Bank reconciliation statements

Two records of the same money

The cash book is the business's record; the bank statement is the bank's. They disagree for two very different reasons, and telling them apart is the whole skill.

Reason one — the business did not know

Bank charges, interest received, direct debits and standing orders, dishonoured cheques, credit transfers received. The bank knew; the business did not. These must be entered in the cash book to give an updated cash book balance. They are corrections, not reconciling items.

Reason two — timing

Cheques written and sent but not yet presented (unpresented cheques) and money paid in but not yet cleared (outstanding lodgements). Both records are correct; the bank is simply behind. These appear in the reconciliation statement, never in the cash book.

The order that prevents mistakes

Always update the cash book first, then reconcile. Doing it the other way round means you reconcile to a figure you are about to change. The reconciliation ends when both sides show the same adjusted balance.

Why it matters beyond ticking

Reconciliation is a control: it catches errors, unrecorded charges and, most importantly, fraud — a payment leaving the bank that no one recorded is the classic warning sign.