Bank reconciliation statement is the term used in the context of accounting, a company cannot exists without having a bank account and in bank account all cash transactions of the company are recorded and since company records all cash transactions in cash ledger account than ideally both bank account statement and cash account of the company should match but in reality these two things seldom match and that is the reason why company prepares a bank reconciliation statement so as to reconcile bank account statement balance with bank balance in the company’s book of accounts. In order to understand more about bank reconciliation system, one should look at various features of bank reconciliation system –
Bank Reconciliation Statement Features
Company Prepares the Statement
The first and foremost feature of this statement is that it is the company which prepares this statement and bank has no role to play in this exercise and the only thing which company needs while preparing this statement is the bank account statement from the bank.
Frequency Flexibility
Another feature of bank reconciliation system is that there is no fixed period for which it is prepared like balance sheet and profit and loss account which have to be prepared quarterly or yearly because a company can make this statement weekly, fortnightly, monthly, yearly depending on the volume of bank transactions done by the company.
Starting Point is Important
The starting point is important as far as this statement is concerned because if company starts with balance as per cash book of the company than treatment of various items like interest credited by the bank, cash deposits made in the bank directly, checks issued but not presented for payment will be different as opposed to that treatment if the starting point is the balance in bank account statement of the company.
Not Compulsory
Unlike financial statements like balance sheet and profit and loss account which are compulsory to prepare a bank reconciliation statement is not compulsory as no law requires a company to prepare this statement. This statement is basically prepared for the convenience of the company and also for early fraud detection as the majority of fraud involves bank account and if the company can put check and balance in the bank account than a company can save itself from any major fraud.
Simultaneous Cash and Bank Transactions
This statement is meant for only those transactions which affect both bank account in the books of the company and bank account of the company. Hence for example if the company has done cash sales or has made cash purchases than it will not have any bearing on this statement because bank account was not involved in the above transactions.
As one can see from the above characteristics of bank reconciliation system that although it is not necessary to prepare this statement a company which does plenty of bank account transactions should prepare this statement so as to keep things under complete control of the company.