Mastering the Art of Business Bank Reconciliation

What Is Bank Reconciliation in Accounting?

Bank reconciliation involves the process of aligning a business's internal cash balance with the bank statement's closing balance. This is typically done monthly to ensure all deposits, withdrawals, and fees are accounted for. While discrepancies are common, it is crucial for businesses to address and adjust their general ledger accordingly. Performing regular reconciliations allows businesses to identify missing funds, prevent fraud, and confirm cash flow on their balance sheet.

Key Points to Know About Bank Reconciliation

Bank reconciliation is the process of balancing a business's bank statements with internal records. It is a monthly process done after receiving bank statements. Common causes of discrepancies include outstanding checks, deposits in transit, interest income, and bank fees. While accounting software can assist in the reconciliation process, business owners should still conduct their own monthly reconciliation.

Understanding the Importance of Bank Reconciliation

Bank reconciliation is a crucial internal control tool to ensure accurate accounting of a business's assets each month. By reconciling, businesses can verify payments processed and cash collections deposited. Discrepancies may stem from outstanding checks, deposits in transit, interest income, bank fees, and electronic charges. Regular reconciliations can help identify unusual transactions due to fraud or accounting errors.