3.3 Bank Reconciliation

2026 Syllabus Objectives

By the end of this topic, you should be able to:

  1. Understand the use and purpose of a bank statement.
  2. Update the cash book for bank charges, bank interest paid and received, correction of errors, credit transfers, direct debits, dividends, and standing orders.
  3. Understand the purpose of and prepare a bank reconciliation statement to include bank errors, uncredited deposits, and unpresented cheques.

1. The Bank Statement

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What is a bank statement?

A bank statement is a document that your bank sends to you (or that you can view online). It lists every transaction — every payment in and every payment out — that has passed through your bank account over a certain period.

Banks issue these statements regularly (for example, every month), but you can also ask for one at any time.

Why is a bank statement useful?

  • It lets you check whether any mistakes have been made in your own accounting records.
  • It lets you compare the bank balance you have recorded in your cash book with the balance the bank is showing. If the two figures are different, you need to find out why.

An important difference: the bank's perspective vs. the business's perspective

This is one of the trickiest ideas in this topic, so read carefully.

Your cash book is written from the business's point of view:

  • When money comes into your bank account, you write it on the debit (left) side of the cash book.
  • When money goes out of your bank account, you write it on the credit (right) side of the cash book.

The bank statement is written from the bank's point of view:

  • When money comes into your account, the bank owes that money to you — so the bank records it as a credit entry on the statement.
  • When money goes out of your account, the bank records it as a debit entry on the statement.

In short: debit in the cash book = credit on the bank statement, and vice versa. The entries are always mirror images of each other.

A credit balance on the bank statement means there is money in the account. A debit balance on the bank statement means the account is overdrawn (the business owes money to the bank).

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