The reconciliation statement includes the balance on the bank statement, the balance on the cash book, the value of cheques issued but not yet presented at the bank (unpresented cheques) & the value of deposits which have not yet been processed/cleared by the bank (without a license).

# Who’s Responsible for Bank Reconciliations?

If you do your bookkeeping yourself, you should be prepared to reconcile your bank statements at a certain time (more on that below). If you work with a bookkeeper or online bookkeeping service, they will handle it for you.

You only need to reconcile bank statements if you use the method of accounting. If, on the other hand, you use cash basis accounting, then you record each & every transaction at the same time as the bank does; there should be no discrepancy between your books & your bank statement.

In huge companies with full-time accountants, there is always someone checking to make sure every number checks out, and that the books match reality. In a small business, that responsibility usually falls to the owner (or an accountant, if you hire one. If you do not have a bookkeeper, check out Bench).

# How Often Should You Reconcile Your Bank Account? 

Small or Medium size Business(SMB) owners should change their once-a-month habits of reconciling their accounting software to a daily or weekly basis on accounting systems, said bookkeepers and accountants .

Those who regularly updated invoice payments had a clear picture of cash flow, could make sound business decisions and would avoid falling behind on outstanding payments. If the owners were not giving the information to bookkeepers on a regular basis, it could hinder their business and “we would go backwards to the days of desktop or online software”.

“If reconciliations are kept up to date, they have a lot of information at their fingertips and their accountants and accountants can focus on what value will be added to their business, such as in-depth reporting and advice. 

“Set aside 30 minutes first thing every morning. This (time) allows them to focus on other areas of their business that can generate income or improve. “

# Bank Reconciliation Problems?

Bank reconciliations are rarely simple. Typically, there is no immediate reconciliation of accounts where at least some investigative work is needed to determine where the discrepancies are originating and which financial entries need to be booked to keep records aligned. In other cases, reconciliation issues may identify the need for different business partnership payment terms, banking options, or withdrawal protections.

The most common bank reconciliation issues include simple problems arising from the movement of money delays to more sophisticated complications like fraudulent activity. 

  • Cash-In-Transit :- In-transit checks and deposits can end the reconciliation of the bank as the movement of cash is not immediate. When a check, electronic payment, electronic payment, wire transfer, ACH transfer or cash deposit is received, a business has recorded this activity of funds, but the bank has not yet received the funds. This is especially problematic in higher-volume accounts where a steady stream of cash is simultaneously flowing in and out of an account.

When the money gap is a recording period (such as after reporting a daily closing or the end of a month) to empty the bank, the financial statement of a business will not match its bank statement record.

  • Outstanding Checks :- Bank reconciliation issues can also arise when checks are issued, but they are delayed in cash or depositing.Booking an entry to carry this check balance to the next month will consolidate accounts during the current reporting period, while also allowing the business to keep track of obligations to pay in the form of a check. 

Uncleared checks that are never presented for payment will also cause a reconciliation problem. Once a reasonable deadline has passed in which the check should have been deposited (usually 90 days), additional steps should be taken to settle the case.

  • Errors:- Recording errors can result in a check or deposit value being entered incorrectly, which will unexpectedly thwart a reconciliation attempt. While these are far more common on the business side than the bank side, either entity may be guilty of this type of mistake. Ensuring that the correct values ​​are listed for each transaction ensures a smooth bank consistency and minimizes the need for subsequent adjustments.

An error can also occur when a check or deposit is lost. Again, this is more common on the business side. With the proliferation of automated bank reconciliation features from accounting system apps, sometimes all it takes is one wrong click of a button to make a transaction go wrong.

  • Bank Fees:- After being responsible for the movement of cash, bank fees must be accounted for as well. Things like overdraft fees and Non-Sufficient Funds(NSF) check fees will throw off a bank reconciliation if they are not included. Ideally, with regular bank reconciliation processes, these fees should naturally be minimal due to low cash flow management.

For businesses with substantial bank penalties, more attention should be paid to selecting a bank with a more generous fee schedule or better overdraft protection.

  • Unauthorized Withdrawals:- Fraud is a serious subject that many businesses would prefer to avoid. Whether unauthorized withdrawals are taking place internally by an employee or partner who should not have access to the account or by a third party who has maliciously broken the account, fraud can sink a business.

A division of duties can help prevent fraud internally. An employee responsible for reconciling accounts should not make a recording transaction or disbursement of cash. Otherwise, embezzlement may occur, and evidence of such actions can easily be hidden. It is for this reason that many business owners choose to employ a third-party finance professional to conduct fair bank reconciliation.

Externally, supplemental bank protection may automatically freeze payments that have not been pre-approved for account security. While these measures are not standard on most commercial banking accounts, some institutions offer them to preferred customers or as a premium option.

In our ongoing series, we have already covered why bank reconciliation is important, how often bank reconciliation should be done and what is needed to make bank reconciliation. With these fundamentals, we will wrap up the chain and take the necessary steps to create accurate bank reconciliation.

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