Financial Glossary
Bank reconciliation
Bank reconciliation is the monthly accounting control procedure of comparing a company's general ledger cash balance against its bank statement balance to confirm they agree, and identifying and explaining any differences. Common reconciling items include outstanding checks (issued but not yet cleared), deposits in transit (recorded in the ledger but not yet posted by the bank), bank charges not yet recorded in the books, and timing differences on electronic payments. A completed reconciliation ends with an adjusted book balance and adjusted bank balance that match, confirming the accuracy of the company's cash records and catching errors or unauthorized transactions.
Problem & Application
A marina with active fuel, slip rental, and retail transactions processes hundreds of transactions monthly. During the month-end bank reconciliation, the bookkeeper identifies that a $4,200 vendor payment was recorded twice in QuickBooks due to a data import error -- both entries cleared the bank. The duplicate is caught and a request for refund or credit is issued to the vendor within days of the close. Without reconciliation, the $4,200 error might sit undetected until an annual audit or until the vendor relationship is reviewed, by which point recovering the funds would be far more difficult. The reconciliation also surfaces three checks written more than 90 days ago that have never cleared, prompting the bookkeeper to confirm whether those payees should be contacted or the amounts voided and re-issued.
In Short
Bank reconciliation is a fundamental practice for accurate financial management, preventing errors, and safeguarding against fraud.