What Is a Bank Reconciliation?
How to match your cash book to the bank statement, step by step.
Home › Accounting Glossary › Bank Reconciliation
| Common differences | Unpresented cheques, deposits in transit, bank charges, errors |
|---|---|
| Goal | Both balances agree after adjustments |
| Topic | Financial accounting · Cash control |
Bank reconciliation in plain English
Your cash book and your bank statement rarely match on a given day. Some payments you recorded have not cleared yet, and the bank may have added charges you have not recorded. Reconciling finds and explains each difference.
Worked example
The cash book shows 5,000. The bank charged 50 in fees that are not yet in the cash book. There are cheques written for 600 not yet presented to the bank, and deposits of 900 that the bank has not yet credited.
Step 1: update the cash book. 5,000 − 50 bank charge = 4,950.
| Reconciliation at month end | Amount |
|---|---|
| Balance per bank statement | 4,650 |
| Less: unpresented cheques | (600) |
| Add: deposits not yet credited | 900 |
| Adjusted balance (agrees with updated cash book) | 4,950 |
- Forgetting to update the cash book first for items the bank has recorded, such as charges and direct debits.
- Adjusting the wrong way. Unpresented cheques are subtracted from the bank statement balance.
Frequently asked questions
Why does the bank balance differ from the cash book?
Because of timing differences, such as unpresented cheques and deposits in transit, and items the bank recorded first, such as fees.
What is an unpresented cheque?
A cheque you have written and recorded, but which has not yet been paid by the bank.
What is a deposit in transit?
A deposit recorded in your books that has not yet appeared on the bank statement.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.