Bank Reconciliation
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Bank reconciliation is the process of comparing a company's internal accounting records with its bank statement to ensure that both sets of records are consistent and accurate. It is typically performed at the end of each month and helps identify discrepancies such as missing transactions, bank errors, or unauthorized charges.
In depth
Discrepancies between a company's books and its bank statement are common and don't always indicate an error — timing differences like outstanding checks (issued but not yet cleared) or deposits in transit (recorded internally but not yet processed by the bank) are routine. The reconciliation process accounts for these timing differences and flags anything that can't be explained, such as duplicate entries, bank fees not recorded in the books, or fraudulent transactions.
Regular bank reconciliation is one of the most important internal controls a business can maintain. It not only ensures the accuracy of financial records but also acts as an early detection system for fraud, embezzlement, or processing errors. Businesses that skip or delay reconciliation often find themselves dealing with compounding discrepancies that are far more time-consuming and costly to untangle later.