What is the purpose of a bank reconciliation?

The purpose of a bank reconciliation is to match company cash balances with bank statement amounts. This process involves comparing the cash balance recorded in the company's accounting records to the balance reported on the bank's statement. The goal is to identify any discrepancies between the two figures, which can arise from various factors such as outstanding checks, deposits in transit, bank fees, or interest earned. By conducting a bank reconciliation, a business can ensure the accuracy of its cash records, which is essential for proper financial management and reporting.

Proper reconciliation is vital because it helps detect errors or fraudulent transactions and ensures that all transactions have been accurately recorded in the accounting system. This process contributes to maintaining overall financial health and integrity within a business.