What is the purpose of a bank reconciliation?

• A. To reconcile the company’s cash balance with the bank’s balance
• B. To prepare a note payable schedule
• C. To determine depreciation expense
• D. To calculate gross profit

Answer: (A)

Bank reconciliation is the process of matching the company’s cash records with the bank’s records. The goal is to explain and resolve any differences between the cash balance on the company’s books and the balance shown on the bank statement. This helps ensure the reported cash balance is accurate for financial reporting and internal control.

Differences arise from items such as deposits in transit, outstanding checks, bank fees, interest earned, or NSF checks, and even bank errors. By identifying these items, you adjust the company’s cash ledger to reflect the true reconciled balance, which supports reliable financial statements and helps catch potential errors or irregularities.

The other options don’t fit because they relate to different areas: a note payable schedule is about liabilities, depreciation expense concerns long-term asset accounting, and gross profit focuses on sales and cost of goods sold.