Bank reconciliation | Bank Statement
Bank reconciliation is a process of matching the accounting details with the bank statements. Companies record the transaction like checks written, receiving payments, service charges paid in a general ledger of the company. So in the same checking account the bank will also record the transaction done by the company.
Why to do Bank reconciliation:
Most banks send statements to its clients on a monthly basis. So most companies check their ledger with the transactions recorded in the bank statement. Loss of checks can be found out easily by checking the statement or even the amount can be added to the ledger. Errors committed in cash received, are rectified while doing bank reconciliation. This process ensures that none of the transaction is missed out in the banks statements and vice versa.
For sure this is a tedious and a time consuming process to manually check each and every entry. Especially the bank service charges deduction may be only on the bank statement, it cannot be found in the company ledger. Most important is the interest charges credited by the bank will be in the bank statement, but not in companies' ledger.
Apart from checking the amounts, even the timing at which the transaction was done is important. Say if a check was deposited at the end of the month the transactions will be in the ledger, but not in the current month's bank statement. Bank reconciliation can avoid from check bounces, undue credit reduction from a bank.
Bank reconciliation has more advantages than disadvantages. All companies no matter big or small do bank reconciliation to set right the accounts on a monthly basis. Instead of breaking the head while preparing final statements, bank reconciliation would be the best alternative.
Nowadays with online banking the banking reconciliation becomes simpler with advanced bookkeeping software. Most bookkeeping software's are designed to integrate with the online bank statements.