What Is Bank Reconciliation?
Bank Reconciliation (Definition)
There can be times when your financial records might not be the same as your bank’s. Bank reconciliation involves comparing these records and identifying any differences between the two. This is important for keeping track of your business’s money.
There are a few reasons the balance on your records may not be the same as the bank’s:
- When someone hasn’t yet cashed a cheque you’ve sent: The money owed from that cheque is still in your bank account – but it’s no longer yours to spend.
- Changes to bank accounts at the end of a month: This can happen when you withdraw or deposit money just before the bank sends a statement. Those changes to the account might not show until the following month’s statement.
- The bank deducts loan payments: The bank can deduct money for loans before you enter that information into your systems.
- Deposits in transit: Deposits you’ve made and recorded in your books that haven’t yet been processed through the bank.
Bank reconciliation helps you identify these cases so you know exactly how much money is available to your business. It’s also needed to identify any cases of human error, bank charges and possible fraud.
More Accounting Terms
What Is Accounting Software?
What Is An Invoice?
What Is Financial Management?
What Are Payroll Records?
What Is A Tax Deduction?
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