ACC205 Week 2 – Discussion 2
| Bank Reconciliation |
| What is the purpose of a bank reconciliation? What are the reasons for differences between the cash reported in the accounting records, and the cash balance in the bank statements?
Analyze several of your peers’ posts. Let at least two of your peers know what happens to the discrepancies between the book balance and the bank balance. Could these differences just be written off? |
ACC205 Week 2 – Discussion 2 Answer
Purpose of a Bank Reconciliation: A bank reconciliation serves the crucial purpose of ensuring that the cash balance reported in a company’s accounting records matches the actual cash balance in its bank statements. This financial management practice helps identify and rectify discrepancies, ensuring the accuracy of financial reporting. Bank reconciliations are typically performed on a monthly basis and involve comparing the transactions recorded by the company with those reported by the bank.
Reasons for Differences: Discrepancies between the book balance (company’s records) and the bank balance (bank statements) can arise due to various reasons, including:
- Outstanding Checks: Checks issued by the company but not yet cleared by the bank.
- Deposits in Transit: Deposits made by the company not yet recorded by the bank.
- Bank Fees: Charges deducted by the bank, which may not be immediately reflected in the company’s records.
- Interest: Interest earned or charged that might not align with the company’s records.
- Errors: Mistakes in recording transactions, either by the company or the bank.
What Happens to Discrepancies: Discrepancies between the book balance and the bank balance are typically adjusted in the bank reconciliation process. Outstanding checks and deposits in transit are reconciled to ensure they are accounted for. Any errors or unexplained differences are thoroughly investigated.
It’s important to note that these discrepancies are not merely written off. Instead, adjustments are made to the company’s accounting records to reflect the correct cash position. This reconciliation process helps maintain accurate financial records, provides transparency, and ensures that financial statements present a true and fair view of the company’s financial position.
