Reasons why the bank balance differs from the book balance

You can earn our Bank Reconciliation Certificate of Achievement when you join PRO Plus. To help you master this topic and earn your certificate, you will also receive lifetime access to our premium bank reconciliation materials. These include our visual tutorial, flashcards, cheat sheet, quick tests, quick test with coaching, and more. The QuickBooks balance is affected by all your transactions in the register and the ones you haven’t reviewed yet. While the bank balance is solely determined based on the transactions on the register. The book balance is the in-house general ledger record of the same account.

The normal differences identified in a bank reconciliation will be discussed separately. A bank reconciliation begins by showing the bank statement’s ending balance and the company’s balance (book balance) in the cash account on the same date. In the past, it was common for a company to prepare the bank reconciliation after receiving the monthly bank statement and before issuing the company’s balance sheets. However, with today’s online banking a company can prepare a bank reconciliation throughout the month (as well as at the end of the month).

  • If you log into your online banking, you may see your current balance—the balance at the beginning of the day—and the available balance, which is the aggregate amount at any point during the day.
  • Typically, book balance is used to manage the cash within a company’s checking account.
  • Those debits would not be recorded in the book balance until the month-end numbers are reconciled with the bank.
  • Since you’ve spoke to our support and none of the troubleshooting instructions worked for you, I recommend having your accountant review both balances.
  • Allow me to point you in the right direction to get some answers as to why the balances aren’t matching.

The term book balance, which is also used in the bank reconciliation is the amount shown in the company’s general ledger for the bank account. In order to calculate your ledger balance, add all the credits (deposits, reversals, etc.) that go through your account during the day to the opening balance. Then subtract all the withdrawals, transfers, and other debits from that figure. The cash book balance includes transactions that are not represented in the bank balance. Although separate journal entries for each expense can be made, it is simpler to combine them, so bank fees expense is debited for $70 and cash is credited for $70. When a company writes a check, the company’s general ledger Cash account is credited (and another account is debited) using the date of the check.

Practice Question

Cash is debited for $1,565, bank fees expense is debited for $25, notes receivable is credited for $1,500, and interest revenue is credited for $90. A check that a company mails to a creditor may take several days to pass through the mail, be processed and deposited by the creditor, and then clear the banking system. Therefore, company records may include a number of checks that do not appear on the bank statement.

  • When a company writes a check, the company’s general ledger Cash account is credited (and another account is debited) using the date of the check.
  • Creating invoices becomes easier with Deskera, which automates a lot of other procedures, reducing your team’s administrative workload.
  • If that kind of error happens, we have to do some research and contact the bank to make sure it gets corrected, but we do not have to change our books.
  • Occasionally we discover a bank error, such as a deposit we have proof of making that did not get “credited” to our account.

Book balance includes transactions that a company has done during an accounting period, such as one quarter or a fiscal year. Typically, book balance is used to manage the cash within a company’s checking account. At the end of an accounting period, the book balance is reconciled with the bank statement to determine if the cash in the bank account matches the book balance. The ending balance on a bank statement almost never agrees with the balance in a company’s corresponding general ledger account. After receiving the bank statement, therefore, the company prepares a bank reconciliation, which identifies each difference between the company’s records and the bank’s records.

Difference Between Bank Balance and Book Balance

As a result, ABC’s bank balance would appear as if those funds are still available when, in fact, they have been spent. This may lead to bank overdraft charges as well as fees from the other party’s bank or business. Monitoring balances on a regular basis alerts a customer of any unauthorized transactions that occur or potential errors committed by the bank. Debits may include any transaction made throughout the day, such as bank card transactions. Credits include deposits, such as payroll, as well as payments from customers or refunds.

In that case your book balance will be lower than the bank balance due to the uncleared transactions. When you do a bank reconciliation, this reconciles the differences between the bank balance and book balance to identify if there are any missing transactions or errors. Therefore, each transaction on the bank statement should be double‐checked. If the bank incorrectly recorded a transaction, the bank must be contacted, and the bank balance must be adjusted on the bank reconciliation.

Within the internal control structure, segregation of duties is an important way to prevent fraud. One place to segregate duties is between the cash disbursement cycle and bank reconciliations. To prevent collusion among employees, the person who reconciles the bank account should not be involved in the cash disbursement cycle. Also, the bank should mail the statement directly to the person who reconciles the bank account each month.

A company’s bank account may have had account service fees debited out of it during the month and at the end. Until the month-end figures are reconciled with the bank, the debits would not be reflected in the book balance. The interest revenue must be journalized and posted to the general ledger cash account. In the journal entry below, cash is debited for $18 and interest revenue is credited for $18. However, the depositor/customer/company credits its Cash account to decrease its checking account balance.

Bank and Book Balance Differences

The ledger balance is often updated to reflect the available balance within a day. It generally takes less than 24 hours for the ledger balance to become available. That is, the deposit and the bank card charge haven’t officially cleared.


If you are an amateur when it comes to generating balance sheet and balancing the books. Then, you must not worry because we are here to help you out with it. For instance, let’s say Alice wants to purchase a larger piece of property in order to open her bakery shop business. She can check her balance sheets from the prior quarters’ first and third quarters to see if she has enough cash on hand or equity to make a down payment on a home. Furthermore, your chances of being approved for a small business loan to fund future expansion are higher if your balance sheet demonstrates that your company’s net worth has increased steadily over time. As an alternative, individual investors might be interested in purchasing your stock.

Comparing Accounting: Bank vs. Company

The bank balance is a company’s cash position in a company’s bank account as reported at the end of the month, according to the bank statement. When debits and credits are processed through the bank account, those amounts are reflected in the bank account’s cash balance. However, there are several scenarios when the book balance can differ from a company’s bank balance. The book balance and bank balance may fluctuate from time to time due to errors in bank transactions that need to be corrected. The bank would deduct the monies from the company’s checking account if a deposit check did not have sufficient funds. Interest income reported on the bank statement has usually not been accrued by the company and, therefore, must be added to the company’s book balance on the bank reconciliation.

Can I Spend My Ledger Balance?

The final transaction listed on the Vector Management Group’s bank statement is for $18 in interest that has not been accrued, so this amount is added to the right side of the following bank reconciliation. As you know, the balances in asset accounts are increased with a debit entry. Reconciling bank balance and book balance is a must corporate income smoothing tied to ceo stocks and options for accurate finances. Discrepancies can bring serious issues like wrong financial statements and possible legal problems. Comparing bank transactions and recorded book transactions helps identify errors or fraud, and allows quick action to fix the issue. Book balance is the amount of money a company’s financial records record.

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