An avid follower of all insurtech startups and a critical thinker, he has also contributed several papers in organization wide technical paper contests.
- Bank Reconciliation - November 29, 2022
- London Bridge Risk:A Protected Cell Company - January 2, 2022
- Side Pockets in (Re) Insurance investments - July 20, 2021
What:
A process by which the corporate group reconciles the cash balance in its books against the balance as per the bank to have the exact position of cash balance. Bank Reconciliation is a crucial accounting activity for companies done every month and/or quarter.
Why:
There are many instances that impact the correct representation of cash balance holding by a company. Since cash is the prime asset component in the financial statements of any company, it is important to have accurate cash numbers as this is relied on by several users of financial statements e.g. banks, creditors, and investors.
Examples:
Some examples of why cash as per a company’s books of accounts could be different from cash as per bank are:
- Deposits in transit
- Outstanding checks
- Bank errors
- Unrecorded Bank charges
- Unrecorded Non-sufficient funds checks
How:
Usually, the bank sends a monthly statement in which the bank lists the transactions over the past month. When the bank depositor at a company receives this statement, they review the entries shown and reconcile with the balance at the month’s end as per the books of accounts. If there are differences, which could arise because of the examples stated above, the adjusting journal entries are passed and the correct balance is arrived at.
Format
Note- The balances as per book and balance as per bank are both reconciled to the correct cash balance.
References:
- What is Bank Reconciliation (BRS)?How to prepare it? (tallysolutions.com)
- Bank Reconciliation – Definition & Example of Bank Reconciliation (corporatefinanceinstitute.com)
