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ACCA Applied Knowledge · Financial Accounting · Bank reconciliations

Which of the following is the main purpose of preparing a bank reconciliation statement?

The main purpose of a bank reconciliation is to explain the difference between the cash book balance and the bank statement balance. It highlights timing differences, unrecorded items and errors so the cash book can be corrected and the true bank position established.

  1. ATo explain differences between the cash book balance and the bank statement balance and identify errors or omissionsCorrect
  2. BTo calculate the profit earned by the business for the period
  3. CTo confirm that all customers have paid their invoices on time
  4. DTo replace the need for a cash book in the accounting system

Explanation

A bank reconciliation compares the entity's cash book with the bank statement and explains each difference, such as timing differences and errors. It does not measure profit, check receivables or replace the cash book. The cash book remains the book of prime entry for bank transactions.

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