What is a "bank reconciliation"?

A bank reconciliation is the process of comparing the cash records maintained by a business with the information found on its bank statement. This procedure is essential for ensuring that the figures match and that all transactions have been accurately recorded. Regularly reconciling bank accounts helps identify discrepancies, such as outstanding checks, deposits not yet cleared, bank fees, or errors in either the bank's records or the company's cash book.

By performing a bank reconciliation, businesses can verify the accuracy of their financial records, ensuring that their reported cash balance aligns with the actual balance held in the bank. This practice is crucial for effective cash management and accurate financial reporting. The other given choices do not accurately capture the essence of bank reconciliation: monitoring a budget, calculating interest, or preparing financial statements involve different aspects of financial management and do not address the comparison of cash records to bank statements.