BANK RECONCILIATION STATEMENT (BRS) LESSON NOTE
Lesson Objectives:
By the end of this lesson, students should be able to:
1. Define a Bank Reconciliation Statement (BRS).
2. Identify different bank documents used in reconciliation.
3. Explain key terminologies related to bank reconciliation.
4. Understand the importance of bank reconciliation in financial management.
5. Prepare a Bank Reconciliation Statement.
MEANING/DEFINITION OF BANK RECONCILIATION STATEMENT
A Bank Reconciliation Statement (BRS) is a financial document that compares the bank
statement (issued by the bank) with the cash book records (maintained by a business or
individual). It helps to identify and explain differences between the two records, ensuring
accuracy and preventing fraud.
Key Reasons for Preparing a Bank Reconciliation Statement:
• To detect errors in the cash book or bank statement.
• To identify unrecorded transactions such as bank charges, direct debits, or
interest earned.
• To track unpresented and uncredited cheques.
• To ensure proper cash management and prevent fraud.
BANK DOCUMENTS USED IN RECONCILIATION
The teacher will explain the following bank documents and their relevance to
reconciliation:
1. Bank Statement
• A record of transactions in an account over a specific period, issued by the bank.
• It includes deposits, withdrawals, bank charges, interest earned, and cheque
payments.
• Used to compare with the cash book for discrepancies.
2. Cheque
• A written instruction to a bank to pay a specific amount from the account holder’s
funds.
• Can be issued to individuals, suppliers, or creditors.
• Essential for reconciling unpresented cheques and dishonoured cheques.
3. Deposit Slip
• A document used to deposit money (cash or cheques) into a bank account.
• Helps track uncredited cheques that have been lodged but not yet processed.
4. Pay-in Slip
• A form completed when paying money into a bank account.
• Helps in verifying deposits recorded in the bank statement.
5. Withdrawal Slip
• A form used to withdraw money from a bank account.
• Can be used to verify transactions in the cash book.
6. Standing Order
• An instruction to the bank to make fixed payments at regular intervals.
• Must be recorded in the cash book to prevent reconciliation issues.
7. Direct Debit Mandate
• A bank instruction allowing an entity to collect varying amounts from a customer’s
account.
• Examples: Utility bill payments, subscription services.
KEY TERMINOLOGIES IN BANK RECONCILIATION STATEMENT
1. Dishonoured Cheque
• A cheque returned unpaid by the bank due to insufficient funds, incorrect
signature, post-dating, or account closure.
• Must be removed from the cash book when reconciling.
2. Uncredited Cheque
• A cheque deposited by the business but not yet processed and credited by the
bank.
• Causes a difference between the cash book and bank statement.
3. Unpresented Cheque
• A cheque issued by a business to a supplier or creditor but not yet cashed or
presented to the bank.
• Until presented, the amount remains in the business's bank account.
4. Bank Charges and Commission
• Fees deducted by the bank for account maintenance, transactions, or overdrafts.
• May not be recorded in the cash book initially, leading to reconciliation
adjustments.
5. Bank Interest
• Interest earned on deposits or charged on overdrafts.
• Must be recorded in the cash book to match the bank statement.
STEPS IN PREPARING A BANK RECONCILIATION STATEMENT
Step 1: Compare the Cash Book and Bank Statement
• Check for differences between the cash book balance and the bank statement
balance.
Step 2: Identify Transactions Not Yet Recorded in the Cash Book
• Examples: Bank charges, direct debits, dishonoured cheques, bank interest.
Step 3: Identify Transactions Not Yet Recorded in the Bank Statement
• Examples: Unpresented cheques, uncredited cheques, bank lodgments in transit.
Step 4: Make Adjustments
• Update the cash book for transactions such as bank charges, interest, and
dishonoured cheques.
Step 5: Prepare the Reconciliation Statement
• Start with the cash book balance or bank statement balance.
• Add or subtract outstanding items to arrive at the correct balance.
FORMAT OF A BANK RECONCILIATION STATEMENT
Particulars Amount (₦) Amount (₦)
Balance as per Cash Book XXXX
Add: Uncredited Cheques XXXX
Add: Bank Interest Earned XXXX
Less: Unpresented Cheques XXXX
Less: Bank Charges XXXX
Less: Dishonoured Cheques XXXX
Balance as per Bank Statement XXXX
RESOURCES AND TEACHING MATERIALS
1. Bank Documents (e.g., sample bank statements, cheques, deposit slips).
2. Charts (Illustrating the bank reconciliation process).
3. Textbooks on Financial Accounting (For reference and additional exercises).
CONCLUSION
A Bank Reconciliation Statement is essential for ensuring accuracy in financial records. It
helps businesses detect errors, track transactions, and maintain proper control over bank
balances. Regular reconciliation prevents fraud and ensures transparency in financial
management.
