Difference between Bank Statement and Bank Reconciliation Statement

A Bank Statement and a Bank Reconciliation Statement are often considered as same. But there are differences between them. A Bank Pass Book is the true copy of the account of the customer in the books of the bank, whereas a Bank Reconciliation Statement is a statement prepared mainly to reconcile the differences between the ‘Bank Balance’ shown by the Cash Book and Bank Pass Book. 

 A copy of the account, of the account holder in the books of the bank, is known as Bank Statement or Bank Pass Book. It is issued by the bank to the account holder so that entries in the Bank Reconciliation Statement or Bank Pass Book can be compared with the entries in the Cash Book and the difference is determined.

A debit balance in the Bank Statement or Bank Pass Book means an amount payable by the account holder to the bank, whereas a credit balance means an amount payable by the account holder; i.e., an amount receivable by the account holder from the bank.

Preparing a Bank Statement is important because of the following reason:

1. Preparing and reviewing a bank statement ensures that the financial records are accurate.
2. Regularly preparing bank statements helps in early detection of fraudulent activities.
3. Bank statements provide a clear picture of the cash flow, showing all inflows and outflows within a period. This information is crucial for effective cash flow management, allowing businesses to make informed financial decisions.
4. Reviewing bank statements aids in budgeting and financial planning. By analyzing past transactions, businesses can forecast future expenses, allocate resources more effectively, and set realistic financial goals.
5. Maintaining accurate bank statements is essential for compliance with financial regulations and standards.
6. Banks and financial institutions often require detailed financial statements, including bank statements, when evaluating loan applications.

A statement prepared by the account holder on a particular date (any date of the year) to reconcile the Bank Balance as per the Cash Book(record of the account holder) with the balance as per Bank Statement or Bank Pass Book (record of the bank) showing entries that are reasons for the difference between the two balances is known as Bank Reconciliation Statement.

According to Patil, “Bank Reconciliation Statement is a statement prepared mainly to reconcile the difference between the ‘Bank Balance’ shown by the Cash Book and Bank Pass Book.”

Preparing a Bank Reconciliation Statement is important because of the following reason:

1. The errors or omissions that may have been committed either on the part of the customer or the bank can be located and errors so detected can be rectified with the help of a Bank Reconciliation Statement.
2. The customer becomes sure of the correctness of the bank balance shown by the cash book by preparing a Bank Reconciliation Statement, which helps in making further transactions with the bank.
3. A revised Cash Book can be easily made with the help of a Bank Reconciliation Statement.
4. The chances of embezzlement by the staff are reduced as there is periodic preparation of Bank Reconciliation Statement.
5. Unnecessary delay in the collection of cheques by the bank is revealed with the help of Bank Reconciliation Statement.
6. It keeps a track of cheques that have been sent to the bank for collection.

Also Read:

• Bank Reconciliation Statement (BRS) | Full Form of BRS and Need of BRS
• How to Prepare Bank Reconciliation Statement (BRS) ? | Purpose of BRS with Example
• Preparation of BRS without correcting Cash Book
• Bank Reconciliation Statement (BRS) : Without Correcting Cash Book
• Preparation of Bank Reconciliation Statement with Amended Cash Book
• Bank Reconciliation Statement (BRS): When Extracts from Cash Book and Pass Book are given

What is a Bank Statement?

A bank statement is a document issued by a bank that summarizes all the transactions in an account over a specific period. It includes deposits, withdrawals, checks cleared, service charges, and the ending balance.

What information does a Bank Statement contain?

A bank statement typically includes:

• Account holder’s name and address
• Account number
• Statement period dates
• Starting balance
• Detailed list of deposits and withdrawals
• Ending balance
• Bank fees and interest earned

What is a Bank Reconciliation Statement?

A bank reconciliation statement is a document that compares the bank statement with the company’s accounting records. It ensures that the balances match and identifies any discrepancies.

Why is Bank Reconciliation important?

Bank reconciliation is important because it helps to:

• Detect errors and fraudulent transactions
• Ensure accurate financial records
• Identify unrecorded transactions
• Maintain proper cash management

How do bank fees and charges affect reconciliation?

Bank fees and charges must be recorded in the company’s books during reconciliation. They usually appear on the bank statement and need to be adjusted in your accounting records to match the bank balance.