Purpose of Bank Reconciliation Process

Bank reconciliation may be the process of reconciling the bank statement balance, with the book banking account balance in the customer's (client's) books of accounts. A bank reconciliation process should lead to the tallying of the two balances i. e. the actual adjusted bank balance calculated, must equal the adjusted guide bank balance figure. The process of preparing a bank reconciliation statement is really a structured one, where bank reconciliation forms containing pre-printed products leave omission errors out. These bank reconciliation forms are on the back side of your monthly bank statement hard copies and make the process a great deal easier.

The purpose of bank reconciliation process is to recognize and rectify divergences between the two bank balances. A divergence of the two balances can occur because of among the following two things:

• Entries counted in the financial institution statement, not reflected in the account books.
• Entries produced in the books of accounts, that are yet to be recognized to the bank.

Some entries that get missed out within the books of accounts are as follows:

• Bank charges and fees which are directly deducted from the bank's side, are mostly only known through the business when the bank statement arrives.
• Bank's assortment of receivables, on the business's behalf, does not get recorded within the books, till the actual bank intimation of receipt, arrives as a bank statement.
• Any deposits made, directly within the bank account, without intimating the business, are recorded within the bank statement, but obviously not in the account publications.
• Any interest earned on the bank balance is something that doesn't get calculated on the business's side, and hence doesn't get recorded in the books till an official intimation occurs.
• Any errors from the bank side get noticed only following the arrival of a bank statement.

Some items that are recorded within the books of account, but are not reflected in the financial institution statements, are as follow:

• Outstanding checks that are yet to become encashed or settled from the bank's side, i. at the. checks that are still in transit, get recorded within the books but are only accepted by the bank when the settlement is done.
• Any bank errors, either good or negative, sometimes get reflected in the accounts although not in the bank statement.
• Any deposits in transit which were recorded on the account books are only recorded within the bank statement once they are cleared

Bank Reconciliation Procedure

The bank reconciliation process starts with adjusting the balance according to bank. This is done by taking the actual stability given, adding the deposits in transit and the stability increasing bank errors, and deducting any outstanding checks as well as balance reducing bank errors. Then come the adjustment of balance according to the books of accounts. This is done by deducting the financial institution charges and fees (plus any other deductions) and any kind of balance increasing accounting errors, and adding the interest gained, the bills receivables collected by bank and the stability reducing accounting errors. After the balances are individually modified, they are compared and expected to tally. Then the procedure shifts to journal entries. These are necessary to incorporate the required corrections in the books of accounts.

Purpose of Financial institution Reconciliation Process

• Bank reconciliations prevent overspending by maintaining strict accounts of cash outflows. They also check for just about any overcharging of fees, done on the bank's side.
• Bank reconciliations help with the timely correction of bank errors. They also examine duplication of transactions.
• Bank reconciliations help in monitoring and correcting employee errors. Regular bank reconciliations help to avoid payment problems and delays due to insufficient balances.
• Bank reconciliation processes put an energetic check on the embezzlement of money and ensures accountable accounting.
• Bank reconciliations help in reaching the correct balance figures and this provides external auditors with easily verifiable paperwork.
• If a bank reconciliation process is done frequently, it can reduce accounting errors drastically and makes the actual finding of missing purchase and sales invoices, easy within the accounting system.
• Bank reconciliations make it easy to recognize whether the accounting errors are actual errors or errors of the timing mismatch.
• Bank reconciliations make it possible to keep an eye on checks that are cashed, separate from those that tend to be outstanding or in transit.

Basically, the purpose of bank reconciliations would be to introduce efficiency and transparency into the business accounting techniques. It is highly worthwhile to take time and perform them, as it helps in avoiding situations like the main one mentioned in the description. Nowadays, the bank reconciliation process may also be outsourced to specialist companies.