A bank reconciliation statement is a document which is used to compare personal accounting records with those of a bank. Reconciliation is used by individuals and businesses alike to confirm that the bank records match their own. It is common to reconcile accounts on a monthly basis and people who are experienced can often complete the process very quickly because they are familiar with it and much of the work has already been done.
It is not uncommon for discrepancies between the accounting records and the records at the bank to appear. The purpose of a bank reconciliation statement is to find out why there are discrepancies so that corrective action can be taken if necessary. A simple cause might be a transposition error, a debit or credit which has not year cleared, or failure to record a transaction. More problematic causes of a discrepancy on a bank reconciliation statement might be an error on the bank's part or fraudulent activity on the account.
With a bank reconciliation statement, people document the entries they have in their books and the entries the bank has, and compare them. Some people reconcile simply by comparing their statements with their checkbooks. Others actually prepare a new document, showing the records in both columns and noting any variations between the two. The bank reconciliation statement is also used to confirm that interest earned, fees, and other charges which would only show up on the bank statement are transferred to the accounting records.
If a discrepancy is identified and it cannot be accounted for or there is obviously a problem at the bank, as for example if a check written for $100 United States Dollars (USD) has been recorded as a check for $1,000 USD, it should be brought to the attention of the bank as quickly as possible. People can use their bank reconciliation statements to demonstrate the nature of the error and the bank can investigate. Corrective actions may include crediting an account which was debited by accident or launching a fraud investigation.
One thing to be aware of with personal finances is that sometimes checks take a long time to clear. People who have accounting software can usually quickly pull up a list of unpaid checks to compare against an unexpected entry in a bank statement, but those who keep paper records may find themselves puzzling over account activity without realizing that it reflects a check written several months ago which someone finally deposited. Some banks helpfully note when checks are out of sequence to send up a red flag so that someone knows to check further back in his or her records for the original accounting entry.