A bank reconciliation statement compares personal accounting records with those of a bank to identify discrepancies, which can be caused by errors or fraudulent activity. It is important to bring any discrepancies to the attention of the bank quickly. Checks can take a long time to clear, so it is important to keep track of unpaid checks.
A bank reconciliation statement is a document used to compare personal accounting records with those of a bank. Reconciliation is used by individuals and businesses alike to confirm that bank records match their own. It is common to reconcile accounts on a monthly basis and experienced people can often complete the process very quickly because they are familiar with it and much of the work has already been done.
It is not uncommon for discrepancies to appear between accounting records and bank records. The purpose of a bank reconciliation statement is to find out why there are discrepancies so that corrective action can be taken if necessary. A simple cause could be a transposition error, a debit or credit that has not been cleared for a year, or the failure to record a transaction. The most problematic causes of a discrepancy on a bank reconciliation statement can be an error on the part of the bank or fraudulent activity on the account.
With a bank reconciliation statement, people document the entries they have in their books and the entries the bank has, and compare them. Some people reconcile simply by comparing their statements to their checkbooks. Others actually prepare a new document, showing the records in both columns and noting any variances between the two. The bank reconciliation statement is also used to confirm that earned interest, fees, and other charges that would only appear on the bank statement are transferred to the accounting records.
If a discrepancy is identified and cannot be posted or there is obviously a problem with the bank, such as if a check issued for $100 United States Dollars (USD) has been recorded as a check for $1,000 USD, it should be brought to the attention of the bank as quickly as possible. People can use their bank reconciliation statements to show the nature of the error and the bank can investigate. Corrective actions may include crediting an account that was charged by accident or initiating a fraud investigation.
One thing to keep in mind with personal finance is that checks sometimes take a long time to clear. People with accounting software can usually quickly get a list of unpaid checks to compare with an unexpected entry on a bank statement, but those who keep paper records can be baffled by account activity without realizing it reflects a check issued several months ago that someone finally deposited. Some banks usefully note when checks are out of sequence to send up a red flag so someone knows to check back in their records for the original accounting entry.
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