Bank reconciliation concept is comparing of balance sheet with bank statement. There is no fixed date for preparing bank reconciliation so its prepared periodically to check the balances and adjustments are made, if needed.
It helps in detecting errors, cash manipulations, frauds etc. One thing we have to remember is that, not always both the balances are equal.
Some of the reasons are as follows −
Bank reconciliation terminology includes −
Deposit in transit − It occurs when the deposit arrives at bank too late, entity not deposited in the bank. Mont end deposits will not appear in the statement
Outstanding checks − Checks which are not cleared by the bank by the month end
NSF check − NSF means NOT SUFFICIENT FUNDS. If there are no sufficient funds in the bank account, the bank will not entertain the cheque issued by the firm.
Bank reconciliation procedure −
Compare number of cheques issued and deposited cheques in the statement to identify deposit in transit and uncleared cheques.
Bank reconciliation problems include −
Benefits of bank reconciliation include −