Bank reconciliation

What it means

The process of reconciling the balance in the cash book with the balance on the bank statement by identifying timing differences and errors.

Example

Unpresented cheques and uncredited lodgements are common reasons the two balances differ.

Why it matters

It confirms the cash records are accurate and highlights items the business has not yet recorded.

In practice

A bank reconciliation is not a ledger account. It is a statement prepared from time to time. First, update the cash book for items the bank knows about but you had not entered, such as bank charges, direct debits and interest. Then build a reconciliation statement that starts from the bank statement balance. Adjust it for timing differences. Unpresented cheques are cheques you have paid out that have not yet cleared. Outstanding lodgements are money paid in but not yet credited.

For example, a corrected cash book balance of RM3,200 might reconcile to a bank statement showing RM3,650. The RM450 gap is an unpresented cheque.

Students often confuse it with the control account. A control account checks the ledger against day-book totals, using the firm's own records. A bank reconciliation compares the firm's record with an outside document, the bank statement. It checks accuracy against an independent source.

If you struggle to set out a reconciliation, one of our teachers can practise the layout with you until the steps are routine. Book a trial class.

Related terms

• Control account
• Trial balance
• Bank charges
• Bank overdraft
• Bank statement
• Cash book
• Credit transfer
• Direct debit
• Dishonoured cheque
• Standing order
• Uncredited deposit
• Unpresented cheque

Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 3.3 Bank reconciliation (page 13).

Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.