Question

What is the bank reconciliation? why is it important for companies to prepare bank reconciliation periodically?

Answer 1

BANK RECONCILIATION

These are reconciliation made to findout the errors that may have committed either in cashbook or passbook.

Nowadays most of the transcations of business is done through bank whether it is receipt or payments,moreover it is leagally necessary to operate through bank after certain limits

Thus,It is important for companies to prepare reconciliation periodically because of the following reasons:

a)It is an important tool for internal control of cash flow,also helps in detecting errors or fraud occured at the time of passing entries in cashbook or in passbook,intentionally or unintentionally.

b)Regular reconciliation will discourage embezzlement of cash by accountant.Eg cases like merely passing entries in cashbook for depost in banks can be identified easily.

c)any delay in clearence of cheque can be identified.

d)also actual position of bank balance can be find.