Bank reconciliation is one of the most important controls in any accounting system — and one of the most avoided. This step-by-step guide uses Sunrise Retail's SBI account data to show you exactly how BRS works.
What is Bank Reconciliation?
Bank Reconciliation (BRS) is the process of matching the balance in your accounting books with the balance in your bank statement. These two figures are almost never the same on any given date — and the goal is to explain every difference.
This isn't a formality. BRS catches errors before they compound, detects fraud within 30 days, and is required for any meaningful audit or tax assessment.
Why BRS Matters
Catches errors early: A wrong entry in Tally discovered in January is a 10-minute fix. The same error found in March during ITR filing means revised returns and potential tax implications. Detects fraud: Employee embezzlement most commonly involves fictitious supplier payments, customer cheques redirected to personal accounts, or repeated small cash withdrawals. Monthly BRS exposes all of these within 30 days. Gives accurate cash position: BRS reconciles timing differences (outstanding cheques, uncleared deposits) so you know your real available cash — not just what Tally shows.Causes of Differences — A Complete List
Timing differences (will auto-resolve):- Cheques issued but not yet presented for payment
- Deposits in transit not yet credited by bank
- ECS/NEFT initiated but not yet processed
- Bank charges deducted by the bank
- Interest received or paid by the bank
- Auto-debit payments (loan EMIs, insurance, SaaS)
- Direct credits (GST refunds, TDS refunds)
- Duplicate entries in Tally
- Wrong amounts posted
- Transactions missed entirely
- Payments in the bank statement not in Tally
- Receipts in Tally that don't appear in the bank
Sunrise Retail — Step-by-Step BRS for April
Tally balance as on 30 April: ₹4,83,200 SBI bank statement closing balance: ₹5,12,600Difference: ₹29,400 — here's why:
Uncleared cheques issued (in Tally, not yet presented):- Cheque #003421 to Supplier A: ₹18,000
- Cheque #003456 to Supplier B: ₹24,000
- Customer NEFT expected: ₹15,000
| ₹ | |
|---|---|
| Balance per Bank Statement | 5,12,600 |
| Add: Deposits in transit | +15,000 |
| Less: Outstanding cheques | −42,000 |
| Adjusted Bank Balance | 4,85,600 |
| Balance per Tally | 4,83,200 |
| Add: Entries to pass (bank charges + EMI) | +3,600 |
| Adjusted Tally Balance | 4,85,600 ✓ |
After passing the journal entries for the ₹3,600 in Tally, both balances agree at ₹4,85,600.
The Step-by-Step Process
Step 1: Gather the bank statement and your Tally bank ledger printout for the same period. Step 2: Match transactions — go through each bank statement line and find the corresponding Tally entry. Tick off matched items on both. Step 3: List all unmatched items on both sides. Step 4: Prepare the reconciliation statement (format above). Step 5: Pass necessary journal entries in Tally for unmatched bank items (charges, auto-debits, interest). Step 6: Sign off — both the preparer and a reviewer/owner should sign. This control prevents the same person from manipulating and reconciling.BRS in Tally Prime
Tally Prime has a built-in BRS module. Go to: Gateway of Tally → Banking → Bank Reconciliation. Select the bank ledger, set the date range, and for each transaction enter the date it appeared on the bank statement. Tally auto-generates the reconciliation balance.
This takes 15–30 minutes per bank account per month once you have the discipline.
Red Flags to Investigate Immediately
- Any cheque outstanding for more than 60 days — contact the payee; may need to cancel and reissue
- Any bank credit you can't identify — trace it before month-end
- Multiple unidentified debits of the same amount — possible unauthorized access
- Book balance consistently higher than bank balance — possible phantom transactions
- Any bank payment not found in Tally at all
How Often to Reconcile
Monthly is the minimum. High-transaction businesses should reconcile weekly. The golden rule: always reconcile before filing any tax return. Run BRS before filing GSTR-3B (by 20th) to ensure GST payments match actual bank outflows.
Conclusion
Bank reconciliation is the most basic accounting control and the most frequently skipped. It takes 20 minutes per month. The cost of not doing it — in undetected errors, fraud, and audit complications — is orders of magnitude higher.
Our bookkeeping service includes monthly BRS review as standard. Ask about our outsourced bookkeeping package when you book a consultation.
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