Bank Reconciliation Matches Records

Steps:

• Compare cash book balance (company's records) with bank statement balance (bank's records).
• Identify timing differences like outstanding deposits or cheques.
• Note bank errors or unrecorded items like fees.
• Adjust to find true cash balance and explain variances.

Why B is correct:

• Bank reconciliation statement is defined as a tool to identify and explain discrepancies between the cash book (internal ledger) and bank statement (external record) due to timing or errors.

Why the others are wrong:

• A: Cash in hand is tracked separately in petty cash, not via bank reconciliation.
• C: Dishonoured cheques are noted but not the primary purpose; reconciliation focuses on overall balance differences.
• D: Profit or loss statement derives from income/expenses, unrelated to bank-cash matching.

Final answer: B