Recap: Bank reconciliation

Some items appear on the bank statement before the business knows about them.

• Bank charges and interest
• Direct debits and standing orders
• Money paid in directly by a customer

These are not timing differences. The cash book is missing them, so the cash book must be updated.

Start from the balance on the bank statement. Add money paid in that is not shown yet. Take off cheques that have not cleared.

Balance per bank statement

start here

Add outstanding lodgements

money paid in, not yet shown

Less unpresented cheques

payments not yet cleared

Balance per cash book

the answer must match this

The cash book was updated for the bank charges and the direct debit, so it now shows £2,000.

The business writes a payment in its cash book on the day it is made. The bank only shows it when the money actually moves.

Unpresented cheque

a payment in the cash book that has not reached the bank statement yet

Outstanding lodgement

money paid in, in the cash book, that the bank has not shown yet

These are timing differences. They clear by themselves within a few days.

Some items appear on the bank statement before the business knows about them.

• Bank charges and interest
• Direct debits and standing orders
• Money paid in directly by a customer

These are not timing differences. The cash book is missing them, so the cash book must be updated.

The business writes a payment in its cash book on the day it is made. The bank only shows it when the money actually moves.

Unpresented cheque

a payment in the cash book that has not reached the bank statement yet

Outstanding lodgement

money paid in, in the cash book, that the bank has not shown yet

These are timing differences. They clear by themselves within a few days.

Start from the balance on the bank statement. Add money paid in that is not shown yet. Take off cheques that have not cleared.

Balance per bank statement

start here

Add outstanding lodgements

money paid in, not yet shown

Less unpresented cheques

payments not yet cleared

Balance per cash book

the answer must match this

The cash book was updated for the bank charges and the direct debit, so it now shows £2,000.