Financial Accounting
Bank Reconciliation
5 question(s)
What is a bank reconciliation?
Beginner
A statement that reconciles the cash book balance to the bank statement balance by explaining the differences between them.
Cash book 4,200 vs Bank statement 4,650 -> reconcile the 450 difference
Real-world example
Done monthly to confirm the recorded cash matches the bank.
What are common reconciling items?
Intermediate
Unpresented cheques, outstanding lodgements, bank charges and interest, direct debits/standing orders, dishonoured cheques, and errors on either side.
Add outstanding lodgements, deduct unpresented cheques from the bank balance
Real-world example
Bank charges often appear on the statement before they're in the cash book.
Prepare a simple bank reconciliation.
Intermediate
Start from the bank statement, add deposits not yet credited, subtract cheques not yet presented, to arrive at the adjusted cash book balance.
Bank 4,650 + lodgements 300 - unpresented 750 = 4,200 (cash book)
Real-world example
The adjusted figures on both sides must agree to complete the reconciliation.
What is an unpresented cheque?
Beginner
A cheque the business has written and recorded but which the payee has not yet cashed, so it hasn't cleared the bank.
Cheque 750 written but not yet on the bank statement
Real-world example
Explains why the bank balance is higher than the cash book temporarily.
Why is bank reconciliation an important control?
Advanced
It detects errors, omissions, timing differences and potential fraud (e.g. unauthorised payments) by independently checking recorded cash against the bank.
Unexplained withdrawal on the statement -> investigate for fraud
Real-world example
A monthly reconciliation is a basic internal control every auditor expects.