What is a "bank reconciliation"?

A bank reconciliation is critically important in ensuring the accuracy of a company's financial records. It involves comparing the bank statements received from the financial institution with the company's own accounting records, usually for the cash account. This process helps identify any discrepancies between the two, such as outstanding checks, deposits in transit, bank fees, or errors in recording transactions.

Through this comparison, companies can verify that their records align with what the bank has on file, which ensures that all financial transactions are accounted for correctly. The reconciliation process is essential for maintaining accurate financial statements and can help prevent fraud or errors from going unnoticed. Therefore, the approach of matching the bank statement with the company's accounting records is the essence of what a bank reconciliation entails.