Bank reconciliations is a process of comparing your records with bank records. Reconciliation on monthly basis helps in recognizing any abnormal transactions which might have occurred due to fraud or some accounting mistakes.
In order to reconcile the accounts, you should compare your transaction records and balances with your bank statement. Look through every single transaction, make sure the amount match properly. You should also make sure that your monthly bank statements show an agreeable closing balance.
If you know the way to balance your checkbook, then you must know how bank reconciliation works exactly. It is normal if you see some small differences because of timing, but you should be able to explain those differences easily. For instance, you might make out a check to a vendor and reduce the balance in account accordingly, but your bank might show more balance until it reaches your bank account.
Similarly, your account is hit by an electronic payment just a day after or before the month end, and you might be expecting it to see in some other month. If these things can be accounted easily, then there is nothing to be worried about.
Significance of Reconcile
Reviewing your accounts regularly can help you in identifying the problems before they go beyond control. Business bank accounts are not protected in the same way as consumer accounts by the federal law, this means you cannot count on the bank to help you for errors and frauds in your account.
Fraud is one of the main things to look for. Whether the legitimate checks that you issued were changed or duplicated, which may result in more money in your checking account. Whether the checks issued without any authorization? Are there any unauthorized transfers from the account, or if anyone made suspected withdrawals?