What is Bank Reconciliation

A bank reconciliation statement is a crucial financial document that summarizes a company’s bank transactions and business accounts. It helps to reconcile a company’s bank account with its financial records and compare the cash balance on its balance sheet with the corresponding amount on its bank statement. This process helps to identify any discrepancies or errors in accounting and ensures the accuracy of financial records.

By completing regular bank reconciliations, businesses can monitor their financial activities, detect fraud, and prevent cash manipulations. Overall, a bank reconciliation statement is an essential tool to control financial fraud and maintain the integrity of a company’s financial records.

How to Prepare a Bank Reconciliation Statement

  • To prepare a bank reconciliation statement, accountants need critical information such as the current and previous month’s bank statement, the closing balance of the bank account, any outstanding payments or withdrawals, bank fees, and interest earned on the bank balance.
  • These are the building blocks to compare and reconcile a company’s financial records with its bank statements. With them, it is possible to prepare an accurate bank reconciliation statement.
  • The bank reconciliation statement is an important financial document that ensures the accuracy of a company’s financial records and helps businesses stay on top of their financial activities.
  • By preparing a bank reconciliation statement using this data, accountants can help businesses detect errors and discrepancies in their financial records, which is crucial for maintaining financial integrity and preventing fraudulent activities.
  • Using this data to prepare a bank reconciliation statement, accountants can help businesses monitor their financial activities, detect errors and discrepancies, and prevent fraud.

Importance of bank reconciliation statement

A bank reconciliation statement is crucial because it ensures the accuracy of the balances presented in a company’s passbook and cash book, helps detect and correct errors, and aids in updating the cash book by revealing any unrecorded entries. Additionally, any delays in cheque clearance are also indicated in the statement.

Step-by-Step Guide to Preparing a Bank Reconciliation Statement

  • To prepare a bank reconciliation statement, compare the financial record in the company’s book with the bank statement.
  • Identify errors such as unaccounted-for deposits or represented withdrawals and make corresponding changes to the bank statements.
  • Make the necessary adjustments in the log book and bank statements for fees, charges deducted, and interest credited.
  • Finally, compare the two records, the company’s financial statement, and the account statement.
  • If they match, the bank reconciliation is complete.
  • If not, repeat the process until the two records are reconciled.

This step-by-step guide provides a clear and concise approach to preparing a bank reconciliation statement. By following these steps, businesses can ensure the accuracy of their financial records, detect errors or discrepancies, and prevent fraudulent activities.

Advantages of Bank Reconciliation Statement

  • An accurately prepared bank reconciliation statement ensures that the company’s payments are processed, and deposits are made on time, providing a clear and up-to-date picture of the company’s financial position.
  • Bank reconciliation statements are essential for detecting fraudulent activities in large companies, which can be challenging to track otherwise, thereby preventing potential losses.
  • Analyzing the errors detected through the bank reconciliation statement helps identify potential areas for improvement in financial transactions, leading to better financial management and decision-making.
  • Regularly prepared bank reconciliation statements help assess a company’s financial health, which is necessary to make informed and accurate financial decisions for the betterment of the business.
  • Properly prepared bank reconciliation statements are also crucial for accurate tax reporting, ensuring that a company pays the appropriate amount of taxes, neither too much nor too little, which can result in penalties or losses.

Issues to Watch Out for When Preparing Bank Reconciliation Statements

Proper and accurate bank reconciliation statements can significantly benefit a company’s financial record. However, when there are lengthy gaps between reconciliation sessions, problems may arise, such as urgently needed information or issues with tax filing. Inaccurate statements can also cause problems with financial records. Therefore, it is highly recommended to use software for recording such statements, which can help reduce errors and ensure greater accuracy. A company can maintain a solid and reliable financial record using the right tools and conducting regular reconciliations.


What is a bank reconciliation statement?

The bank reconciliation statement is like a financial report card that summarizes a company’s banking activities, including deposits, withdrawals, fees, and interest, and compares them with the company’s financial records. The two forms must match up to ensure financial accuracy and prevent errors or discrepancies.

What is the purpose of a bank reconciliation statement?

An accurate bank reconciliation statement is a powerful tool for detecting fraudulent activities, such as incorrect check amounts or unauthorized transactions. It can also be incredibly beneficial when a company files its taxes, ensuring that financial records are accurate and complete.

Who prepares bank reconciliation statements?

Bank reconciliation is typically prepared by an accountant or a financial professional responsible for managing a company’s financial records. The accountant or financial professional compares the company’s financial records with its bank statement and ensures that they reconcile. The business owner may prepare the bank reconciliation statement for some small businesses. However, it is usually recommended that this task be handled by a professional to ensure the accuracy and completeness of the financial records.


The author writes about fintech, banking, and future of SAAS services. He works as an SEO analyst at Easebuzz, so if you're looking for an account that tracks India's fintech scene, you should check out his Easebuzz blog.