Bank Reconciliation
The process of comparing internal accounting records with bank statements to identify and resolve discrepancies, ensuring accurate cash reporting and control.
Bank Reconciliation
The process of comparing an organization’s internal cash records with its bank statement to identify and resolve discrepancies, ensuring accurate financial reporting and effective cash management.
For example, a company shows a general ledger cash balance of $24,850, while the bank statement shows $27,200. The reconciliation identifies differences including outstanding checks ($4,500), deposits in transit ($2,500), bank service charges not yet recorded ($150), and interest earned ($100), explaining the $2,350 variance and enabling appropriate adjusting entries.
Bank reconciliations serve important control functions: detecting errors in either the bank’s or the company’s records, identifying unauthorized or fraudulent transactions, ensuring all transactions are properly recorded, and verifying the accuracy of the reported cash balance. The process typically involves comparing deposits and withdrawals, adjusting the book balance for items appearing only on the bank statement (like service charges or interest), adjusting the bank balance for items not yet reflected by the bank (like outstanding checks), and investigating any remaining discrepancies. Regular reconciliations, typically monthly, provide timely detection of issues and support accurate financial reporting.