Bank reconciliation

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In bookkeeping, a bank reconciliation statement is a process that explains the difference on a specified date between the bank balance shown in an organization's bank statement, as supplied by the bank and the corresponding amount shown in the organization's own accounting records. [1]

Bank statement

A bank statement or account statement is a summary of financial transactions which have occurred over a given period on a bank account held by a person or business with a financial institution.

Such differences may occur, for example, because

Cheque method of payment

A cheque, or check, is a document that orders a bank to pay a specific amount of money from a person's account to the person in whose name the cheque has been issued. The person writing the cheque, known as the drawer, has a transaction banking account where their money is held. The drawer writes the various details including the monetary amount, date, and a payee on the cheque, and signs it, ordering their bank, known as the drawee, to pay that person or company the amount of money stated.

Sometimes it may be easy to reconcile the difference by looking at very recent transactions in the bank statement and the organization's own accounting records (cash book) and seeing if some combination of them tallies with the difference to be explained. Otherwise it may be necessary to go through and match every transaction in both sets of records since the last reconciliation, and see what transactions remain unmatched. The necessary adjustments should then be made in the cash book, or reported to the bank if necessary, or any timing differences recorded to assist with future reconciliations.

Financial transaction agreement, or communication, carried out between a buyer and a seller to exchange an asset for payment

A financial transaction is an agreement, or communication, carried out between a buyer and a seller to exchange an asset for payment.

For this reason, and to minimise the amount of work involved, it is good practice to carry out such reconciliations at reasonably frequent intervals. Reconciliations may be assisted by specialised accounting software.

Accounting software application software that records and processes accounting transactions

Accounting software describes a type of application software that records and processes accounting transactions within functional modules such as accounts payable, accounts receivable, journal, general ledger, payroll, and trial balance. It functions as an accounting information system. It may be developed in-house by the organization using it, may be purchased from a third party, or may be a combination of a third-party application software package with local modifications. Accounting software may be on-line based, accessed anywhere at any time with any device which is Internet enabled, or may be desktop based. It varies greatly in its complexity and cost.

A Bank reconciliation statement is a statement prepared as part of the reconciliation which sets out the entries which have caused the difference between the two balances.

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Reconciliation (accounting) Reconciliation (accounting)

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  1. Carl S. Warren (18 January 2010). Survey of Accounting. Cengage Learning. p. 183. ISBN   978-0-538-74909-1 . Retrieved 9 April 2012.