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In bookkeeping,bank reconciliation is the process by which the bank account balance in an entity’s books of account isreconciled to the balance reported by the financial institution in the most recentbank statement. Any difference between the two figures needs to be examined and, if appropriate, rectified.[1]
Bank statements are commonly routinely produced by the financial institution and used by account holders to perform their bank reconciliations.[2] To assist in reconciliations, many financial institutions now also offer direct downloads of financial transaction information into the account holdersaccounting software, typically using the.csv fileformat.
Differences between an entity’s books of account and the bank’s records may arise, for mainly three reasons, they are as follows:
Sometimes, it may be easy to reconcile the difference by looking at thetransactions in the bank statement since the last reconciliation and the entity's own accounting records (cash book) to see if some combination of them tally with the difference to be explained. Otherwise it may be necessary to go through and match every transaction in both sets of records since the last reconciliation, and identify which transactions remain unmatched. The necessary adjustments should then be made in the cash book, or reported to the bank if necessary, or any timing differences recorded to assist with future reconciliations.
For this reason, and to minimise the amount of work involved, it is good practice to reconcile at reasonably frequent intervals.
Abank reconciliation statement is a statement prepared by the entity as part of thereconciliation process which sets out the entries which have caused the difference between the two balances. For example, it would list outstanding cheques (ie., issued cheques that have still not been presented at the bank for payment).
The entries in the entity’s books to rectify the discovered discrepancies (except for the outstanding cheques) would typically be made in a subsequent date or period, not backdated. When cheques become stale (ie., out of date), they would typically be reversed, not cancelled.
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