A bank reconciliation checks that the cash recorded in the business's books matches the bank's own record. It's one of the most important and most commonly asked-about controls in finance — and a core daily/weekly task for assistants and bookkeepers.
Why reconcile?
The balance in your cash book and the balance on the bank statement rarely match at a point in time. Reconciling explains why, proves the cash figure is correct, and catches errors or fraud early. Unreconciled cash is a classic red flag to auditors.
Common reasons the two differ
- Timing differences — cheques written but not yet cleared; deposits not yet credited.
- Items on the statement not yet in your books — bank charges, interest, direct debits, standing orders.
- Errors — a transaction recorded twice, transposed digits, or posted to the wrong account (in either the books or, occasionally, the bank).
- Fraud — unauthorised or unexpected payments.
The reconciliation process
- Tick off every item that appears in both the cash book and the statement.
- Identify items only on the statement (e.g. bank charges) → record them in the cash book.
- Identify items only in the cash book (e.g. uncleared cheques) → these are timing differences.
- Produce a reconciliation statement showing the bank balance adjusted for timing differences = the corrected cash-book balance.
- Investigate anything unexplained — never post a "balancing figure" to force agreement.
Why it's a key control
Regular reconciliations:
- Catch errors quickly, while they're easy to fix.
- Detect fraud (unexpected payments) early.
- Give management confidence the cash figure is real.
- Support a clean audit.
This is part of a wider control mindset — segregation of duties (the person who records payments shouldn't also authorise them) and authorisation limits reduce both error and fraud.
Put it to work
Given a cash book and a statement that differ by an amount equal to an uncleared cheque plus a bank charge, write the correcting entry and the reconciliation. Then try the bank reconciliation lab.