Bank Reconciliation Interview Questions & Answers

Q: What is a bank reconciliation?

A bank reconciliation is a statement that reconciles the balance in the business's cash book with the balance on the bank statement, explaining the differences between them. It confirms the accuracy of the cash book, identifies items not yet recorded, and detects errors or fraud in either record.

Q: Why do the cash book and bank statement balances differ?

They differ because of timing differences—unpresented (outstanding) cheques the business recorded but the bank hasn't paid yet, and outstanding lodgements/deposits in transit recorded by the business but not yet credited by the bank—and because of items known only to the bank—bank charges, interest, direct debits, standing orders, and dishonoured cheques—plus any errors in either record.

Q: What is an unpresented cheque?

An unpresented (outstanding) cheque is one the business has written and recorded as a payment in the cash book, but which the payee hasn't yet paid into their bank, so it hasn't cleared the business's bank account. It makes the bank statement balance higher than the cash book until it clears.

Q: What is an outstanding lodgement (deposit in transit)?

An outstanding lodgement is money (cash/cheques) the business has received and recorded in the cash book and paid into the bank, but which the bank hasn't yet credited to the account. It makes the cash book balance higher than the bank statement until the bank processes it.

Q: What are the steps to prepare a bank reconciliation?

First, update the cash book for items on the bank statement not yet recorded (charges, interest, direct debits, standing orders, dishonoured cheques) and correct any cash book errors, giving an adjusted cash book balance. Then, starting from the bank statement balance, adjust for timing differences—add outstanding lodgements and deduct unpresented cheques—to arrive at the adjusted cash book balance.

Q: Which differences require an adjustment to the cash book and which do not?

Items known only to the business until the statement arrives—bank charges, interest, direct debits, standing orders, dishonoured cheques, and bank errors affecting the cash book—require updating the cash book. Pure timing differences—unpresented cheques and outstanding lodgements—do not; they self-correct and only appear in the reconciliation statement.

Q: How is an overdrawn bank balance treated in a reconciliation?

An overdraft is a credit balance in the cash book and a debit (overdrawn) balance on the bank statement. The reconciliation logic reverses: from an overdrawn statement balance, deduct outstanding lodgements and add unpresented cheques to reach the adjusted cash book overdraft. Care with signs is essential.

Q: How does a bank reconciliation help detect fraud or error?

By independently comparing the business's records to the bank's, a reconciliation surfaces unauthorized withdrawals, altered or forged cheques, unrecorded transactions, and posting errors as unexplained differences. Performing it regularly, by someone independent of cash handling, is a key control against misappropriation.

Q: How do you deal with stale or cancelled cheques in a reconciliation?

A stale cheque (typically unpresented for over six months) will not be honoured by the bank. It should be written back: debit the bank (cash book) to reinstate the funds and credit the original account (e.g., the supplier/payable) since the liability revives. It's then removed from the list of unpresented cheques.

Q: What is the adjusted (corrected) cash book balance?

The adjusted cash book balance is the cash book balance after updating it for items appearing on the bank statement but not yet recorded (charges, interest, direct debits, dishonoured cheques) and correcting any errors. This adjusted balance is the figure that the reconciliation ties to the bank statement (after timing differences) and is used in the accounts.

What is a bank reconciliation?

Beginner

A bank reconciliation is a statement that reconciles the balance in the business's cash book with the balance on the bank statement, explaining the differences between them. It confirms the accuracy of the cash book, identifies items not yet recorded, and detects errors or fraud in either record.

Real-world example Each month the bookkeeper prepares a bank reconciliation to explain why the cash book and bank statement differ.

Common follow-ups: What two balances does it reconcile? | Why perform it regularly?

Cash Book & Petty Cash Correcting Errors Bank Reconciliation

Why do the cash book and bank statement balances differ?

Beginner

They differ because of timing differences—unpresented (outstanding) cheques the business recorded but the bank hasn't paid yet, and outstanding lodgements/deposits in transit recorded by the business but not yet credited by the bank—and because of items known only to the bank—bank charges, interest, direct debits, standing orders, and dishonoured cheques—plus any errors in either record.

Real-world example A cheque written today lowers the cash book but not the bank statement until it clears, creating a timing difference.

Common follow-ups: What are timing differences? | Which items appear first on the bank statement?

Cash Book & Petty Cash Correcting Errors Bank Reconciliation

What is an unpresented cheque?

Beginner

An unpresented (outstanding) cheque is one the business has written and recorded as a payment in the cash book, but which the payee hasn't yet paid into their bank, so it hasn't cleared the business's bank account. It makes the bank statement balance higher than the cash book until it clears.

