What is the primary purpose of a bank reconciliation?

• A. To calculate the interest earned on a bank account.
• B. To identify and explain differences between the cash balance per books and the cash balance per bank statement.
• C. To record all cash receipts and disbursements in the general ledger.
• D. To prepare financial statements for external reporting.

Answer: (B)

Verified step by step guidance

1. Understand the concept of bank reconciliation: Bank reconciliation is a process used to compare the cash balance recorded in the company's books with the cash balance shown on the bank statement to identify and explain any discrepancies.
2. Identify the primary purpose: The main goal of a bank reconciliation is to ensure that the company's financial records are accurate and match the bank's records. This helps detect errors, omissions, or fraudulent activities.
3. Clarify the differences: Differences between the book balance and the bank statement balance can arise due to outstanding checks, deposits in transit, bank fees, or errors in recording transactions.
4. Exclude unrelated purposes: The purpose of bank reconciliation is not to calculate interest earned, record cash transactions, or prepare financial statements. These are separate accounting tasks.
5. Summarize the correct answer: The primary purpose of a bank reconciliation is to identify and explain differences between the cash balance per books and the cash balance per bank statement.