Financial AccountingReasons for Bank Reconciliation


Reasons for Bank Reconciliation
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Ideally, the closing balance of this bank statement shall be in agreement with the Bank book (being maintained by the business). For every Debit (Deposit) entry in the Bank book, there shall be a credit entry in the bank statement. Similarly, for every credit entry (withdrawal/ transfer from bank account) in the business’s bank book, there shall be a Debit entry in the bank statement.

However, in practice, this may not be the case. There can be various mismatches between both the Bank book maintained by the business and the Bank statements sent by the Bank. Most of the time there are transactions

  • Which have been recorded in the bank book but not yet reflected in the bank statement.
  • Further, there are few periodic transactions that have been executed by the bank and updated in its records but yet not recorded in the accounting records of the business.

A few examples which can be the reasons for such mismatches are;


  1. Unrepresented Cheques by Supplier- Whenever a cheque is prepared by the business a credit entry is recorded immediately, whereas the bank will only record this transaction when the cheque is presented to the bank for encashment by the supplier. For example, Business pays its supplier through a cheque, a credit entry will be recorded into the Bank Book. However, if this cheque is not yet presented to the Bank by the supplier, it will not be reflected in the bank statement, resulting in a mismatch between the Bank book and the bank statement.
  2. Unrepresented Cheques- given by customers- If the business received a cheque from its customer, a debit entry will be recorded into the Bank book, however, it will only be updated into the bank’s record once the Cheques are presented to the bank. Such unrepresented Cheques will also cause a disagreement between bank books and bank statements.
  3. Errors in recording transactions by the company’s staff- Sometimes mismatches between bank book and bank statement can occur because of mistakes while recording transactions into the bank book.


  1. Dishonored Cheques – A cheque given by the customer is bounced or returned unpaid by the bank, which will result in a mismatch between the bank book and the bank statement.
  2. Bank Charges- Any charges e.g. Cheques book, bank draft, etc. levied or deducted by the bank are not known to the cash accountant till the bank statement is received, resulting in a mismatch between the balance at the Bank book and the Bank statement.
  3. Interest/ Markup deducted by the Bank- Similarly, banks provide overdraft facilities to businesses and charge markup/ interest at the end of the period. The amount of these Markup charges are usually recorded in the books of accounts when a Bank statement is received.
  4. Interest/ profit given savings account by the Bank- Banks usually distribute markup/ profit periodically at the balance maintained in the bank account. The exact amount of this profit/ markup is usually not known to the business till the bank statement is received.
  5. Direct Transfer by the Customer- With the ease of doing transactions due to the advancement of digital technologies, customers nowadays directly transfer the amounts to the supplier’s bank accounts. Such payments are only recorded after the confirmation from the Bank through Bank Statements.
  6. Payment made/ Realized on behalf of Customers- Sometimes banks offer services by collecting Bills/ invoices directly from the customers of the company. Think of the payment made against utility bills e.g. Electricity bill payment, which can be deposited into the various branches of different banks. Similarly, businesses can authorize their banks to make regularly scheduled payments e.g. rent, and insurance premiums to the suppliers/ vendors on behalf of the business without receiving permission from the customer every time. All such payments from/ receipts into the business’s bank account are usually recorded after receiving the bank statement from the Bank.
  7. Rebate on early settlement/ retirement of Bills- Like the overdraft facility, banks provide another type of loan/ trade financing facility to the businesses. Banks offer to pay the business’s suppliers and require the business to pay back this amount within specific days along with the markup for that period. However, if a business pays before the maturity of this bill it may get a discount from the Bank. The amount of such discount can only be recorded into the bank book, once the bank statement has been received.
  8. Errors in recording transactions by Banking staff- Errors can occur while recording transactions by bank staff. Such errors shall be communicated to banking staff for correction.

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