The term Bank Reconciliation really is a useful & most important word in the Business sector. It's the way to find out the difference between Bank balance & Company balance. A Company can find out their fraud & mistake by Reconciling the Bank balance & Company balance.
The use of the Bank contributes significantly to internal control over cash. A Company can safeguard its cash using Bank depository & as a clearinghouse for checks received & written. Use of Bank minimizes the currency that a Company must keep on hand also use of Bank facilities the control of cash because it creates a double record of all Bank transactions. One by the Company & another by Bank. The Asset Accounts cash maintained by the Company should have the same Balance as the Bank Liability accounts for that Company. A Bank Reconciliation compares the Bank balance with the Company's balance & explains any difference to make them agree.
Many companies have more than one Bank account. For efficiency of operation & better control a renowned Company like '"BASHUNDHARA GROUP"' may have many regional Bank accounts. Large Companies like BASHUNDHARA GROUP with tens of thousands of employees may have a payroll Bank account as well as more general Bank account also may maintain several Bank accounts in order to have more than one source for short term loan when needed.
The Bank Reconciliation should be prepared by an employee who has no responsibility pertaining to cash. If a company fails to follow this internal control principle this may hamper internal verification, cash embezzlement, etc may go unnoticed. There are 2 major cause to make the difference between the Bank balance & Company balance they are
1. Time lag.
2. Errors made by a Bank employee or Depositor.
So, to prevent fraud, embezzlement & maintain good internal control of cash, the necessity of Bank reconciliation can not be described in words. By doing Bank reconciliation a company can maintain its business activities smoothly & gain more profit by reducing its net loss.