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Bank Reconciliation: Definition, Purpose and Stages of the Process

Bank reconciliation is carried out to ensure that there are no errors in the preparation of financial statements. The following is information about bank reconciliation that you can understand.

The company goes through several processes in preparing corporate planning reports, one of which is by using the stages of the bank reconciliation process. This stage in the planning report preparation process is carried out so that the report results can be accounted for and the report results will be more accurate.

Bank reconciliation has several objectives up to the stages in the process. To find out more about what a bank reconciliation is, let's take a closer look at what a bank reconciliation is up to the stages of the process.

Definition of Bank Reconciliation

What is Bank Reconciliation? Bank reconciliation is an activity that involves a mechanism for matching balances in a company's accounting records and adjusting them to bank statements or checking accounts. Bank reconciliation is carried out to re-check whether there has been an error in recording the company's financial statements.

Bank reconciliation activities will produce an adjusting journal, where this journal will show the actual account balances before the financial statements are made. Bank reconciliation can also be used to minimize the occurrence of fraud in cash flows, because bank reconciliation will check and control the flow of cash receipts and payments.

Usually bank reconciliation activities are carried out at the end of each month, where the bank will send a report regarding the initial cash balance, transaction flow, and final cash balance to the target company.

Terms in Bank Reconciliation

Bank reconciliation has a number of terms that you can use as keywords to get a deeper understanding of what bank reconciliation is. The following are terms in bank reconciliation:

  • Deposits in transit is the term in the form of cash received and recorded by another body other than the bank where the funds are deposited. This situation can cause delays in recording cash flows in the bank so that these funds will not be recorded in the bank's report.
  • Outstanding check is a term that seeks to pay in cash recorded by an issuing body, but has not experienced a reduction in cash or disbursement in the bank account.
  • NSF Check is a term used to describe insufficient funds, usually checks are not accepted by the bank that issued the check using the excuse that the bank account does not have sufficient funds.

Purpose of Bank Reconciliation

Bank reconciliation has several purposes in its use in the company's financial statements. Some of the objectives of bank reconciliation are related to its role as tools In financial statements, here are some of the purposes of bank reconciliation that you need to know:

  • Ascertaining the discrepancy between the accounting balance sheet and the bank statement, bank reconciliation is used with the aim of finding discrepancies between the trial balance and the bank statement. If there is a discrepancy, then a re-verification must be carried out regarding the company's balance record.
  • Ensuring that the changes in the accounting records are appropriate, bank reconciliation also aims to ensure that the recording of cash flows in the company's accounting records is appropriate and corrected if something is wrong.
  • Ensuring accurate, credible and accountable financial reports. Bank reconciliation is also intended as part of double checking on the company's accounting records.
  • Serving as a control tool in corporate cash management, bank reconciliation also has a purpose tools company cash management.
  • Serving as a means of verifying the company's cash record information, bank reconciliation aims as tools verification of the information contained in the company's cash records.

Stages of Bank Reconciliation Process

Bank reconciliation has a process step that needs to be done before the company's financial statements are prepared. Some of these stages relate to the components that are part of the calculation of financial statements, the following are the stages of the bank reconciliation process:

1. Carry out a comparison between the company's cash balance and the checking account from the bank

The stages of this process are carried out by making comparisons between cash balances and checking accounts to see if there are any differences in the recording results. This is done to minimize recording errors made by the company and the bank.

2. Keep records of transactions listed at the bank

The stages of this process are carried out to adjust the recording between the company and the bank. The stages of this process are carried out so that if discrepancies are found in the results of the recording, the company can take the next step to find the source of the error.

3. Checking the check status

Checking the status of company checks is also part of the bank reconciliation process. This process is carried out to ascertain whether errors in recording occur due to delays in reporting or other factors.

4. Provide a worksheet to calculate the difference in cash

The worksheet is used in the bank reconciliation process to further explain the calculation of the difference between the company's cash register and the bank statement. If when the worksheet is used there are still discrepancies, it must be confirmed again that the calculations have been carried out carefully without errors.

More Coverage:

5.Search and re-verify the recording of cash flows 

The final process stage in bank reconciliation is search and verification, where at this stage the company conducts a final search to re-ensure that the current recording results are correct. Verification is carried out as a form of proof that the company has indeed recorded results with credible and verified results.

This is an explanation of what bank reconciliation is, in essence bank reconciliation is an activity carried out to match the results of recording the company's cash with the bank's report.

This is done to be able to find out and verify that the financial records in the company are correct, the reported cash flow can also be accounted for. Hopefully this information can help you to understand what bank reconciliation is in a deeper way.

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