You have read all about fraud and management and control of cash. Record keeping and reconciling bank accounts is an important function in cash management.
Bank reconciliation is a simple process of exchanging information about transactions that should basically be identical between two parties. Differences arise because of timing and mistakes that either party can make. From an organization's perspective the ultimate purpose of bank reconciliation is to update an organization's cash account by incorporating the information that the bank had recorded in the firm's account and correcting any error that the organization may have committed in its own records. If a bank makes errors that affect the firm's account the bank will correct its errors.
Bank reconciliation has two parts: Adjusted balance as per firm's books and Adjusted balance as per bank statement. These adjusted balances should be equal. Updating of the firm's cash account is based on the reconciling amounts appearing the adjusted balance as per books or cash account.Why would an error made by the bank not be incorporated in the updated records of a business?