Question

The bank reconciliation is an important part of the system of internal controls. True or False?  

Answer 1

The above-given statement is absolutely correct.

Bank reconciliations are an essential internal control tool and are necessary in preventing and detecting fraud. They also help identify accounting and bank errors by providing explanations of the differences between the accounting record’s cash balances and the bank balance position per the bank statement.

The bank reconciliation ensures that all transactions that have gone through the bank statements have been reviewed and checked, thus reducing the probabilities of errors in the data used to prepare accounts. Bank statements also ensure completeness by helping to ensure that all payments and receipts that have gone through the bank account have also been recorded in the accounting records. Any differences are identified and explained. (An example is below.)

This function requires a segregation of duties, which means that the person who performs the bank reconciliations should not also have access to the recording of transactions in the accounting records or processing of cash disbursements or receipts. Any differences identified between the accounting records and the bank statements should be adjusted by a person other than the one doing the reconciliations.

So these procedures clearly state the importance of bank reconciliation in the system of internal controls.