BANK RECONCILIATION STATEMENT | FREE AFM SHORT NOTES 2024 | JAIIB
In this article on FREE AFM SHORT NOTES 2024, we are going to discuss the Bank Reconciliation Statement from the AFM Syllabus of 2024 JAIIB Exams. You will get to read about the BRS, and the causes for the differences in BRS from Module B of the AFM Study Material MAY 2024. So, take a read of the below Free Short Notes of 2024.
OVERVIEW OF BANK RECONCILIATION STATEMENT
A bank statement that is issued by the bank might differ from cashback which is prepared by business because of various reasons. This difference can be filled by preparing a statement which is known as a bank reconciliation statement (BRS).
This BRS is prepared by businesses when the balance in the cash book does not match the balance in the bank statement.
So, whenever there is any difference in the bank statement and cash book, a bank reconciliation statement can be prepared to find out the reasons why.
THE NEED FOR DIFFERENCES
The differences are required to be moved to keep the functioning of accounting smooth. When there is no difference between bank statements and cash books, there is no need to prepare BRS.
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WHY RECONCILIATION IS REQUIRED
Reconciling the bank statements and cash book of an entity provides an explanation for any difference that comes in the two. To prepare a bank account solution statement we will need both a cash book and a passbook.
This way reconciliation presents a verified document to the balancing amount. Additionally, reconciliation helps in wiping out irrelevant errors and providing the clear copy after comparing the two documents.
These two records are never the same because the two documents are never identical. And the difference can be pointed out from the bank reconciliation statement because all the reasons and causes of differences are recorded in BRS which have been corrected.
Preparation of BRS might seem an easy task but it needs proper attention. Once the causes of differences in BRS are rectified the other issues of the business can be handled freely.
CAUSES OF DIFFERENCES IN BANK RECONCILIATION STATEMENT (BRS)
A statement of reconciliation is a Book of Records which provides a list of changes that appear in either of the books. The major differences which might appear can be categorized into two broad terms:
- Error was made by the bank for business.
- Time difference in recording an entry
- ERRORS A BANK OR BUSINESS MAKE
There are times when there is no discrepancy in the entries in both, the bank passbook and the cash book, but there is a discrepancy in posting which causes differences in the balance of the bank statement & the balance of the cash book.
- Errors Committed by Firm: Some of the major issues which result in the differences are the wrong totaling of notes while posting, omission, or accordingly wrong amounts of cheques that have been issued.
- Errors Committed by Bank: There are times when banks also commit addresses in recording transactions relating to cheques.
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- TIME DIFFERENCE IN RECORDING ENTRY
When an entity compares the balance in its bank statement and its cash book, there might be a number of errors that might be due to the time gap. The factors affecting the effect this time gap are described below:
Cheques issued by the banks but not yet presented for payment
Sometimes banks work in advance to give the fastest services. It immediately adds money to the beneficiaries account when it receives a cheque. After that, the bank Looks for the credited amount in the account of the supplier and if the bank does not find the balance amount, it detects the amount from the account of the beneficiary and returns the cheque after charging fault charges.
Cheques paid but not collected
When a business receives a cheque, it posts an entry in its account immediately while a bank might take 3 to 4 days to clear a cheque and enter it in the bank statement.
Direct debits made by Bank
The bank provides the services for a nominal fee and deducts the money from the account of its customers without intimating them. It is only when the bank customer sees its passbook or bank statement it gets to know about such deductions.
For example Charges such as interest on an overdraft, incidental charges, cheque Bounce charges, etc.
Amount directly deposited in the bank
There are cases when a debtor deposits an amount to an entity’s account directly while the entity doesn’t receive any message regarding it. In such a situation there is a difference in the passbook balance and the cash balance.
Interests collected by the bank
Banks also add interest to the customer’s account directly without any prior intimation. And one sees any information regarding this interest only when the bank passbook is received.
Deposits in transit
Company when receive cash and sends the balance to the bank for immediate deposit. And if this cash is still in transit at the month-end, then the bank is not going to record it till the following month. This creates differences in the balances.
Check printing charges
Bank also charges for printing additional checkbooks for its customers and removes the balance from the company’s account with the bank. Until the is the bank statement, there is no way for the customer to know anything about this charge.
Considering the above points, one must re-check the cash balance with the bank balance and should prepare a bank reconciliation statement every month to remain on the safer side. The differences can be easily rectified.
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