The cash balance in a company's general ledger and the bank's balance on the bank statement will generally be different because of the time lag in recording transactions. True or False
True.
The cash balance in a company's general ledger and the bank's balance on the bank statement will generally be different due to the time lag in recording transactions. This time lag occurs because the company may record transactions in its general ledger at the time they occur, whereas the bank may take some time to process and record these transactions on their end. For example, if a company writes a check to a supplier, they will record this transaction in their general ledger immediately. However, it may take a few days for the bank to receive and process the check, resulting in a delay in the bank's recording of the transaction.
To reconcile the differences between the company's cash balance in the general ledger and the bank's balance on the bank statement, a process called bank reconciliation is performed. Bank reconciliation involves comparing the transactions recorded in the company's general ledger with the transactions reported on the bank statement. This process helps identify any discrepancies, such as outstanding checks, deposits in transit, bank fees, or errors on either side, that may be causing the difference in balances.
By conducting a bank reconciliation, the company can adjust its general ledger cash balance to match the bank's balance on the bank statement. This ensures that the financial records accurately reflect the company's cash position, allowing for proper financial reporting and decision making.