What is a Bank Reconciliation Account?

A Bank Reconciliation Account is a critical tool for managing cash balance. Reconciling is therefore the process of comparing the cash activity in an accounting records to the transactions in an bank statement. This process helps an accountant to monitor all of the cash inflows and outflows in an bank account. The reconciliation process also helps accountants to identify fraud and other unauthorized cash transactions. As a result, it is critical for every accountant to reconcile their organization’s bank accounts within a few days of receiving their bank statements.

Further Explanation

A business enterprise will record money paid into the bank and the sums drawn from the bank with cheques in the cash book. On the other hand the bank record all the transactions in its own books. The book which the bank prepares showing the transaction between it and the customer is known as “bank statement”as a matter of necessity,the balances of the cash book and the bank statement must be equal.

When there is a difference between the cash book balance and the bank statement balance,then there is need for reconciliation.

Bank reconciliation statement is therefore defined as a statement that is prepared to reconcile the disagreement of the cash book and that of the bank statement. The reconciliation is necessary in order to test the accuracy of the posting in the cash by reconciling the balance of the cash book with that of the bank statement…

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SS1 Financial Accounting Third Term: Preparation of Bank Reconciliation Account