Definition: Bank reconciliation is identified as the process of matching and balancing figures in the accounting records with those displayed on a bank statement.
If a transaction appears in the accounting records but does not appear on the bank statement, then it is considered to be 'outstanding'. The outstanding items represent possible discrepancies between the accounting records and the bank statement, and they will need to be uncovered.
Discrepencies
Bank reconciliation discrepancies could include:
- Cheques documenting a different amount than the amount received by the bank,
- Money that was received but never recorded in the accounting records, or
- Payments retrieved from the bank without the business' knowledge.
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Performing a bank reconciliation regularly can drastically reduce the amount of errors that can occur in an accounts system and makes it easier to find absent purchase and sales invoices.