I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

bank reconciliation 

is a comparison of a bank statement (sent monthly, weekly or even daily by the 

bank) with the cash book. Differences between the balance on the bank statement and the balance in 

the cash book will be errors or timing differences, and they should be identified and satisfactorily 

explained. 

 

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CHAPTER 15  

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  BANK RECONCILIATIONS 

 

265 

 

2

   The bank reconciliation 

Differences between the cash book and the bank statement arise for three reasons. 

  Errors – usually in the cash book 

  Omissions – such as bank charges not posted in the cash book 

  Timing differences – such as unpresented cheques 

2.1 The bank statement 

A bank statement is sent by a bank to its customers itemising the balance on the account at the 

beginning of the period, receipts into the account and payments from the account during the period, and 

the balance at the end of the period.  

It is necessary to remember, however, that if a customer has money in their account, the bank owes 

them that money, and the customer is therefore a payable of the bank (hence the phrase 'to be in credit' 

means to have money in your account). This means that if a business has $8,000 cash in the bank, it 

will have a debit balance in its own cash book, but the bank statement, if it reconciles exactly with the 

cash book, will state that there is a credit balance of $8,000. (The bank's records are a 'mirror image' of 

the customer's own records, with debits and credits reversed.) 

2.2 Why is a bank reconciliation necessary? 

A bank reconciliation is needed to identify and account for the differences between the cash book and the 

bank statement. 

QUESTION 

Differences

 

These differences fall into three categories. What are they? 

ANSWER 

Look back to the beginning of this section. 

 

2.3 What to look for when doing a bank reconciliation 

The cash book and bank statement will rarely agree at a given date. If you are doing a bank 

reconciliation, you may have to look for the following items.  

(a) 

Corrections and adjustments to the cash book 

(i) 

Payments made into the bank account or from the bank account by way of standing order 

or direct debit, which have not yet been entered in the cash book 

(ii) 

Dividends received (on investments held by the business), paid direct into the bank 

account but not yet entered in the cash book 

(iii) 

Bank interest and bank charges, not yet entered in the cash book 

(iv) 

Errors in the cash book that need to be corrected 

The corrected cash book balance is the balance that is shown in the statement of financial 

position. 

(b) 

Items reconciling the corrected cash book balance to the bank statement 

(i) 

Cheques drawn (ie paid) by the business and credited in the cash book, which have not yet 

been presented to the bank, or 'cleared', and so do not yet appear on the bank statement. 

These are commonly known as unpresented cheques or outstanding cheques.  

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