What is Bank Reconciliation?

A Bank Reconciliation is a crucial accounting process used to compare the cash balance on a company's balance sheet to the corresponding amount on its bank statement. The goal is to identify any differences between the two records and make adjustments to the accounting records as needed. This process helps in ensuring the accuracy of financial records and detecting fraud.

For Startups: Regular bank reconciliation (ideally monthly) is a fundamental financial discipline. It helps a startup ensure that all transactions have been correctly recorded, identify any unauthorized transactions, and maintain an accurate picture of its cash position, which is vital for managing burn rate and runway.

Example: At the end of the month, a startup's accountant notices that a payment recorded in the books has not yet cleared the bank. This "outstanding check" is noted as a reconciling item to explain the difference between the book balance and the bank balance.