Bank Reconciliation is an essential financial process wherein businesses compare their own records of transactions, often contained in accounting software or general ledgers, with the transactions recorded by their banking institution. This ensures that any discrepancies, such as processed transactions that were not yet entered into the company's records, unauthorized charges, or errors in recording, are identified and corrected promptly. The process typically involves verifying deposits, withdrawals, fees, and any outstanding transactions to ensure that all amounts align perfectly.
For instance, if a business issued a check that hasn't yet been cashed, this will show as outstanding in the company's books but not on the bank statement, until the bank processes it. Regular reconciliations help in maintaining financial accuracy and trustworthiness, provide an accurate understanding of cash flows, and are fundamental for preparing for audits. Also, the reconciliation often highlights unforeseen issues such as bank errors or fraudulent activities. It's common to conduct this task during the Month End or Quarter End close processes, using a checklist to ensure consistency. Tools like Easy Month End streamline the Bank Reconciliation process, making the Month End Checklist more manageable.