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23
The Corporate Finance Institute
Accounting
Bank Reconciliations
A bank reconciliation is a document that matches the cash balance 
in the company’s books to the corresponding amount on its bank 
statement. Bank reconciliations are completed at regular intervals 
to ensure that the company’s cash records are correct. Bank 
reconciliations also help detect fraud and any cash manipulations. 
When banks send companies a bank statement that contains the 
company’s beginning cash balances, transactions during the period, and 
ending cash balance, almost always, the company’s ending cash balance 
and the bank’s ending cash balance will never be the same. Some 
reasons for this difference may be due to any deposits in transit such as 
cash and cheques that have been received and recorded but have not 
yet been recorded in the bank records, outstanding cheques, or bank 
service fees.
Bank Reconciliation Procedure:
1.
Start with the bank’s ending cash balance
2.
Add: Any deposits in transit
3.
Deduct: Any cheques that have not yet been cleared (i.e. outstanding
cheques)
4.
Go to the company’s ending cash balance and deduct any bank
service fees and penalties and add any interest earned
5.
At the end, the adjusted bank balance should equal the company’s
ending adjusted cash balance
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corporatefinanceinstitute.com
24
The Corporate Finance Institute
Accounting
Item #
Adjustment to Books
Bank Balance
$300,000
1
Deduct: Service charge
-100
2
Debit expense, credit cash
Add: Interest income
+20
3
Debit cash, credit interest income 
Deduct: Uncleared cheques
-50,000
4
None
Add: Deposit in transit
+20,000
5
None
Book Balance
$269,920