Bank reconciliation statement explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A business keeps a cash book with a bank column, and the bank keeps its own record of the same account. The two balances are rarely equal on the same date. A bank reconciliation statement explains the difference item by item and proves that nothing is lost, duplicated or wrongly recorded. Our bookkeeping and online accounting team prepares one for every client account each month.
The difference between the cash book and the bank statement arises from timing (cheques issued but not yet presented, cheques deposited but not yet credited) and from items one side has not yet recorded (bank charges, interest, direct credits, standing instructions, dishonoured cheques) and from errors. Items the cash book has missed are first entered in an amended cash book; the statement then only carries timing differences. Both starting points lead to the same figure.
Why the balances differ
| Cause | Which record is behind | Needs an entry in the cash book? |
|---|---|---|
| Cheque issued, not yet presented to the bank | Cash book has it, bank does not | No |
| Cheque deposited, not yet credited by the bank | Cash book has it, bank does not | No |
| Bank charges or interest debited by the bank | Bank has it, cash book does not | Yes |
| Interest or dividend credited by the bank | Bank has it, cash book does not | Yes |
| Direct credit, such as a customer's online transfer | Bank has it, cash book does not | Yes |
| Standing instruction paid by the bank | Bank has it, cash book does not | Yes |
| Customer's cheque dishonoured | Bank has it, cash book does not | Yes |
| Error in the cash book | Cash book wrong | Yes |
Note the vocabulary. The bank statement, also called the pass book in older usage, shows the bank's record. A debit balance in the cash book bank column means money at the bank; a credit balance means an overdraft. The reverse holds in the bank's own record, where money at the bank is a credit balance in the account the bank keeps for you.
The steps
- Tick each cash book entry against the bank statement, in both directions.
- List the entries left unticked in the cash book: these are timing differences.
- List the entries left unticked on the bank statement: these are items to enter in the cash book.
- Write up the cash book (amended cash book) for the entries in step 3, including corrections of errors, and find the revised balance.
- Prepare the statement from the amended cash book balance, adding and deducting only the timing differences, to reach the bank statement balance, or the other way round.
You can also start from the unamended cash book balance and adjust for every item, which gives the same result and is shown below as the second method.
Worked example: Patel Brothers, 30 June 2026
The entity and all figures in this example are invented for illustration.
The cash book (bank column) of Patel Brothers shows a debit balance of 1,12,000 on 30 June 2026. The items found on comparison are:
| No. | Item | Amount |
|---|---|---|
| 1 | Cheques issued but not yet presented | 25,000 |
| 2 | Cheques deposited but not yet credited by the bank | 30,000 |
| 3 | Bank charges debited by the bank, not in cash book | 450 |
| 4 | Interest credited by the bank, not in cash book | 1,200 |
| 5 | Customer's online transfer credited by the bank, not in cash book | 15,000 |
| 6 | Insurance premium paid by the bank on standing instruction, not in cash book | 6,000 |
| 7 | A cheque of 5,400 issued to a supplier was entered in the cash book as 4,500 | 900 |
| 8 | Customer's cheque dishonoured and debited by the bank, not in cash book | 10,000 |
Step 1 – amended cash book (bank column). Items 3 to 8 are entered; items 1 and 2 are timing differences.
| Particulars | Debit | Particulars | Credit |
|---|---|---|---|
| To Balance b/d | 1,12,000 | By Bank charges | 450 |
| To Interest received | 1,200 | By Insurance | 6,000 |
| To Customer (online transfer) | 15,000 | By Supplier (error in entering cheque) | 900 |
| By Customer (dishonoured cheque) | 10,000 | ||
| By Balance c/d | 1,10,850 | ||
| Total | 1,28,200 | Total | 1,28,200 |
Check on the cash book: 1,12,000 + 1,200 + 15,000 = 1,28,200; 450 + 6,000 + 900 + 10,000 + 1,10,850 = 1,28,200.
Step 2 – statement starting from the amended cash book balance.
| Particulars | Amount |
|---|---|
| Balance as per amended cash book (debit) | 1,10,850 |
| Add: cheques issued but not yet presented | 25,000 |
| Less: cheques deposited but not yet credited | (30,000) |
| Balance as per bank statement | 1,05,850 |
Step 3 – the same figure, starting from the bank statement.
| Particulars | Amount |
|---|---|
| Balance as per bank statement | 1,05,850 |
| Add: cheques deposited but not yet credited | 30,000 |
| Less: cheques issued but not yet presented | (25,000) |
| Balance as per amended cash book | 1,10,850 |
Step 4 – starting from the unamended cash book, adjusting for every item.
| Particulars | Amount |
|---|---|
| Balance as per cash book before correction | 1,12,000 |
| Add: interest 1,200, online transfer 15,000, cheques not presented 25,000 | 41,200 |
| Less: charges 450, insurance 6,000, error 900, dishonoured cheque 10,000, cheques not yet credited 30,000 | (47,350) |
| Balance as per bank statement | 1,05,850 |
Check: 1,12,000 + 41,200 = 1,53,200; 1,53,200 - 47,350 = 1,05,850. All three routes agree with the bank statement at 1,05,850.
Overdraft case
A bank overdraft is a credit balance in the cash book bank column. The adjustments reverse in sign, and care is needed.
Facts. Patel Brothers' cash book on 31 July 2026 shows an overdraft of 38,000 (credit balance). Cheques issued but not yet presented are 12,000. Cheques deposited but not yet credited are 20,000. The bank has charged 600 as charges and 1,400 as interest on the overdraft, neither yet in the cash book.
Amended cash book. Both items are payments: the overdraft grows to 38,000 + 600 + 1,400 = 40,000 (credit).
| Particulars | Amount |
|---|---|
| Overdraft as per amended cash book | 40,000 |
| Less: cheques issued but not yet presented (bank has not yet deducted them) | (12,000) |
| Add: cheques deposited but not yet credited (bank has not yet added them) | 20,000 |
| Overdraft as per bank statement | 48,000 |
Check from the bank side: 48,000 overdraft, less 20,000 deposited cheques not yet credited, gives 28,000; plus 12,000 cheques not yet presented gives 40,000, the amended cash book overdraft.
Common mistakes
- Adjusting the cash book for timing differences: cheques not presented are not errors; the cash book stands.
- Reversing the sign in an overdraft: a cheque not yet presented makes the bank's overdraft smaller than the books show.
- Missing the dishonoured cheque: the customer's account must be debited again.
- Ignoring old uncleared cheques: a long-outstanding cheque deserves review rather than an indefinite entry in the statement.
- Forgetting direct credits: the customer's account still shows the amount as owing.
Need help with bank reconciliation?
If your bank column does not agree with the statement or items stay unreconciled for months, we can prepare a monthly reconciliation and clear the backlog. Our bookkeeping and online accounting service includes bank reconciliation for each operating account.
Key takeaways
- The balances differ through timing, unrecorded items and errors.
- Enter bank-side items in the amended cash book first; the statement then carries only timing differences.
- Start from either balance and reach the same figure.
- In an overdraft, the signs of adjustments reverse.
- Reconcile every month, not at the year-end only.
Read next
- Cash book: single, double and triple column
- Rectification of errors and the suspense account
- How to do bank reconciliation
- Journal entries: rules of debit and credit
Disclaimer: Based on the Accounting Standards issued by the Institute of Chartered Accountants of India as on 1 April 2025, the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026, the Companies Act, 2013 and the ICAI guidance named in the article, as consulted on 4 October 2026. The worked example uses invented figures. Later amendments should be checked on icai.org and mca.gov.in. This article is general information, not legal advice; check the official text before acting.