Accounting & Taxation
Your bank balance and your books don’t match. Start here.
A simple rupee example explains bank reconciliation—and why changing a number just to make it match can create another problem.
It is month-end. You open the bank statement, compare it with the business’s bank ledger and find two different balances. If you are new to accounts, it can feel as though you have made a serious mistake.
A difference is a starting point for investigation. Bank reconciliation compares the bank’s record with the bank balance in your books and explains why they differ. ICAI’s teaching material separates common causes into timing differences, transactions not yet entered in the books and errors. [1]
Start with the same account and date
For a practice exercise, label the bank account and closing date at the top of your worksheet. Put the ledger and statement beside each other. Add columns for the date, reference, amount, matching entry and follow-up. This keeps your investigation visible to someone reviewing it.
Compare individual entries rather than looking only for amounts that happen to add up to the difference. Two unrelated mistakes can cancel each other out. A matching total is not, by itself, an explanation.
Let’s work through a simple example
The following figures are invented for learning. Assume there are no other differences and both balances are positive. Your cash book shows ₹50,000. You identify a ₹500 bank charge and a ₹5,000 customer transfer on the statement that have not been recorded in your books.
| Step | Amount |
|---|---|
| Cash-book bank balance before corrections | ₹50,000 |
| Subtract the unrecorded bank charge | − ₹500 |
| Add the verified customer transfer | + ₹5,000 |
| Adjusted cash-book bank balance | ₹54,500 |
| Add a cheque issued but not yet presented | + ₹8,000 |
| Balance on the bank statement | ₹62,500 |
The charge and verified receipt need appropriate entries in the books. The ₹8,000 cheque has already been recorded there, but the bank has not yet paid it. That timing difference explains why the statement is ₹8,000 higher than the adjusted cash-book balance. Do not record the same payment a second time. [1]
Make the explanation easy to follow
In your practice file, attach the supporting reference to each item. Beside the pending cheque, write what needs to be checked next and who will follow it up. Keep the original comparison alongside the corrected version so your reviewer can see how you arrived at the answer.
If you cannot identify a credit, leave it on the unresolved-items list for investigation. Do not guess a customer’s name simply because their outstanding invoice has the same value. Follow the business’s review and approval process before posting a correction.
A useful interview exercise
Rebuild this example in a spreadsheet. Explain aloud why ₹54,500 is the adjusted book balance and ₹62,500 is the statement balance. Then change the pending cheque to ₹3,000. What should the statement show? Under the same assumptions, ₹57,500.
Your aim is to explain the movement of money clearly, with a working paper someone else can check.
Sources & further reading
- ICAI Board of Studies — Bank Reconciliation Statement (PDF)
Foundation teaching material, 15 February 2021. Background on timing differences, missing entries and the adjusted cash book. The example in this article is original.
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