What is bank reconciliation

Bank reconciliation is the process in which individuals and companies compare their personal records to the bank statements issued to them. It involves a comprehensive overview of all transactions in order to avoid any possible discrepancies and ensure that the amount of funds matches for both the bank records and the individual or company records.

Bank reconciliation explained

Business professionals and large multinational companies tend to perform bank reconciliation on a routinely basis in order to ensure that their individual and company records match those of their issuing bank. This process is important as it avoids any miscommunication and reduces risks such as fraud for both parties involved.

Bank and other financial institutions issue their clients’ a bank statement at the end of every month. After receiving this statement, individuals and companies are advised to cross check transactions made from their system and make sure that the balances are the same. There are likely to be some gaps between the two figures as often checks are issued and not cashed, or if there is an electronic funds transfer that appears on company records but has not been entered into the banks system. These small inconsistencies are likely to be found however this process negates possibilities of fraud and financial crime.

Therefore, individuals and companies are advised to regularly carry out bank reconciliation; monthly or even quarterly. Essentially through bank reconciliation the companies are able to reduce the amount of time spent going through transactions at the end of the year as all of their financial records will be up to date for the company’s annual report. Furthermore, it ensures that the individuals and companies are fully aware of their financial standing.