What is the primary purpose of bank reconciliations?

The primary purpose of bank reconciliations is to reconcile timing differences between the bank's records and the company's records. This process involves comparing the company's cash records with the bank's statements to identify any discrepancies. Such discrepancies often arise from timing differences, such as deposits made that have not yet cleared the bank, or checks written by the company that the bank has not yet processed.

By performing a bank reconciliation, businesses ensure that their internal accounting records accurately reflect the balance in their bank accounts. This step is crucial for maintaining accurate financial statements and tracking cash flow effectively. It helps identify errors, fraud, or unauthorized transactions, allowing the company to take corrective measures to safeguard its financial resources.

While increasing the company's cash balance can occur as a result of proper reconciliation, it is not the primary purpose. Eliminating outstanding checks may be part of the reconciliation process, but the goal is broader, focusing on accuracy between both sets of records. Adjusting only the bank's cash balance does not reflect the complete nature of the reconciliation process, as it must also involve adjustments in the company's records to reflect the true financial position.