Prepared by: Mr Talha Ahmed (ACA (ICAEW, ICAP))

Bank Reconciliation Statement

Concept: When comparing our bank book (alternatively referred to as

cash book or bank ledger) to bank statement, ideally balances should
agree between both parties with only difference being that debit balance
in bank book will show as credit balance in bank statement and vice versa.

However, in practical scenarios this rarely happens. At month end when

bank book balance (as per books of business) and bank statement ( as
per bank like HBL, Alfalah etc) are compared the balances may not match.
This is due to the following reasons:

a) Errors in bank book (for this we need to adjust our bank/cash

book)
b) Items not yet recorded in bank book but item recorded in bank
statement (for this we need to adjust our bank/cash book)
c) Errors in bank statement (for this we need to adjust bank
statement balance)
d) Items not yet appearing in bank statement but have been recorded
in our bank book (for this we need to adjust bank statement
balance)

Let’s take a look at these items in detail

a) Error in bank book → adjust bank book: Can be any error done
by us or our accountant while posting to bank book for example
wrong entry of figures (e.g. cheque payment of Rs 500 is entered
as Rs 300) or posting to wrong account ( e.g. Cash Sale is posted
in bank account). Such errors need to be corrected in bank book to
come to the corrected balance.

b) Items not yet recorded in bank book but item recorded in bank
statement → Adjust Bank Book

There are a number of items that may be recorded in bank

statement by our bank but we have not recorded them as yet. Some
examples are as below:
i) Bank Charges: Sometimes bank charges our account for items
like ATM activation, cheque book activation, SMS charges and
other similar charges. Such charges may appear on bank
statement but may not yet appear on our cash book ( bank book
may sometimes be referred to as cash book as well). We need

1
Prepared by: Mr Talha Ahmed (ACA (ICAEW, ICAP))

to update our cash book for these charges and record them as
Dr Expense Cr Bank.
ii) Interest Charged: Similar to above if bank charges us interest
let’s say on overdraft balance it might appear on bank statement
but not yet in our cash book. Our cash book should be adjusted
to include this charge via Double entry Dr Interest Expense Cr
Bank.
iii) Dividend/Interest Received: If bank receives any dividend or
interest directly in bank account and if it is appearing in bank
statement but not yet recorded by us we would need to adjust our
bank book to record this receipt via double entry Dr bank Cr
dividend/ interest received.
iv) Standing Order Payment: Sometimes we allow banks to make
direct payments on our behalf. For example, if we need to pay
rent on regular basis or pay for lease of car we may instruct bank
to make these regular payments on our behalf. If the amount has
been recorded by bank but not yet by us, it should be recorded
in our adjusted bank book as Dr expense Cr Bank. Note that in
standing order the amount of payment and date of payment is
fixed.
v) Direct Debit Payment: This is similar to standing order, but in
direct debit the amount that we need to pay and/or the date we
need to pay may vary from month to month. For example, utility
bills may vary from month to month but we can ask our bank to
pay these utility bills on our behalf directly from our account. If
the amount has been recorded by bank but not yet by us, it
should be recorded in our adjusted bank book as Dr expense Cr
Bank. Note that in standing order the amount of payment and
date of payment is fixed whereas here, the amount of payment
and/or date may vary
vi) Direct Credit: Sometimes we may receive funds directly in our
bank account (like from online sales or online transfers) and if
these amounts are yet to be recorded in our bank book it will
create a difference and we would need to adjust our bank book
and record this receipt as Dr bank Cr Sales/Other relevant
account.
vii) Dishonoured cheque: If we receive a cheque from customer
we would record it in our bank book, but if later on the cheque is
rejected by bank due to any problem (lack of funds/ signature not
matching etc.) it would mean that we would need to adjust our
cash book and remove this cheque that we had received via
double entry Dr Receivable Cr Bank.

2
Prepared by: Mr Talha Ahmed (ACA (ICAEW, ICAP))

viii) Cancelled cheque: If we give a cheque to supplier we would

record it in our bank book, but if later on the cheque is rejected
by bank due to any problem (lack of funds/ signature not
matching etc.) it would mean that our payment from bank book
has not been accept and we would need to remove this cheque
that we had paid via double entry Dr Bank Cr Payable.

c) Errors in bank statement → Adjust Bank Statement: This can be

any error done by bank showing in bank statement but amount is
correct in cash book. For example, bank calculated interest
incorrectly or posted a cheque for someone else incorrectly to our
account or over charged or under charged us. For this we will adjust
bank statement and not bank book as our bank book is correctly
showing the figure but bank statement is not.

d) Items not yet appearing in bank statement but have been

recorded in bank book → Adjust bank statement: Sometimes
we have paid or received a cheque but it is not yet showing in the
bank statement as it may not have been presented or cleared. This
means our cash book is showing the correct figure but bank
statement is not. There are two types of items covered under this:

i) Unpresented cheques: It refers to the cheques that we have

paid to our suppliers but they have not yet presented to the bank.
It means that our bank account correctly shows the payment but
bank statement is not yet showing this payment so we should
adjust bank statement.

ii) Uncredited cheques: It refers to the cheques that we have

received and deposited in bank but they are currently not shown
in bank statement as bank may take few days to process the
cheque and clear it until it shows in our bank account. It means
that our bank account correctly shows the receipt but bank
statement is not yet showing this receipt so we should adjust
bank statement.