Question

In your own words, explain the purpose and timing of the process of bank reconciliation.

Answer 1

Answer:

Purpose of Bank Reconciliation Statement:

Following are the purposes for preparing Bank Reconciliation Statement:-

(i) to identify the reason for differences in the Cash Book and the Pass Book.

(ii) to use as a tool for internal control of cash flows

(iii) to help in detecting errors, frauds and irregularities occurred, if any, at the time of passing entries in the cash book or in the bank pass book, whether intentionally or unintentionally.

(iiv) to helps in finding out the actual position of the bank balance.

(v) to see if any customer checks have bounced, or if any checks you issued were altered or even stolen and cashed without your knowledge.

(vi) When it comes time for the annual audit, the auditors will always examine the company's ending bank reconciliation as part of their testing procedures, so this is yet another reason to complete a reconciliation.

Thus, fraud detection is a key reason for completing a bank reconciliation.

Timing of preparing Bank Reconciliation Statement:

Generally Bank reconciliation statement are prepared at the of the month and is prepared once in month.

In case transactions volume are huge, it is advisable to prepare it on weekly basis also.