In today’s time, most of the organizations carry out financial transactions through banks because by doing transactions through banks, they get the benefits like transparency, records, security, fewer chances of fraud, etc. and in many cases, even the government puts a limit or ban on cash transactions so that incidents like fraud, tax evasion, etc. can be prevented.
When an organization opens an account in a bank, it maintains the bank account in its books (the bank account is maintained either in the cash book or separately) to record the transactions that take place through the bank. In a particular period, the organization reconciles its books with the bank statement to ensure that the transactions recorded in the books of the organization are the same as the transactions recorded in the bank statement, and this process is called bank reconciliation.
Table of Contents
What is Bank Reconciliation?
Bank reconciliation is a process of reconciling/matching the books of the account holder (cash book/bank account) with the books of the bank (passbook/bank statement) and it is done from time to time so that the books of both the parties match each other and it is done by the account holder. In this, all the transactions are matched with the bank statement and if any error, mismatch, etc. is found then it is corrected and when the bank reconciliation is done then the bank reconciliation statement is prepared if required.
Bank reconciliation helps in identifying unrecorded transactions, fraudulent transactions, etc. which helps in correcting them on time and the organizations that do not do bank reconciliation are prone to problems like fraud, mismatched balances, wrong recording, etc. Bank reconciliation double checks the transactions are done through the bank which helps in preparing authentic reports in the organization due to which the organization gets many benefits.
Features of Bank Reconciliation
Following are the features of bank reconciliation:
1. Process:
This is a process in which the books of the account holder are matched with the bank books. Before starting this process, it is necessary to have the bank statement or passbook of the relevant period as those are matched with the books of the account holder. This process cannot be done without the bank statement or passbook. Note: It is also necessary to have the books of the account holder.
2. Reconciliation:
In this the bank statement or passbook is reconciled/matched with the account holder book to ensure that all the transactions have been correctly recorded in the account holder book and if any transaction has not been recorded, it can be recorded and if any error has occurred, it can be rectified.
3. By the Account Holder:
Bank reconciliation is done by the account holder and in this the account holder matches the bank statement with his books and corrects any errors, mismatches, unrecorded transactions, etc. found. If required, the account holder also prepares the bank reconciliation statement.
4. Periodically:
Bank reconciliation is done from time to time because it matches the book of the account holder with the bank book and also helps in detecting unauthorized transactions. With its help, information is obtained about fraud, unrecorded transactions, wrong transactions, etc. which helps in correcting them in time.
5. Time Consuming:
This is a time-consuming process as all the transactions recorded by the account holder are matched with the bank statement but due to technological evolution nowadays there are many software using which bank reconciliation can be done in very little time.
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QNA/FAQ
Q1. What is bank reconciliation?
Ans: Bank reconciliation is a process of reconciling/matching the books of the account holder with the books of the bank.
Q2. Who does the bank reconciliation?
Ans: The bank reconciliation is done by the account holder.
Q3. Is bank reconciliation done from time to time?
Ans: Yes, bank reconciliation is done from time to time.
Q4. Is bank reconciliation a time-consuming process?
Ans: Yes, bank reconciliation is a time-consuming process.
Q5. Write the features of bank reconciliation.
Ans: Following are the features of bank reconciliation:
1. It is a process.
2. It involves matching the bank and account holder records.
3. It is a time-consuming process.
4. It is done by the account holder.
5. It is done periodically.
6. It helps in identifying mismatches, fraudulent and unrecorded transactions, etc.
7. The Bank reconciliation statement is prepared after it.
8. It helps in double-checking the transactions.
9. It requires bank and account holder records of the relevant period.
