Bank reconciliation, in accounting terms, means comparing and aligning a company’s financial records, especially its accounting records, with the information presented in its bank statement.
The goal is to ensure that the two sets of records agree and to identify any discrepancies that need correction.
In simpler terms, bank reconciliation is a method used to make sure that a company’s books accurately reflect its financial transactions and that the information in its accounting system aligns with the data provided by the bank.
The process involves adjusting the company’s records for items such as outstanding checks, deposits in transit, bank fees, and errors.
The ultimate objective is to reconcile, or bring into agreement, the ending balances of the company’s cash book balance and the bank’s cash balance.
Bank reconciliation is a critical aspect of internal controls within a business.
It helps in detecting errors, uncovering potential fraud, ensuring accurate financial reporting, and providing a clear picture of the actual cash position of the company.
It’s typically performed regularly, often monthly, to promptly identify and rectify any discrepancies.
Example of Bank Reconciliation in Accounting
The adjusted balance is the actual available bank balance of a company in the reconciled period.