Bank reconciliation
In one sentenceComparing the bank balance in the books with the bank statement and explaining the differences, such as uncashed checks and unrecorded bank charges.
Simply put
The bank balance in your books rarely equals the statement balance on the same day: a check you issued has not been cashed yet, or the bank deducted a charge you have not recorded.
Reconciliation explains each difference: you adjust the statement for what has not reached the bank yet, and adjust the books for what you have not recorded, until the two adjusted balances are equal.
Worked example
A business's bank balance is 48,500 SAR in its books and 52,000 SAR on the statement.
Bank statement balance52,000 SAR
Less: issued checks not yet cashed7,000 SAR
Add: deposit not shown on the statement3,000 SAR
Book balance less an unrecorded bank charge (48,500 − 500)48,000 SAR
Adjusted balance on both sides (52,000 − 7,000 + 3,000)48,000 SAR
Don't confuse it with
Supplier statement reconciliationIt compares the supplier's account in your books with the supplier's own statement, while bank reconciliation compares the bank account with the bank statement.