Final answer:
Reconciling the cash balance per books with the bank statement balance is essential to ensure accuracy in financial records, manage money effectively, and avoid issues like overdraft fees. It also helps maintain financial stability and trust between the depositor and the bank.
Step-by-step explanation:
The principal reason for reconciling the cash balance per books with the balance shown on the bank statement is to ensure that the two records are in agreement and to identify any discrepancies such as unrecorded transactions or errors. This process is crucial because it allows individuals and businesses to manage their money more effectively, track their cash flow accurately, and avoid issues such as overdrafts and the associated fees. It also provides a check against the bank's record-keeping, ensuring that transactions have been accurately posted to the account.
From a business perspective, reconciling balances is an integral part of financial management that contributes to maintaining an accurate picture of a company's finances. Banks, as financial intermediaries, play a critical role in the economy by facilitating transactions and managing financial instruments such as loans, bonds, and deposits. The integrity of these records is essential for both the individual or business and the bank to protect against potential financial risks and ensure financial stability.