What is a bank reconciliation and why is it important?

Reconciliation is a fundamental account process that ensures the actual money spent matches the money leaving an account at the end of a fiscal period. This is especially important for businesses and individuals to inspect fraudulent activity and to prevent financial statement errors.

When you reconcile your business bank account, you compare your internal financial records against the records provided to you by your bank. A monthly reconciliation helps you identify any unusual transactions that might be caused by fraud or accounting errors, and the practice can also help you spot inefficiencies.

Also, why the bank reconciliation is important for internal control? Bank reconciliations are an essential internal control tool and are necessary in preventing and detecting fraud. They also help identify accounting and bank errors by providing explanations of the differences between the accounting record’s cash balances and the bank balance position per the bank statement.

Beside this, what is bank reconciliation statement and why it is prepared?

Bank Reconciliation Statement is a statement prepared to reconcile the balances of cash book maintained by the concern and pass book maintained by the bank at periodical intervals. At the end of every month entries in the cash book are compared with the entries in the pass book.

What is the need and importance of bank reconciliation?

A Bank Reconciliation Statement is needed and is important because of the following reasons: It helps in knowing the actual Bank balance. It helps in discouraging the staff from embezzlement. Helps in identifying the reason for differences in the Cash Book and the Pass Book.

What is the benefit of reconciliation?

Reconciliation is a fundamental account process that ensures the actual money spent matches the money leaving an account at the end of a fiscal period. This is especially important for businesses and individuals to inspect fraudulent activity and to prevent financial statement errors.

How many types of reconciliation are there?

Two types of account reconciliations Depending on what account balances (or sets of records) are reconciled, there are two types of account reconciliations: Bank reconciliations compare bank’s records (from bank statements) with the company’s general ledger (cash accounts).

Who should prepare a bank reconciliation?

Bank reconciliation statement is generally prepared by the company accountant or the bookkeeper with the purpose to compare the bank’s records with your own company records. It is done on monthly basis whenever bank statement arrives.

How do you do bank reconciliation?

Bank Reconciliation Procedure: On the bank statement, compare the company’s list of issued checks and deposits to the checks shown on the statement to identify uncleared checks and deposits in transit. Using the cash balance shown on the bank statement, add back any deposits in transit. Deduct any outstanding checks.

How bank reconciliation is done?

A bank reconciliation is a process performed by a company to ensure that its records (check register, general ledger account, balance sheet, etc.) are correct. This is done by comparing the company’s recorded amounts with the amounts shown on the bank statement. Any differences must be justified.

What is cash book?

A cash book is a financial journal that contains all cash receipts and disbursements, including bank deposits and withdrawals. Entries in the cash book are then posted into the general ledger.

How do you verify a bank reconciliation statement?

Check the dates. Check the cashbook balance. Check the bank statement balance. Check the structure of the reconciliation statement. Check the outstanding items listed on the reconciliation statement. Check some cashbook entries. Check for ‘transposed’ numbers with the ‘magic number 9’ Show you’ve been here!

What is bank reconciliation statement in simple words?

In bookkeeping, a bank reconciliation statement is a process that explains the difference on a specified date between the bank balance shown in an organization’s bank statement, as supplied by the bank and the corresponding amount shown in the organization’s own accounting records.

What is contra entry?

Contra entry is a transaction which involves both cash and bank. Both debit aspect and credit aspect of a transaction get reflected in the cash book. For example: Cash received from debtors and deposited into bank. Cash withdrawn from bank for office use.

What is debit and credit?

A debit is an accounting entry that either increases an asset or expense account, or decreases a liability or equity account. It is positioned to the left in an accounting entry. A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account.

What are the needs of bank reconciliation?

Bank reconciliation statement ensures the accuracy of the balances shown by the pass book and cash book. It provides a check on the accuracy of entries made in both the books. It helps to detect and rectify any error committed in both the books.

What is BRS example?

Answer: One example is Entries relating to interest earned and bank charges. Transactions get immediately recorded in the passbook of the bank in such cases. As a result, a difference comes in the balances of cash book and passbook. For elimination of balance, a BRS comes in handy.

What is petty cash book?

Petty cash is a system that funds and tracks small purchases such as parking meter fees that aren’t suitable for check or credit card payments. A petty cash book is a ledger kept with the petty cash fund to record amounts that are added to or subtracted from its balance.

What are the golden rules of accounting?

The Golden Rules of Accounting Debit The Receiver, Credit The Giver. This principle is used in the case of personal accounts. Debit What Comes In, Credit What Goes Out. This principle is applied in case of real accounts. Debit All Expenses And Losses, Credit All Incomes And Gains.