What is Bank Reconciliation?
Bank reconciliation is the periodic process of comparing the cash balance per a company’s general ledger against the balance reported on the bank statement, identifying and explaining any differences. The reconciliation isolates deposits in transit, outstanding cheques, bank charges, and errors so the adjusted balances on both sides agree.
How It Works
- Compare each bank deposit to the corresponding ledger entry to find deposits in transit.
- Match each cleared cheque against the cash disbursements journal to find outstanding cheques.
- Identify bank charges, interest income, and direct debits not yet recorded in the books.
- Adjust the book balance for these items via journal entries.
- Investigate residual differences as potential errors or fraud.
Saudi Context
Saudi banks (Al Rajhi, SNB, Riyad Bank) provide daily statements via MT940/MT942 and online portals, enabling real-time reconciliation. SAMA’s anti-money-laundering rules and ZATCA’s e-invoicing platform make monthly bank reconciliation a baseline audit and tax control. Qoyod automates bank feed reconciliation for major Saudi banks.
Example
A company’s ledger shows a cash balance of SAR 250,000 on 31 December. The bank statement shows SAR 245,000. After investigation: a SAR 8,000 deposit was in transit, a SAR 4,500 cheque was outstanding, and a SAR 1,500 bank charge had not been booked. Adjusted book balance: 250,000 – 1,500 = SAR 248,500. Adjusted bank balance: 245,000 + 8,000 – 4,500 = SAR 248,500. The accounts reconcile.