by admin

Bank Reconciliation and Its Importance

Bank Reconciliation is a common accounting practice that business use to verify the accuracy of their records of financial transactions, such as payable disbursements, receivable collections of payments and bank deposits.

In simple terms, It is a process where we compare the company’s accounting transactions with bank statement to identify and correct any discrepancies.

It is normal that company’s bank balance as per books of accounts differ from the balance as per bank statement for various reasons.

The purpose of preparing the Bank Reconciliation Statement is to detect any discrepancies between the accounting records of the entity and the bank besides those due to normal timing differences. Such discrepancies might exist due to an error on the part of the company or the bank.

Importance of Bank Reconciliation

• Preparation of bank reconciliation helps in the identification of errors in the accounting records of the company or the bank.
• If the bank balance as per books of accounts can be confirmed to be correct by comparing it with bank statement balance, it provides added comfort that the bank transactions have been recorded correctly in the company records.
• Regular preparation of bank reconciliation helps in regular monitoring of cash flows of business.
• Bank to make errors, but typically the data from the bank statement is correct. There’s less of chance of error. However, the amount entered from the books may have been entered manually. It’s so common transpose numbers and that can cause an unbalance.
• A monthly bank reconciliation should include all transactions for the whole month.