Accounting glossary
Bank reconciliation
Bank reconciliation statement (BRS)
Bank reconciliation is matching the bank account in your books with the bank's own statement, entry by entry, and explaining every difference, such as cheques not yet cleared, bank charges and receipts you have not recorded. The result is a bank reconciliation statement.
Why it matters to your business
The bank balance is the one figure in your books that an outside record can prove. Reconciling it finds receipts you forgot to enter, payments entered twice, cheques that bounced and charges you did not know about. It also gives your CA and your lender confidence in the rest of your accounts.
How it works
- Take the bank statement for the period and the bank ledger from your books.
- Tick every entry that appears in both, for the same amount.
- In the books, not in the bank: cheques issued and not yet presented, cheques deposited and not yet cleared. These are timing differences and go in the statement.
- In the bank, not in the books: bank charges, interest, direct credits from customers, standing instructions and returned cheques. These need entries in your books.
- After posting the missing entries, the remaining differences should all be timing items, and the two balances should agree.
- Keep the statement with your month-end records. Old unpresented cheques need follow-up.
An example
On 30 September a trader’s books show a bank balance of ₹4,20,000 and the bank statement shows ₹4,58,500. Two cheques issued to vendors for ₹50,000 in all have not been presented, a customer’s cheque for ₹12,000 deposited on the 30th has not cleared, and the bank has charged ₹500 that is not in the books. After the charge is entered, the books show ₹4,19,500. Adding the ₹50,000 and subtracting the ₹12,000 gives ₹4,57,500, so ₹1,000 is still unexplained and must be traced before the month is closed.
Common mistakes
- Reconciling once a year, just before the audit.
- Forcing the balances to agree with one adjusting entry.
- Ignoring small bank charges and interest.
- Not following up cheques that have stayed unpresented for months.
Questions about Bank reconciliation
Why does the balance in my books differ from the bank's?
Usually because of timing. Cheques you issued have not been presented, cheques you deposited have not cleared, or the bank has charged a fee or credited interest that you have not yet recorded.
How often should I reconcile the bank account?
At least every month, and every week if you have many transactions. The longer you leave it, the harder each difference is to trace.
What is a bank reconciliation statement?
A statement that starts with the balance in your books, adds and subtracts the items that explain the difference, and ends with the balance on the bank statement, as on a given date.
Does reconciliation matter if I mostly use UPI?
Yes. With many small UPI credits it is easy to miss a payment or record one twice. Matching the statement confirms that every amount a customer says they paid has reached your account.
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