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What Does Bank Reconciliation or Reconciling an Account Involve? How is It Important?
Last Updated on: July 18th, 2025
Businesses must ensure that there are no discrepancies in their finances. Hence, to ensure accuracy, businesses often use the bank reconciliation process.
The Bank Reconciliation process is accurate in figuring out the discrepancies and other problems, such as forgeries.
Through bank reconciliation, businesses check for omissions, errors, fraud, and other activities that may lead to discrepancies.
It is important to understand that there can be several things that may take place and lead to any kind of discrepancies in such scenarios. Businesses need to get hold of such discrepancies.
Forged Cheques, double payments, and several other things may create discrepancies, which can be identified through the process of Bank Reconciliation.
What does Bank Reconciliation or Reconciling an Account Involve?
Bank reconciliation involves comparing the values and amounts in the company’s records with those in the bank statement.
Businesses maintain records of their transactions, earnings, and expenditures with the help of an internal ledger book.
Bank reconciliation involves ensuring proper accounting and that an organisation’s internal ledger book matches the bank statement.
This comparison can illuminate hidden discrepancies and help an organisation promote accuracy in the future.
How Does It Help?
It helps in several ways, most importantly, by taking steps like bank reconciliation, which may help identify things that hinder accuracy.
It helps figure out several problems, like omissions.
Omission happens when a transaction or information regarding any transaction is not recorded in the account records.
Omission may lead to an inaccurate financial statement.
Bank statement errors might result from incorrect transaction amount entries or even from transactions conducted on the wrong date.
Fraudulent activities, such as forged cheques, can also cause discrepancies, and it is important to ensure that forgery and other things are detected properly.
What is a Bank Reconciliation Statement?
The bank produces a summary of the customers’ recent transactions and other activities related to the bank.
The bank produces a customer’s recent banking activities, which are used to compare the company’s internal records with the bank records.
Professionals such as business auditors and accountants use bank reconciliation statements to detect discrepancies.
Accountants and auditors detect errors or omissions between their accounting records and bank account balances.
Your bank statement and financial records contain your monthly opening and closing balances. Compare the ending cash balance of your bank accounts to your internal financial records.
How To Initiate the Process of Bank Reconciliation?
The process of initiating reconciliation may be easy, but it involves the following steps:
- Businesses willing to initiate the process of reconciliation will have to start by gathering the financial records related to the business, which include:
- Bank Statements.
- Invoices
- Financial statements can help check accounts.
- The general ledger and cash books contain data on the business’s internal transactions.
- The second is the most crucial step, which must be done carefully. This step ensures the financial records contain the month’s opening and closing balances.
Businesses compare the ending cash balance of their account and the internal financial records.
Further, businesses check for discrepancies between their deposits and the account records.
Businesses should match invoice payments, withdrawals, and bank fees.
Like this, all discrepancies, including the fraudulent activities and errors, can be detected.
- It is important to check discrepancies that are not mentioned in the bank account, but errors can also occur in the bank account.
Hence, businesses also check for bank fees, interest income, and overdraft fees, which may not be recorded in a company’s internal records.
- Businesses then shal make the necessary adjustments to the bank statement for errors or missing transactions.
If outstanding checks have not yet been charged, then it is important to add them to the bank account, after which the account balance shall be corrected.
- It is important to make sure that everything is in place.
- Businesses should save their documents and records of all the changes, including source documents and other information like the reconciliation and adjustments.
- The discrepancies should be recorded so that they can be checked later when required.
Businesses shall keep track of the documents for future reviews and references.
How Often Should Reconciliations Be Done?
Businesses or individuals can seek reconciliation whenever they want, as there is no hard and fast rule for reconciliation..
However, how often one should go for reconciliation depends on the volume of transactions the account might deal with.
Individuals with lower incomes can initiate reconciliation at longer intervals, whereas businesses must do it more often and regularly.
Individuals and small businesses can do it once a month, depending on the volume of transactions. Keeping reconciled records is also invaluable when you need to provide documentation for financing, such as an emergency loan for bad credit because lenders often ask for recent bank statements that line up with your own books.
While it might be important for businesses with large volumes of transactions to do it daily, in several cases.
But most importantly, Account holders must indulge in reconciliation regularly, regardless of businesses or others.
Reconciliation ensures that there are no discrepancies in the financial records of a business or an individual.
What Does Reconciling an Account Involve? Wrapping It Up
It is important to ensure that reconciliation is initiated regularly so that there are no financial discrepancies in a business or individual’s records.
Reconciliation keeps accounts compliance ready, as accounts without discrepancies do not have to fear other regulatory consequences.
It is rational to get the help of accountants and other professionals to ensure that the process becomes hassle-free.
Reconciling an account involves ensuring that there are no omissions, errors, or other flaws.
Flaws in the financial records indicate fraudulent activities and other problems, such as forging checks and double payments.
Proper reconciling is important to prevent these things from happening.
A bank reconciliation statement can help a company’s accounts in various ways, primarily by showing different transactions than those in its bank statements.
Reconciling the bank statement and internal records may help identify incorrect errors and unclear transactions.
Keeping a detailed record of notes is very important, so that everything can be cross-checked with the adjustments made, and so that it can be checked in the future.
All the above-mentioned reasons make it very important to conduct reconciliations to avoid discrepancies regularly.
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