What Is Bank Reconciliation Statement ?
Bank reconciliation statement refers to the report or document prepared by a company to match bank statement balance and cash balance in company's record. It helps to discover the discrepancies between these two balances and identifies the reasons for the difference. It helps to prevent frauds and errors that helps the company to maintain proper financial statements, ensures better cash flow and build trust with stakeholders.
Importance Of Bank Reconciliation Statement
Need and importance of bank reconciliation statement can be expressed as follows:
1. To Ensure Accuracy
Bank reconciliation statement checks cash book and pass book balances. So, it ensures accuracy of the bank balance and cash book balance.
2. To Find Out The Causes Of Disagreement
Bank reconciliation statement finds out the causes of disagreement between cash book balance and pass book balance.
3. Detection Of Errors
It detects errors in cash book and pass book and helps to rectify those errors on time.
4. Up To Date Record
Bank reconciliation statement maintains up to date records regarding payment and collection.
5. Accuracy Of Entries
It ensures the accuracy of pass book and cash book entries.
6. To Maintain Relationship
Bank reconciliation statement helps to maintain good relationship with banks.
Benefits Or Significance Of Bank Reconciliation Statement In Short:
* It helps to lower the financial risks
* It verifies the arithmetical accuracy of cash book and pass book
* It detects errors and frauds and facilitates to rectify in time
* It helps to optimize liquidity in the business by managing cash flows
* It helps to build trust with shareholders, lenders and clients
* It supports decision making and forecasting