Bank Reconciliation Statement (BRS): How to Prepare It Step by Step

Open your accounting records and your bank statement side by side, and the two balances almost never match. That is not a mistake — it is normal, and every accountant expects it. The tool that explains the gap is the bank reconciliation statement (BRS): a short working that ties the balance in your cash book to the balance the bank shows, item by item, until both agree. This guide breaks down why the two records drift apart, walks you through preparing a BRS step by step, and works a full example with figures so you can reconcile your own account with confidence.

What Is a Bank Reconciliation Statement?

A bank reconciliation statement is a working that explains the difference between the bank balance shown in your own cash book and the balance shown by the bank in your passbook or bank statement, on a specific date. It is not part of the double-entry ledger. It is a checking device — a bridge that starts from one balance, applies each item the other record has not yet captured, and lands on the second balance.

Think of it as two people keeping score of the same match from different seats. You record a payment the moment you write the cheque. The bank records it only when the cheque is presented and cleared. Neither of you is wrong; you are simply capturing the same events at different times.

Who actually does this? A small-business owner reconciles to know how much cash is really available before paying a supplier. An accounts assistant reconciles so the trial balance ties out at month-end. And a student sitting an accountancy exam prepares one because it is a high-frequency exam question — the format is fixed and the logic rewards practice. Whatever seat you are in, the discipline is the same: never trust a single balance until it has been reconciled against an independent record.

Preparing a BRS matters for three practical reasons. It catches errors and fraud early — a payment you never authorised shows up as an unexplained item. It confirms the true cash position before you make decisions. And it is a core skill examined in every serious accountancy syllabus, from the ICAI curriculum to the ACCA Financial Accounting (FA) paper, where bank reconciliations appear as a standard question type.

If you are still shaky on how the cash book itself is built, it helps to revisit double-entry bookkeeping basics first — the cash book is where your side of every bank transaction is recorded. If you want this foundation built properly rather than pieced together from scattered videos, a structured ACCA Knowledge Level course walks you through reconciliations and the wider financial-accounting toolkit in the right order.

Why Your Cash Book and Passbook Never Match

Before you can reconcile, you have to know what you are looking for. The differences between the two balances fall into three buckets. Learn these and a BRS stops being guesswork.

1. Timing differences

These are the most common cause and the easiest to misjudge. A transaction is recorded by you and the bank, but on different dates. Two classic cases:

• Cheques issued but not yet presented: you write a cheque to a supplier and credit your cash book today. The supplier banks it days later, so the bank has not yet debited your account. Your cash book balance is lower than the bank's.
• Cheques deposited but not yet cleared: you pay a cheque in and debit your cash book at once. The bank credits you only after clearing. Your cash book balance is higher than the bank's.

The visual below shows why a single cheque can leave the two records out of step for days.

2. Bank-initiated entries you have not recorded

The bank posts entries to your account that you learn about only when the statement arrives. Until you record them, your cash book is behind. Common items include bank charges, interest credited, standing instructions and direct debits (say, an auto-debited insurance premium), direct credits from customers by NEFT, UPI or IMPS, and dishonoured cheques the bank has reversed.

3. Errors and omissions

Either side can slip. You might record a figure twice, transpose digits, or miss an entry entirely; the bank can occasionally post an item to the wrong account. A reconciliation is often how such errors are first caught. Note that with UPI and NEFT settlement now near-instant in India, the old multi-day cheque float is shorter — but standing instructions, charges and direct credits still hit the statement before you record them, so reconciliation remains essential.

One nuance trips up even careful learners: the favourable balance versus overdraft distinction. Everything above assumes a favourable (positive) balance. When the account is overdrawn — the business owes the bank — several items move in the opposite direction, because you are now reconciling two negative figures. Before you write a single line, note whether your starting balance is favourable or an overdraft, and the signs will fall into place.

How to Prepare a BRS: The Step-by-Step Method

With the causes clear, preparation becomes a routine. Here is the method taught in most syllabi, in five steps.

1. Pick a starting balance. Choose one balance to start from — usually the closing balance as per your cash book on the reconciliation date.
2. Tick off matching items. Compare the cash book and the bank statement line by line. Tick every transaction that appears in both. Whatever is left unticked on either side is a reconciling item.
3. List the unticked items. Sort them into the three buckets above — timing differences, bank-initiated entries, and errors.
4. Apply each item with the correct sign. Add items that make the bank balance higher than your cash book, and subtract items that make it lower. (The worked example below shows exactly which way each item moves.)
5. Arrive at the other balance. After all adjustments, your figure should equal the balance as per the passbook. If it does, you have reconciled. If not, an item is missing or has the wrong sign.

