Back to the dictionary

Bank Reconciliation

Bank reconciliation - Process of matching bank statements with company records

What is Bank Reconciliation?

Bank reconciliation is the process of comparing your internal financial records with the statements from your bank. This is a critical financial activity for businesses of all sizes, ensuring that the cash balances in the company’s accounting ledger agree with the bank’s statements. It helps identify any discrepancies, such as outstanding checks or deposits in transit, and ensures that your financial records are accurate and up-to-date.

The Importance of Bank Reconciliation

Performing regular bank reconciliations helps businesses detect and prevent errors, fraud, or unauthorized transactions. It also provides an accurate snapshot of a company's cash position, which is vital for making informed financial decisions. Additionally, bank reconciliation supports regulatory compliance by maintaining accurate financial records, a requirement for audits and financial reporting.

How to Perform Bank Reconciliation

The process typically involves several steps: 

  1. Compare the deposits: Ensure all cash inflows appearing on your bank statement are recorded in your books. 
  2. Check the expenditures: Verify that all outflows, such as checks written or electronic payments, are accurately recorded and match the bank statement. 
  3. Identify discrepancies: Investigate any differences between your records and the bank statement to find the cause, such as bank fees, direct debits, or recording errors.  
  4. Adjust your records: Update your financial records to reflect the reconciled balance, including any identified discrepancies that are legitimate transactions. 

 

Bank reconciliation should be performed regularly, ideally monthly, to ensure financial accuracy and integrity. It serves as a foundational financial control, safeguarding against errors and ensuring that your business’s financial health is accurately represented.