A bank reconciliation has a primary purpose of:

• A. Recording all cash receipts and cash payments in the general ledger.
• B. Identifying and explaining differences between the cash balance per books and the cash balance per bank statement.
• C. Calculating the interest earned on a savings account.
• D. Preparing financial statements for external users.

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 (general ledger) with the cash balance shown on the bank statement to identify and explain any discrepancies.
2. Recognize the primary purpose: The main goal of bank reconciliation is to ensure that the company's records align with the bank's records by identifying and explaining differences such as outstanding checks, deposits in transit, or bank fees.
3. Eliminate incorrect options: Review the provided options and eliminate those that do not align with the purpose of bank reconciliation. For example, recording cash receipts and payments in the general ledger is part of bookkeeping, not reconciliation. Similarly, calculating interest earned on a savings account and preparing financial statements are unrelated to the reconciliation process.
4. Focus on the correct purpose: The correct purpose of bank reconciliation is to identify and explain differences between the cash balance per books and the cash balance per bank statement. This ensures accuracy in financial records and helps detect errors or fraud.
5. Apply the concept: Use this understanding to answer similar questions or perform a bank reconciliation by comparing the two balances, identifying discrepancies, and making necessary adjustments to the books.