A bank reconciliation is when the bank balance of a company, according to its own accounting records, is compared with the bank’s balance statement for the company.
This is done to identify if there are differences between the two sets of information, so that any discrepancies can be rectified.
The income and expenses of your company will be recorded in detail in your company’s accounting books, and the bank will also have recorded this information. Although it is possible both parties’ information is slightly off from the true balance, it is very useful to compare the two together.
Not only can bank reconciliation help to identify accounting errors, reassuring both the bank and the company that the finances are correct and up-to-date, it helps to make sure the cash flow is under control.
When should a bank reconciliation take place?
Because a bank reconciliation will look to spot errors in the records of transactions, which consequently leads to the parties re-examining their accounting history to fix the error, it is highly beneficial to carry out a bank reconciliation at regular intervals. This will minimise the amount of time which needs to be spent checking over the accounts again, speeding up the correction process, if it is required.
It is recommended to reconcile your accounts every month, upon the arrival of the monthly bank statement.
