Bank Reconciliation

Definition

A bank reconciliation is a document that matches a company’s cash balance on its balance sheet to the equivalent amount on its bank statement. Bank reconciliation is done at intervals to ensure transparency and accuracy in a company’s cash records. Also, reconciling the balance sheet and bank statement would help identify possible account changes that are needed (if any), and spot fraudulent cash manipulations.

Understanding Bank Reconciliation

The purpose of a bank reconciliation is to determine the differences between a company’s balance sheet (accounting records) and bank statements and to appropriately record changes to the accounting records. It always happens that when a bank issues companies bank reconciliation statements the cash balance is likely not to be the same. Reason being that;

• Deposit in transit: All company received and recorded cash and checks may be yet to be recorded on the bank statement.

• Outstanding check: Unprocessed checks that were issued by the companies to creditors.

• Service fees: Deducted bank charges

Another reason could be the issuance of ‘not sufficient funds (NSF) checks by companies to creditors.  

It is expected that bank procedures are done at regular intervals for all company bank accounts to ensure that companies' cash records are accurate. Failure to regularly do so would lead to lower than expected cash balances which may result in overdraft fees or bounced checks. It is safer to issue bank reconciliation statements at the end of every month, at the minimum.