The hardest part for most learners is step four — knowing whether an item is added or subtracted. The trick is to always ask one question: does this item make the bank's balance higher or lower than my cash book? If higher, add it; if lower, subtract it.

A Worked BRS Example (With Figures)

Suppose ABC Traders is reconciling its account on 31 March. The balance as per the cash book is ₹85,000 (a favourable, debit balance). On comparing records, the following reconciling items come up. This is an illustrative example; the figures are chosen to show the method, not drawn from any real account.

Notice how each item was signed. The cheques ABC issued but that suppliers have not yet banked (₹22,000) sit in the cash book but not at the bank, so the bank balance is higher — add. The interest and the direct NEFT credit reached the bank first, so again the bank is ahead — add. The uncleared deposit, the charges and the standing-instruction premium have hit the bank but not the cash book, pulling the bank balance below — subtract. Every decision comes back to the same test: is the bank higher or lower than my books?

Adding the plus items (₹22,000 + ₹1,200 + ₹9,300) to the opening ₹85,000 and subtracting the minus items (₹15,000 + ₹500 + ₹3,000) lands you on a passbook balance of ₹99,000. Grouped into totals, the bridge looks like this.

Two Ways to Reconcile — and the Mistakes to Avoid

There are two accepted approaches, and knowing when to use each saves confusion in an exam and at work.

Whichever method you use, the same handful of mistakes trip people up:

• Wrong sign. Adding an item that should be subtracted is the single most common error. Always test with the "higher or lower?" question.
• Forgetting the favourable-versus-overdraft flip. When the account is overdrawn, the direction of several items reverses. Note whether you are starting from a favourable or overdraft balance before you begin.
• Recording bank charges twice. Under the adjusted cash book method you post charges in the books, so they must not appear again as reconciling items.
• Reconciling to the wrong date. The cash book and statement must be as at the same date, or the timing items will never clear.

Because a reconciliation touches the cash book, it also relies on understanding how transactions are recognised in the first place — our guide to accrual versus cash accounting is a useful companion here.

What to Do Next

A bank reconciliation statement is one of those skills that feels fiddly until it clicks — and then it becomes a two-minute monthly habit that protects your cash and flags problems early. Master the three causes of difference, drill the five-step method on a handful of practice questions, and the "add or subtract?" decision stops being a guess.

If you are studying towards ACCA or building a career in accounting, reconciliations are just the entry point to a much larger financial-accounting toolkit. Structured teaching — the kind NIFM has delivered for 14 years to over 50,000 learners — sequences these topics so each one builds on the last, instead of leaving you to stitch them together from random tutorials.

Frequently Asked Questions

What is a bank reconciliation statement in simple words?

It is a short working that explains why the bank balance in your own cash book differs from the balance the bank shows on your statement. You start from one balance, adjust for items the other record has not yet captured — such as uncleared cheques, bank charges or interest — and arrive at the second balance.

What are the main causes of difference in a BRS?

Three groups: timing differences (cheques issued but not presented, or deposited but not cleared); bank-initiated entries you have not recorded yet (charges, interest, standing instructions, direct NEFT or UPI credits); and errors or omissions in either the cash book or the bank statement.

Should I add or subtract bank charges when starting from the cash book balance?

Subtract them. Bank charges reduce the balance at the bank but are not yet in your cash book, so the bank's balance is lower than yours. When you start from the cash book balance to reach the passbook balance, you deduct any charges the bank has debited.

What is the difference between the statement method and the adjusted cash book method?

The statement method simply bridges one balance to the other and lists every difference as a reconciling item. The adjusted cash book method first corrects the cash book for items like charges and interest, then reconciles only the remaining timing differences. The adjusted method leaves your ledger accurate, so it suits month-end close.

Is bank reconciliation part of the ACCA syllabus?

Yes. Bank reconciliations are a standard topic in the ACCA Financial Accounting (FA/F3) paper, usually tested alongside control accounts and correction of errors. They are examined in the ICAI foundation curriculum too, which is why they appear early in most structured accounting courses.

How often should a business prepare a bank reconciliation?

Monthly is the common minimum, done when the bank statement arrives. Businesses with heavy transaction volumes — retail, e-commerce, anyone taking large numbers of UPI payments — often reconcile weekly or even daily, because the sooner a mismatch is spotted, the easier it is to trace. The rule of thumb: reconcile as often as you rely on the balance to make decisions.