Bank reconciliation is utilized to compare the records to those of your bank, to see if you’ll find any differences between the two of these sets of records for the cash transactions. The ending balance of this version of the cash records is termed the book balance, while the bank’s version is named the bank balance. It is incredibly common for there to become differences between both the balances, which you should uncover and adjust is likely to records. If you are to ignore these kind of differences, there would ultimately be substantial variances between the volume of cash that you think you have plus the amount the bank says that you have in a merchant account. The result could possibly be an overdrawn bank account, bounced checks, and overdraft fees. Now and again, the bank might elect to shut down your bank account.

Additionally it is useful to complete a bank reconciliation to determine if any client checks have bounced, or if almost any checks you issued were altered or perhaps stolen and cashed with no your knowledge. Therefore, fraud detection is really a key reason for completing a lender reconciliation. When there is certainly an ongoing seek out fraudulent transactions, it may be necessary to reconcile a bank account every day, in order to acquire early warning of a problem.

When it comes time for the yearly audit, the auditors will constantly examine the company’s ending bank reconciliation as part of their testing measures, so this is yet another reason to complete a reconciliation.

Here are some of the areas in which your records could vary from the bank records:

  • Fee: The bank has charged fees for its services, such as a monthly account fee.
  • NSF checks: The bank may have rejected some of your deposited checks, because the person or business issuing the checks did not have sufficient funds in their account(s) to remit to your bank. These are known as NSF (not sufficient funds) checks.
  • Recording errors: Either you or the bank may have recorded a check or a deposit incorrectly.

Some institutes regard as the bank reconciliation to be so vital that they carry out one every day, which they complete by accessing the latest updates to the bank’s records on the bank’s safe website. This is of particular magnitude if a corporation is operating with least cash reserves, and needs to ensure that its recorded cash balance is correct. A daily reconciliation may also be essential if you suspect that someone is fraudulently withdrawing cash from the bank account.