A bank reconciliation should be prepared periodically because:

• A. It is required by law for all businesses to submit reconciliations to the IRS.
• B. It eliminates the need for internal controls over cash.
• C. It ensures that outstanding checks are immediately canceled by the bank.
• D. It helps identify and correct discrepancies between the company's records and the bank statement.

Answer: (D)

Verified step by step guidance

1. Understand the purpose of a bank reconciliation: It is a process used to compare the company's cash records with the bank statement to identify and correct discrepancies.
2. Recognize that bank reconciliations are not required by law for submission to the IRS, but they are a best practice for maintaining accurate financial records.
3. Note that bank reconciliations do not eliminate the need for internal controls over cash. Internal controls are still necessary to prevent fraud and errors.
4. Understand that outstanding checks are not immediately canceled by the bank during reconciliation. Instead, they remain pending until cleared by the bank.
5. Conclude that the primary reason for preparing a bank reconciliation is to ensure the accuracy of financial records by identifying and correcting discrepancies between the company's records and the bank statement.