What is Bank Reconciliation? Definition of Bank Reconciliation, Bank Reconciliation Meaning and Concept
Bank reconciliation consists of balancing the income and expenses that a company has and seeing that these coincide with the movements and amounts of the accounts associated with the company or a particular business.
This task is essential to carry out an exhaustive control of possible capital deviations that may exist in the inflows and outflows of capital from the company.
It allows detecting anomalies in the economic procedures carried out by the financial department in the event of an error and solving it before it is too late and could cause financial damage to the company and its workers. For this reason, the bank reconciliation must be carefully and constantly reviewed over time. Since a delay in bank reconciliation can cause serious financial problems.
Its supervision and correct reconciliation is important because it allows anticipating a problem from the point of view of income. Let's imagine that we supply machinery and one of our clients says that he has paid us, however, in the movements of the bank accounts we observe that this has not been the case. This allows you to claim the amounts owed because we have reviewed the account statements. If we had reviewed this movement a month later, the difficulties in obtaining that income would be greater since it may be the case that this client no longer exists or has declared bankruptcy.
A weapon of accounting control
We can say that bank reconciliation is an accounting control weapon that allows detecting errors in payments and income of a certain business. At the same time, it allows anticipating possible deviations between real income and expenses and accounting income and expenses, in such a way that it can be analyzed why they do not coincide and in which items it has to be investigated to solve the discrepancies that have been detected.
The bank reconciliation is necessary to carry out a double accounting that allows us to correct and amend errors not detected in a first review. This, in such a way as to improve efficiency in the mechanisms for detecting and solving financial and non-financial risks. And, consequently, it also allows to improve the reputation of the company, since it strengthens the weapons that the company has to activate the wheel of income and expenses.