What is involved in bank reconciliation?

Bank reconciliation is the process of comparing and aligning the bank's records, as presented in bank statements, with the company's own financial records, such as its cash book or ledger. This process is crucial for identifying discrepancies that may arise due to timing differences, accounting errors, or unrecorded transactions.

For instance, a company might have recorded a payment that has not yet cleared the bank, or there may be bank fees that the company has not accounted for in its own books. By conducting reconciliation, businesses ensure that their financial statements accurately reflect their cash position, helping to prevent fraud and maintain financial integrity.

Other activities such as investing in stocks, closing bank accounts, or filing taxes are unrelated to the core function of bank reconciliation. These activities serve different financial purposes and do not involve the direct comparison of bank statements with internal financial records.