Bank Reconciliation: Identifying and Resolving Differences
By James Mante · Accounting & Finance Professional
Bank reconciliation compares an organisation's cash book with its bank statement for the same period. It helps identify missing entries, timing differences, posting errors and transactions requiring investigation.
1. Gather the records
Obtain the bank statement, cash book or general ledger bank account, previous reconciliation and supporting documents such as payment references and deposit records. Confirm that the records cover the same account and reporting date.
2. Match transactions
Tick off deposits and withdrawals appearing in both records. Investigate unmatched entries rather than assuming every difference is a timing item.
3. Separate timing differences from corrections
Outstanding cheques or payments and deposits in transit may explain legitimate timing differences. Bank fees, interest and direct debits omitted from the cash book generally require recording in the books after verification.
4. Worked example (fictional figures)
At month-end, a fictional business has a bank statement balance of £12,400 and a cash book balance of £11,950. Its review identifies a £900 deposit in transit, £600 of outstanding payments, a £100 bank charge and £50 of bank interest not yet recorded.
| Bank statement reconciliation | GBP |
|---|---|
| Bank statement balance | 12,400 |
| Add: deposit in transit | 900 |
| Less: outstanding payments | (600) |
| Adjusted bank balance | 12,700 |
| Cash book reconciliation | GBP |
|---|---|
| Cash book balance | 11,950 |
| Less: unrecorded bank charge | (100) |
| Add: unrecorded bank interest | 50 |
| Adjusted cash book balance | 11,900 |
Important: The balances do not yet agree. The remaining £800 difference must be investigated and supported by evidence. A reconciliation should never be forced to balance by inserting an unexplained adjustment.
5. Investigate and document
Review unmatched transactions, dates, duplicates, transposition errors and prior-period reconciling items. Post authorised corrections, retain supporting evidence and repeat the reconciliation until both adjusted balances agree.
6. Strengthen the control
Prepare reconciliations regularly, assign responsibility, have an independent reviewer check significant differences and follow up old outstanding items promptly. Maintain a clear audit trail of adjustments and approvals.
Educational content only. All figures and the example business are fictional.