A bank reconciliation is used to compare your records to those of your bank, to see if there are any differences between these two sets of records for your cash transactions. The ending balance of your version of the cash records is known as the book balance, while the bank's version is called the bank balance.
Full Answer
The purpose behind preparing the bank reconciliation statement is to reconcile the difference between the balance as per the cash book and the balance as per the passbook. Now, the differences between the cash book and passbook balance occur primarily due to the following reasons:
This is of particular importance if a company is operating with minimal cash reserves, and needs to ensure that its recorded cash balance is correct. A daily reconciliation may also be necessary if you suspect that someone is fraudulently withdrawing cash from the bank account.
In case you have recorded a deposit in your records which the bank has not yet received during a particular month, mark this deposit as an item to be reconciled. That is, such an item should be added back to the bank’s closing cash balance for your account.
Therefore, the bank reconciliation process should be carried out at regular intervals for all of your bank accounts. This is because reconciling the cash book with the passbook at regular intervals ensures that your business’s cash records are correct.
It is also useful to complete a bank reconciliation to see if any customer checks have bounced, or if any checks you issued were altered or even stolen and cashed without your knowledge. Thus, fraud detection is a key reason for completing a bank reconciliation. When there is an ongoing search for fraudulent transactions, ...
A bank reconciliation is used to compare your records to those of your bank, to see if there are any differences between these two sets of records for your cash transactions.
A daily reconciliation may also be necessary if you suspect that someone is fraudulently withdrawing cash from the bank account.
The ending balance of your version of the cash records is known as the book balance, while the bank's version is called the bank balance. It is extremely common for there to be differences between the two balances, which you should track down and adjust in your own records.