Bank Reconciliation
The process of matching a company's internal cash records to its bank statement.
What is Bank Reconciliation?
A bank reconciliation is the periodic process of comparing a company's general ledger cash balance to the balance shown on its bank statement, identifying and explaining any differences. Common reconciling items include outstanding checks (issued but not yet cleared), deposits in transit (recorded internally but not yet reflected by the bank), bank service charges, and bookkeeping errors. Bank reconciliations are a key internal control that detects unauthorized transactions and fraud. Most companies perform them monthly as part of their financial close process.
Example
A company's general ledger shows a $45,200 cash balance, but the bank statement shows $46,500. After investigation: a $2,000 deposit is in transit (adds to bank balance), a $1,200 outstanding check has not cleared (reduces bank balance), and the bank charged $100 in fees not yet recorded. After adjustments, both sides reconcile to $45,100.