What is bank reconciliation?
submitted by Iris Oddit

DirectCPA

A company records their transactions in the Cash account of the General Ledger. The bank records transactions of the company's bank account. When the bank sends a statement, the company can compare it to their Cash account to make sure there aren't discrepancies. This is called a bank reconciliation, or bank rec.

R.A. Horton

The basic idea is that you're comparing your records to the bank records. If you notice that your account history at the bank includes a $150 expense that doesn't seem familiar, you would want to know if that was a legitimate expenditure, or if maybe there is some credit card fraud going on. The best way to know this is to compare your records each month. In doing so, you'll probably find a $150 expense on your own books, which will indicate how and why the money was spent.

The whole process is there to help you avoid surprises. Also, it can help you catch bank errors, which do occasionally happen.

JR

When you find that you have extra money at the end of the month, you may just want to celebrate. However, finding an unexpected surplus is as big a problem as finding an unexpected deficit. It could very well mean that there is an accounting error in your records. You may find that you actually don't have a surplus at all, so it's worth investigating anytime there is a discrepancy. That's where bank rec comes in.