what is a bank reconciliation

Bank reconciliation is the process of comparing the bank account balance in an entitys books of account to the balance reported by the financial institution in the most recent bank statement. The purpose of bank reconciliation is to ensure that both sets of records agree with each other. If there is a difference between the two figures, it needs to be examined and rectified. Bank reconciliation is a valuable internal tool that can affect tax and financial reporting and detect errors and intentional fraud. 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. Bank reconciliation statements are often used to catch simple errors, duplications, and accidental discrepancies, which could adversely affect financial reporting and tax reporting. Bank reconciliation statements are also effective tools for detecting fraud, theft, and loss. The process of bank reconciliation can be done manually using paper, with spreadsheet software, or with specialized accounting software.