Bank Reconciliation
IntermediateA bank reconciliation is the process of comparing a company's cash records with its bank statement and explaining any differences, so that both show the true cash balance.
The cash balance in a company's books and the balance on its bank statement often differ at any given date. Some differences arise from timing, and some from errors or items the company has not yet recorded.
Common reasons include cheques the company has issued but the bank has not yet paid; deposits recorded by the company but not yet processed by the bank; bank fees or interest not yet entered in the company's records; and errors on either side.
For example, a bank statement shows 5,200. An outstanding cheque of 700 has not yet cleared, and a deposit of 300 is in transit. The adjusted bank balance is 4,800. The company's records show 4,830, but it has not yet recorded a bank fee of 30. After adjustment, its book balance is also 4,800, and the two agree.
Once the reconciliation is complete, the company records any items it had missed, such as the bank fee.
Bank reconciliations are usually done monthly. They are an important control against errors and fraud, and they help businesses keep an accurate view of how much cash they really have.
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