A bank reconciliation is a process performed by a company to ensure that the company’s records (check register, general ledger account, balance sheet, etc.) are correct and that the bank’s records are also correct.
The bank reconciliation for a company’s checking account begins with the company noting the balance per the bank statement and then making some notations about that balance. For example, the balance on the bank statement is probably not the amount that appears in the company’s records. In all likelihood the checks written by the company in the days immediately before the date of the bank statement will not have cleared (been deducted from) the checking account. These are called outstanding checks. Another possibility is that the company received money on the closing date of the bank statement and properly recorded the amount in its records. However, the money was deposited into the bank too late in the day and will appear on the next bank statement. This is known as a deposit in transit. Let’s begin the bank reconciliation by assigning some amounts to the items just mentioned.