Bank reconciliation is a process that explains the difference between the bank balance shown in an Organization’s bank statement, as supplied by the bank, and the corresponding amount shown in the Organization’s own accounting records at a particular point in time. Such differences may occur, for example, because a cheque or a list of cheques issued by the organization has not been presented to the bank, a banking transaction, such as a credit received, or a charge made by the bank, has not yet been recorded in the Organization’s books, or either the bank or the organization itself has made an error. It may be easy to reconcile the difference by looking at very recent transactions in either the bank statement or the Organization’s own accounting records and seeing if some combination of them tallies with the difference to be explained. Otherwise it may be necessary to go through and match every single transaction in both sets of records since the last reconciliation, and see what transactions remain unmatched. The necessary adjustments should then be made in the cash book, or any timing differences recorded to assist with future reconciliations.
Bank reconciliation is a critical tool for managing your cash balance. Reconciling as a process of comparing the cash activity in your accounting records to the transactions in your bank statement is critical in proper cash management. This process helps you monitor all of the cash inflows and outflows in your bank account. The reconciliation process also helps you identify fraud and other unauthorized cash transactions. As a result, it is critical for you to reconcile your bank account within a few days of receiving your bank statement.
Sometime past, bank statement do arrive at the end of the month, but the availability of banking platforms provide access to bank statement on daily basis. Bank reconciliations should therefore be completed to match the record of revenues and payments to those on the statement. Identify cheques that have not yet cleared and deposits that have not yet shown up on the statement. Bank reconciliations should be reviewed by a second party to maintain effective internal control.