Real-world example A supplier hasn't banked the cheque yet, so it's unpresented and the bank still shows the higher balance.

Common follow-ups: How does it affect the reconciliation? | When does it clear?

Cash Book & Petty Cash Bank Reconciliation Bank Reconciliation

What is an outstanding lodgement (deposit in transit)?

Beginner

An outstanding lodgement is money (cash/cheques) the business has received and recorded in the cash book and paid into the bank, but which the bank hasn't yet credited to the account. It makes the cash book balance higher than the bank statement until the bank processes it.

Real-world example Takings banked late on the last day appear in the cash book but not yet on the bank statement.

Common follow-ups: Which balance is higher because of it? | When is it cleared?

Cash Book & Petty Cash Bank Reconciliation Bank Reconciliation

What are the steps to prepare a bank reconciliation?

Intermediate

First, update the cash book for items on the bank statement not yet recorded (charges, interest, direct debits, standing orders, dishonoured cheques) and correct any cash book errors, giving an adjusted cash book balance. Then, starting from the bank statement balance, adjust for timing differences—add outstanding lodgements and deduct unpresented cheques—to arrive at the adjusted cash book balance.

Bank statement balance          5,200
  Add: outstanding lodgements    +400
  Less: unpresented cheques      -600
  = Adjusted cash book balance   5,000

Real-world example The bookkeeper first updates the cash book for bank charges, then reconciles the statement for timing differences.

Common follow-ups: Which items update the cash book? | Which are timing differences on the statement?

Cash Book & Petty Cash Correcting Errors Bank Reconciliation

Which differences require an adjustment to the cash book and which do not?

Intermediate

Items known only to the business until the statement arrives—bank charges, interest, direct debits, standing orders, dishonoured cheques, and bank errors affecting the cash book—require updating the cash book. Pure timing differences—unpresented cheques and outstanding lodgements—do not; they self-correct and only appear in the reconciliation statement.

Real-world example Bank charges are entered in the cash book, but an unpresented cheque is only listed in the reconciliation.

Common follow-ups: Do timing differences need a cash book entry? | Give examples that update the cash book.

Cash Book & Petty Cash Correcting Errors Bank Reconciliation

How is an overdrawn bank balance treated in a reconciliation?

Beginner

An overdraft is a credit balance in the cash book and a debit (overdrawn) balance on the bank statement. The reconciliation logic reverses: from an overdrawn statement balance, deduct outstanding lodgements and add unpresented cheques to reach the adjusted cash book overdraft. Care with signs is essential.

Real-world example For an overdrawn account, unpresented cheques increase the overdraft in the cash book relative to the statement.

Common follow-ups: Is an overdraft a debit or credit in the cash book? | How does the sign logic change?

Cash Book & Petty Cash Bank Reconciliation Bank Reconciliation

How does a bank reconciliation help detect fraud or error?

Intermediate

By independently comparing the business's records to the bank's, a reconciliation surfaces unauthorized withdrawals, altered or forged cheques, unrecorded transactions, and posting errors as unexplained differences. Performing it regularly, by someone independent of cash handling, is a key control against misappropriation.

Real-world example An unexplained debit on the statement, revealed by the reconciliation, uncovers an unauthorized standing order set up fraudulently.

Common follow-ups: Why should an independent person reconcile? | What fraud signs might appear?

Cash Book & Petty Cash Correcting Errors Bank Reconciliation

How do you deal with stale or cancelled cheques in a reconciliation?

Advanced

A stale cheque (typically unpresented for over six months) will not be honoured by the bank. It should be written back: debit the bank (cash book) to reinstate the funds and credit the original account (e.g., the supplier/payable) since the liability revives. It's then removed from the list of unpresented cheques.

Stale cheque 250 written back:
  Dr Bank (cash book) 250
      Cr Payables (supplier) 250

Real-world example A cheque outstanding for eight months is written back, restoring the cash book balance and the creditor.

Common follow-ups: When is a cheque considered stale? | What entry reinstates it?

Cash Book & Petty Cash Correcting Errors Bank Reconciliation

What is the adjusted (corrected) cash book balance?

Beginner

The adjusted cash book balance is the cash book balance after updating it for items appearing on the bank statement but not yet recorded (charges, interest, direct debits, dishonoured cheques) and correcting any errors. This adjusted balance is the figure that the reconciliation ties to the bank statement (after timing differences) and is used in the accounts.

Real-world example After posting bank charges and a direct debit, the adjusted cash book balance is the true bank figure for the accounts.

Common follow-ups: Why is the adjusted balance used in the accounts? | What updates produce it?

Cash Book & Petty Cash Trial Balance Bank Reconciliation