Purpose and Use of Bank Reconciliation Statement

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Purpose of Bank Reconciliation Statement (BRS):

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

The reconciliation statement will include the balance on the bank statement, the balance on the cash book, the value of cheques issued but not yet presented at the bank (un-presented cheques) and the value of deposits which have not yet been processed/cleared by the bank (un-credited lodgements).

Uses of BRS:

(1) The bank reconciliation statement constitutes a comparison between the cash book and the independent bank statement, allowing for items in transit (including six months old out-of-date cheques).

(2) Non agreement of the two adjusted balances indicates an error which can be corrected or advised to the bank, if the bank statement is wrong.

(3) Agreement of the two adjusted balances provides completeness of the cash book.

(4) When cash book is updated and corrected, the organization has an amended and correct figure for the bank balance to be shown in the trial balance and balance sheet.

(5) The bank statement is an independent accounting record; therefore it will assist in deterring fraud by providing a means of verifying the cash book balance.

(6) A trial balance difference may have indicated an error somewhere in the accounting system, the same amount showing up, as a bank reconciliation difference, indicates that any search for an error can be restricted to the bank accounting system.