Bank reconciliation

Definition

Bank reconciliation is the process of comparing a company's internal financial records with their bank statement to ensure consistency and accuracy. It helps identify discrepancies such as errors, omissions, or unauthorized transactions.

5 Must Know Facts For Your Next Test

1. Bank reconciliations are typically performed monthly.
2. Common reconciling items include outstanding checks and deposits in transit.
3. Errors can occur on either the bank's side or the company's side.
4. Adjustments made during reconciliation must be recorded in the company's general ledger.
5. The bank statement balance and the company's book balance rarely match initially due to timing differences.

Review Questions

• What is a common reason for discrepancies between a company's books and its bank statement?
• Why is it important to perform a bank reconciliation regularly?
• How are adjustments identified during reconciliation recorded in accounting records?

Related terms

Outstanding Checks:

Checks that have been written but not yet cleared by the bank.

Deposits in Transit:

Deposits that have been recorded in the company's books but not yet reflected on the bank statement.

General Ledger:

A comprehensive record of a company’s financial transactions.