Bank reconciliation
The cash book and the bank statement rarely match on the same day. FA tests whether you can explain differences and update the cash book before reconciling.
Learning outcomes
- Identify items that update the cash book vs items that appear only on the reconciliation
- Prepare an updated cash book balance
- Prepare a bank reconciliation statement to the bank statement balance
Core approach
- Update the cash book for items on the bank statement not yet recorded (bank charges, interest, direct debits, standing orders, dishonoured cheques, electronic receipts).
- Reconcile the updated cash book balance to the bank statement: add outstanding lodgements (deposits in transit), deduct unpresented cheques.
Errors can sit on either side — correct the cash book if the error is in the books; show timing differences only on the reconciliation.
Common exam traps
- Putting bank charges on the reconciliation only (they must go through the cash book first).
- Adding unpresented cheques instead of deducting them.
- Treating a dishonoured cheque as a timing difference instead of reversing it in the cash book.
Quick quiz
1. Unpresented cheque Rs. 5,000. Effect on reconciliation from updated cash book to bank statement?
Deduct Rs. 5,000 from the updated cash book balance to arrive at the bank statement balance (cheque not yet cleared).