Bank Reconciliation
The cash book balance and the bank statement balance rarely match on any given day — not because of an error, but because of timing. Bank reconciliation identifies and explains every difference.
1. Two Types of Difference
| Type | Examples | What to do |
|---|---|---|
| Items the business doesn’t know about yet | Bank charges, interest, direct debits, standing orders, credit transfers received, dishonoured cheques | Update the cash book to include them |
| Timing differences | Unpresented cheques (paid out, not yet cleared), uncredited/outstanding deposits (paid in, not yet showing) | Adjust the bank statement balance in a reconciliation statement |
500 − 20 (charges) − 30 (direct debit) + 100 (credit transfer) = $550
Balance per updated cash book: $550
Add unpresented cheques (already deducted in cash book, but not yet by the bank): +$80
Less uncredited deposits (already added in cash book, but not yet by the bank): −$150
Balance per bank statement = 550 + 80 − 150 = $480
- Adjusting the CASH BOOK for timing differences (unpresented cheques/uncredited deposits) — these only appear in the reconciliation STATEMENT, since the cash book figure is already correct from the business’s point of view.
- Adjusting for a genuine bank error (rare) by changing the cash book — bank errors are corrected by the bank, not by adjusting the business’s own records.
- Getting the +/− signs backwards in the reconciliation statement — always think about which figure (cash book or bank statement) is “ahead” and which is “behind.”
Key Vocabulary Recap
Syllabus Reference
Practice questions
Bank Reconciliation — Practice
Covers: updating the cash book and preparing a bank reconciliation statement. 10 questions.
Explain why the cash book balance and the bank statement balance often differ on any given day.
Explain what is meant by an unpresented cheque.
Explain what is meant by an uncredited deposit.
State whether each of the following requires the cash book to be updated, or an adjustment in the reconciliation statement: (a) bank charges, (b) an unpresented cheque.
The cash book shows a balance of $700. Bank charges of $15 and a standing order of $40 appear on the bank statement but not the cash book. Calculate the updated cash book balance.
The cash book shows a balance of $900. A credit transfer of $250 received from a customer appears on the bank statement but not the cash book. Calculate the updated cash book balance.
After updating, the cash book balance is $550. There are unpresented cheques of $80 and uncredited deposits of $150. Calculate the balance shown on the bank statement.
Explain how a dishonoured cheque should be treated in the cash book.
Explain why a genuine error made by the bank should not be corrected by adjusting the business’s cash book.
State one purpose of preparing a bank reconciliation statement.
Worked solutions
Show worked solutions
Bank Reconciliation — Practice: Solutions
Why do the two balances often differ?
Explain unpresented cheque.
Explain uncredited deposit.
Cash book update or reconciliation statement adjustment?
Cash book $700; charges $15, standing order $40.
Cash book $900; credit transfer $250 received.
Updated cash book $550; unpresented $80; uncredited $150.
Treatment of a dishonoured cheque.
Why not correct a bank error in the cash book?
One purpose of a bank reconciliation statement.
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