Question

What is the bank reconciliation? why is it important for companies to prepare bank reconciliation periodically? (1Mark)

I know that the answer is existed in Chegg. However, I want a different and a unique answer and I want it simple to understand. Please use your OWN words.

Thank you.

Answer 1

Every company maintains a set of accounts out of there is a cash account which signifies the addition and substraction of cash during a period . Now simultaneously for every company Banks also maintain their account which is known as a bank statement . Now to ensure that the balance as shown by the company matches with the balance shown by the bank Bank reconciliation statement is prepared and the reasons for the differences are identified and rectified as the balances must match.

It is important for companies to prepare bank reconciliation periodically as it is important for the company to have correct cash records otherwise it points towards any misdoing in the company. Any cash manipulation or fraud can be detected because of the process of bank reconciliation as everything is verified .