What is the primary purpose of a bank reconciliation?

The primary purpose of a bank reconciliation is to ensure the accuracy of both the company’s financial records and the bank’s records. This process involves comparing the company’s cash account balance as reflected in its accounting records with the balance reported by the bank statement. Discrepancies may arise due to timing differences, such as outstanding checks, deposits in transit, or bank fees that have not yet been recorded in the company’s books.

By performing a bank reconciliation, a company can identify and rectify errors in its records, detect fraudulent transactions, and ensure that all transactions have been accounted for accurately, leading to reliable financial reporting. This is critical for maintaining trust in the financial data used for decision-making by management and stakeholders. Thus, the reconciliation serves as a key control in the accounting process, supporting overall financial health and integrity.