A bank reconciliation is used to compare your records to those of your bank, to see if there are any differences between these two sets of records for your cash transactions. The ending balance of your version of the cash records is known as the book balance, while the bank's version is called the bank balance.

Only two elements of BRS ie cleartifying the mistake between cashbook and passbook

The Bank Reconciliation Statement:

The Bank Reconciliation Statement is a statement prepared by a company or an individual to reconcile the balances of the cash book and the bank statement (also known as the passbook). It helps identify the reasons for the differences between the two balances.

Reasons for the Difference:

There can be various reasons for the difference between the balances as per the cash column of the Cash Book and the Pass Book. However, the Bank Reconciliation Statement is specifically prepared to identify the causes for the difference between the balances as per the bank column of the Cash Book and the Pass Book.

Explanation:

The balance as per the bank column of the Cash Book represents the balance of cash or bank account as per the company's records. This balance is based on the transactions recorded in the cash book, including deposits, withdrawals, and other bank-related transactions.

On the other hand, the balance as per the Pass Book represents the balance of the same cash or bank account as per the bank's records. This balance is based on the bank statement provided by the bank, which includes all the transactions processed by the bank on behalf of the company.

Causes for the Difference:

The difference between the balance as per the bank column of the Cash Book and the Pass Book can occur due to various reasons, such as:

1. Outstanding checks or payments: These are the checks issued by the company but not yet presented or cleared by the bank. As a result, the Cash Book balance will be higher than the Pass Book balance.

2. Deposits in transit: These are the cash or checks deposited by the company but not yet credited by the bank. Therefore, the Cash Book balance will be lower than the Pass Book balance.

3. Bank charges or fees: These are the charges levied by the bank for various services like check printing charges, account maintenance fees, etc. If these charges are not recorded in the Cash Book, the Cash Book balance will be higher than the Pass Book balance.

4. Bank interest or income: If the bank has credited any interest or income to the company's account, and it is not recorded in the Cash Book, the Cash Book balance will be lower than the Pass Book balance.

5. Errors or omissions: Any errors or omissions in recording the transactions in the Cash Book or the Pass Book can also result in a difference between the two balances.

Conclusion:

In conclusion, the Bank Reconciliation Statement is prepared specifically to identify the causes for the difference between the balance as per the bank column of the Cash Book and the Pass Book. It helps in reconciling the two balances and ensures the accuracy of the company's financial records. By identifying the reasons for the difference, necessary adjustments can be made in the company's records to reconcile the balances and maintain accuracy in financial reporting.