What is the primary function of a bank reconciliation?

The primary function of a bank reconciliation is to compare the cash records of a business with the bank statement. This process is essential for ensuring that the cash balance reported in the company's accounting records matches the amount reported by the bank. Discrepancies can arise due to outstanding checks, deposits in transit, bank service charges, or errors made by either the bank or the business.

By performing a bank reconciliation, businesses can identify these differences, leading to accurate financial reporting and more effective cash management. This process helps to verify that all transactions recorded in the company’s books are reflected in the bank statement, thus maintaining the integrity of the financial records.

In contrast, the other options relate to different aspects of financial management and accounting rather than the primary goal of bank reconciliation. For instance, calculating profit margins focuses on evaluating the profitability of a company, while assessing inventory levels pertains to inventory management and control. Evaluating credit risks is associated with understanding the likelihood of customers defaulting on their payments. Each of these functions plays a critical role in business operations, but they do not directly relate to the objective of reconciling bank accounts.