A bank reconciliation explains why the cash book balance and the bank statement balance differ. The tool below does it in the order an exam expects: update the cash book first, then explain what is left as timing items. All figures are fictional and nothing is saved or sent.
This is the method behind updating the cash book before reconciling and reconciling from either starting balance. The tool sits in the learning tools section.
How do I use the tool?
- Enter the cash book balance before updating and the bank statement closing balance. A positive number means money in the bank. An overdraft is entered as a negative number.
- Under Step 1, enter items the bank has recorded but the cash book has not: bank charges, direct debits or standing orders paid, direct credits received, interest received. Enter 0 for any that do not apply.
- Under Step 2, enter the timing items: unpresented cheques and outstanding lodgements. These are already in the cash book.
- Press Reconcile. Use Reset to return to the starting example.
Every item amount must be zero or more. The sign is applied by the tool, because each box already says whether the item is added or subtracted.
How do I read the result?
The result has four parts.
- Updated cash book. The starting balance with each Step 1 item added or subtracted. This is the balance the business should report.
- Direction A. Updated cash book, plus unpresented cheques, less outstanding lodgements, which should equal the bank statement.
- Direction B. Bank statement, plus outstanding lodgements, less unpresented cheques, which should equal the updated cash book.
- Movement check. Cash book minus statement should equal lodgements minus unpresented cheques.
When both directions agree, the heading turns green. If they do not, the tool shows the unexplained difference and reminds you to look for a missing item, a mis-keyed amount or a double-counted item.
Worked example with the starting figures
The tool opens with these numbers: cash book 1,000, bank statement 830, bank charge 20, unpresented cheques 150, outstanding lodgements 300.
Update the cash book: 1,000 − 20 = 980.
Direction A: 980 + 150 − 300 = 830, which matches the statement.
Direction B: 830 + 300 − 150 = 980, which matches the updated cash book.
Movement check: 980 − 830 = 150, and 300 − 150 = 150. The timing items explain the whole gap.
What mistake does the tool help me catch?
The classic error is posting a timing item to the cash book as well. Suppose a student adds the 300 lodgement and subtracts the 150 cheque again: 1,000 − 20 + 300 − 150 = 1,130. Direction A then gives 1,130 + 150 − 300 = 980, not 830, so the tool shows a difference of 150.
Try it: change nothing except the thinking. The lodgement and the cheque were already recorded, so they belong only in Step 2. Posting them twice is the pattern described in posting reconciliation timing items twice.
Assumptions and limits
- The figures are fictional. The tool is not connected to a bank and cannot read a real statement.
- It handles the six item types listed. A real question may add others, such as a dishonoured cheque or a bank error.
- Signs follow the business’s view: a positive bank balance in the cash book is an asset. The same money is a credit balance in the bank’s own books, which is why an overdraft is entered as negative.
- It checks arithmetic consistency. It does not tell you whether an item belongs in Step 1 or Step 2, so practise that classification separately.
Where to go next
Work through verifying the reconciliation with an independent movement check, then try the bank reconciliation mixed practice with full explanations. If you are studying with a teacher, bring one reconciliation that would not agree. Our one-to-one Accounting tuition starts from exactly that kind of question.