Question

Describe the purpose and steps of the bank reconciliation.

Answer 1

Bank reconciliation statement is very important statement to be prepared. It is basically concerned with the bank statement and the records prepared by on your own.

It can also be said that the bank reconciliation statement is used to compare the differences occurred by back records and your own records.
The very basic purpose of bank reconciliation statement is to determine this very basic difference between the two sets of cash transactions. These two sets of cash transactions are the ending balance/record of your own book known as book balance and that of bank record known as bank balance.

The difference between cash transactions is very common and this is determined to check whether any customer cheque have been bounced or any cheque have been stolen or cashed without any knowledge.
It can also be said that bank reconciliation is done to detect frauds.

Steps involved is bank reconciliation are as follows :-

• First of all it is determined that the reason of difference of amount is from which side i.e book balance or bank balance. Usually, the differences from both sides.
• Now, the comparison is to be made between the internal balances and bank balances and adjustments are made in the internal records.
• Now, the records of the bank are to be checked, for which bank provides its reconciliation statement.
• The company/user is now needed to compare all the deposits.
• Adjustment is to be done in bank statement for all the deposits in transit, outstanding cheques, or bank errors.
• Adjustment with the cash balance of the business/user is also required to be done.

The bank reconciliation is done if all the amounts match otherwise repeat all the above steps.