A bank reconciliation statement is a summary of banking and business activity that reconciles an entity’s bank account with its financial records. The statement outlines the deposits, withdrawals, and other activities affecting a bank account for a specific period. A bank reconciliation statement is a useful financial internal control tool used to thwart fraud. Bank reconciliation statement is a report or statement prepared by the business to match the bank transactions recorded in the books of accounts with the bank statement. The bank reconciliation statement helps to check the correctness of the entries recorded in the books of accounts and thereby, ensures the accuracy of bank balances.
Characteristics of Bank Reconciliation:
- It is merely a statement and not an account
- It does not form a part of double entry system of book-keeping
- It is prepared on a stated day.
- It is periodical statement.
- It is prepared to attest the accuracy and completeness of cash book records.
- It is prepared to make sure that the bank statements agree with the business ledgers.
- It gives the details of the transactions.
Purpose of Bank Reconciliation:
A bank reconciliation is there to compare your records to those of your banks. It checks if there are any two different sets of records for you and the bank in cash transactions. The ending balance of your version will be called the ‘book balance’. The bank’s version for the same is called ‘bank balance’.
Importance of Bank Reconciliation Statements:
- A bank reconciliation statement shows errors made in both the books by customers or banks and helps to rectify it
- It helps in making future transactions secure with the bank if the customer is sure about the correctness of the balance in the cash book
- It helps in preparing the revised cash book as entries like bank charges, interest allowed or charged by the bank, etc. are recorded in the passbook and will be recorded in the cashbook in the future
- Any fraud made by the bank or any other party can be disclosed through it. For Example: If any staff shows any type of deposit in the bank but is not deposited, then it can be disclosed easily with the help of this statement
- It helps in keeping track of cheques sent to the bank for collection and reveals the delay in the collection of cheques by the bank