Define bank reconciliation.

Bank reconciliation is the process of ensuring that a company's financial records match those of its financial institution. This involves comparing the company's cash balance as recorded in its books against the bank's records of deposits, withdrawals, and any other transactions that affect the cash balance. By doing this, discrepancies can be identified and addressed, which is crucial for maintaining accurate financial records.

The reconciliation process typically involves checking for differences due to outstanding checks, deposits in transit, bank fees, errors in recording transactions, or fraud. This practice is essential for effective cash management, allowing businesses to have a clear understanding of their cash position and to make informed financial decisions. It enhances the integrity of financial statements and builds trust between the business and its bank. Other choices, such as methods of calculating profits, recording transactions, or checklists for financial priorities, do not accurately describe the purpose and function of bank reconciliation.