BANK RECONCILIATION Meaning and
Definition
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Bank reconciliation is a financial process that involves comparing a company's or an individual's financial records with the bank statement to ensure accuracy and identify any discrepancies or errors. It is a critical accounting procedure that aims to reconcile the differences between the balance shown in the company's or individual's books (known as the book balance) and the balance reported by the bank (known as the bank balance).
The process of bank reconciliation involves cross-checking each transaction recorded in the company's or individual's books with the transactions listed on the bank statement, including deposits, withdrawals, checks, and fees. The purpose is to determine if all transactions are accurately recorded in both sets of records. Any discrepancies found during this reconciliation process can be due to timing issues, outstanding checks, bank errors, or other discrepancies.
Bank reconciliation primarily serves as a control mechanism to ensure that the company's or individual's financial records are complete, accurate, and up to date. It helps detect errors or fraudulent activities like unauthorized withdrawals or forged checks. Moreover, it ensures that the company's or individual's financial statements reflect the correct financial position by adjusting the book balance for any reconciling items.
By regularly performing bank reconciliations, companies and individuals can maintain the integrity of their financial records, identify any potential fraud or errors, and promptly address any issues to maintain accurate financial reporting. It also helps in monitoring cash flow, tracking outstanding checks, and minimizing the risk of overdrawing from bank accounts.
Etymology of BANK RECONCILIATION
The word "bank reconciliation" is derived from two separate origins:
1. Bank: The term "bank" originates from the Italian word "banca" or "banco", which referred to a bench or counter used by money changers. In medieval Europe, money changers and lenders would conduct their business on such benches or counters, and eventually, the term "bank" was used to describe the business of dealing with money.
2. Reconciliation: The word "reconciliation" comes from the Latin word "reconciliare", which means "to bring together again" or "to restore harmony". In accounting, reconciliation refers to the process of comparing two sets of records or accounts to ensure they are consistent and in agreement. In the case of bank reconciliation, it involves comparing an individual's personal accounting records with their bank statement to reconcile any discrepancies and ensure they match.
Similar spelling word for BANK RECONCILIATION
