Bank Reconciliation is very important for organisations. It gives an up-to-date picture of the Bank balances and whether that tallies with your books of accounts.
Bank Reconciliation: We need to update organisation’s Bank Passbooks’ from time to time. At times there may be less transactions or no transactions and we tend to feel that there is no need to prepare the Bank Reconciliation Statement. Whether you have transactions or not, you should do prepare the BRS every month. If the organisation is big and the number of transactions are very high, then it will be a good practice to update the passbook and reconcile weekly or fortnightly. This will help you to prepare the monthly Bank Reconciliation Statement in a lesser time..
Why do we need to do the Bank Reconciliation?
- The bank may post a wrong entry and your account may be debited/credited. In case your account is debited by a wrong entry by bank, when you next issue a cheque, the bank may reject your cheque if there is no sufficient balance.
- If you send a cheque for drawing cash, you will immediately know if there is no balance and you can immediately check your transactions to see if there are any wrong entries or entries not posted.
- When you issue a cheque to a third party, you may notice, unless the third party writes to you to say that the cheque is bounced. As you all know if a cheque bounces there are penalty clauses.
- At times some persons or organizations may transfer funds electronically to your account and these will get credited to your account. Unless you receive instructions from the concerned party you may not know about the transfer unless you update your bank account and now a days, Bank sends SMSs whenever there is a transaction takes place in your account.
- The bank may deduct some amount towards bank charges for cheque clearance, bouncing of cheques etc.
- From time to time the bank may credit your account with ‘interest’
- You may have issued cheque/s but for some reasons the entry may have missed in your books. Your balance will show higher than the bank.
- You may have received some cheques/drafts and have entered in your books but may have forgotten to deposit the same in the bank.
- You may have issued cheques and the party concerned may not have sent the same for clearance. Your passbook will show higher balance than your books.
- Also at times by mistake the money that you are likely to get into your account from donors or others, may get deposited in other accounts if the Bank account No is not properly put by the sender or if you have not given the proper bank account number to them.
- These are some of the immediate reasons why we need to reconcile .
Every month you should do the Bank Reconciliation and prepare a statement and attach the Bank statement for that month. The statement thus prepared needs to be signed by the Accountant and also the Chief Functionary of the Organisation or any other person authorised by the Chief Functionary. This needs to be filed.