What does the term 'bank reconciliation' refer to?

The term 'bank reconciliation' specifically refers to the process of matching the cash balance on a bank statement with the company's own financial records. This process is essential for ensuring that the company's records are accurate and up-to-date, reflecting all transactions that have occurred during a specific time period.

Bank reconciliation serves several crucial purposes. It helps identify discrepancies between the bank's records and the company's records, which may arise due to outstanding checks, deposits in transit, bank fees, or errors in recording transactions. By conducting regular bank reconciliations, businesses can maintain the integrity of their financial reporting, prevent fraud, and manage cash flow more effectively.

Other options provided refer to separate financial concepts. While auditing and comparing interest rates are important aspects of banking, they do not align with the specific process involved in bank reconciliation. Similarly, increasing liquidity pertains to managing cash reserves and assets, which is not the focus of the reconciliation process. Thus, the definition encapsulated in the correct answer accurately describes the important procedural step in financial management known as bank reconciliation.