What Is a Bank Reconciliation Statement

A bank reconciliation statement is a document used to determine the accuracy of financial accounts and accounting records. Bank reconciliation statements are used by companies, auditors, and accountants to detect errors or omissions between accounting records and bank account balances. They ensure that internal records are accurate and help identify and prevent fraud and losses. A bank reconciliation statement allows companies and auditors to verify the accuracy of financial records and compare these records with bank account balances.

Here are some specific reasons why you might prepare and use a bank reconciliation statement:

• Identify and prevent errors: Cross-referencing your bank account(s) and financial records can help you verify the accuracy of any checks, deposits, transfers, and other transactions you've authorized and whether they've cleared.
• Fraud detection: Reconciling your accounts can help you identify and report any fraudulent activity, including unauthorized transactions.
• Cash control: You can use your statement to help reconcile your cash accounts and ensure that any cash activity is valid and accurate.
• Tracking expenses: Your statement can help identify how much you pay in monthly bank fees, interest, and other expenses. This helps at tax time and to determine if there are any opportunities for improvement.
• Confirming accounts receivable (AR): A bank reconciliation statement can identify or confirm any outstanding customer debts, allowing you to take action to collect on these accounts.
• Improving balance sheet accuracy: Using a bank reconciliation statement ensures that the amounts recorded on the balance sheet correspond to transactions in your financial account.

How Often Should You Reconcile Your Bank Account?

How often you reconcile your bank accounts depends entirely on your needs. Individuals and businesses with simple accounting needs should consider reconciling their accounts monthly after receiving a bank statement. Businesses with a higher volume of transactions should consider increasing the frequency of reconciliation—either daily or weekly. Increasing the frequency makes cash flow management easier, helps you catch any discrepancies, and gives you enough time to correct errors before any complications arise in your accounting.

A bank reconciliation statement can help if a company's accounting records show different transactions than its bank statements. Reconciling the bank statement and internal records can identify and correct errors and uncleared transactions. When using a bank reconciliation statement, keep detailed records and notes so you can cross-check your adjustments with those made on future bank statements. Source