Book to Bank Reconciliation: Methods, Formula, Example
Quick Answer: A book-to-bank reconciliation starts from the balance in your cash book and adjusts it until it equals the bank statement balance; a bank-to-book reconciliation starts from the bank statement and works toward the cash book. Both use the same reconciling items with opposite signs. The most common form, the adjusted balance method, corrects each side separately so that the adjusted book balance equals the adjusted bank balance.
There are three ways to lay out a bank reconciliation, and they all use the same list of differences. You can begin with the book balance and arrive at the bank's figure, begin with the bank's figure and arrive at the books, or adjust both to a shared true cash balance. The third, the adjusted balance method, is the one most textbooks and software use.
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What is the book balance in a bank reconciliation?
The balance per books is the cash figure in your own records on the reconciliation date: the cash account in the general ledger, or the bank column of a cash book. The balance per bank statement is the closing balance the bank printed for the same date. They are rarely equal, because each side has recorded things the other has not yet seen.
The adjusted book balance (also called the adjusted cash balance) is the book figure after you add or subtract the items only the bank knew about and fix any errors in your books. It is the amount of cash the business actually controls at that date and the number that belongs on the balance sheet.
Which items are bank reconciling items and which are book reconciling items?
Sort every difference by asking one question: who has not recorded it yet?
| Item | Recorded by | Not yet recorded by | Adjust which side |
|---|---|---|---|
| Outstanding checks | Books | Bank | Bank side: subtract |
| Deposits in transit | Books | Bank | Bank side: add |
| Bank errors (e.g., another customer's check charged to you) | Bank, wrongly | — | Bank side: correct |
| Bank service charges and fees | Bank | Books | Book side: subtract |
| Interest earned | Bank | Books | Book side: add |
| Customer payments received directly (ACH, wires, collections) | Bank | Books | Book side: add |
| NSF or returned customer checks | Bank | Books | Book side: subtract |
| Automatic payments and loan drafts | Bank | Books | Book side: subtract |
| Errors in your books (wrong amount, duplicate, omission) | Books, wrongly | — | Book side: correct |
Bank reconciling items are the first three rows. They need no journal entry; the bank will catch up, or you ask it to fix its error. Book reconciling items are the rest. Each one needs a journal entry, because your ledger is the record that is behind or wrong.
What is the formula for bank reconciliation?
Under the adjusted balance method there are two formulas, one per side, and they must produce the same number:
Adjusted bank balance = balance per bank statement + deposits in transit − outstanding checks ± bank errors
Adjusted book balance = balance per books + interest and direct receipts − fees, NSF checks and automatic debits ± book errors
When people ask for the formula to reconcile outstanding balances, it is the first line: outstanding checks are subtracted from the bank figure because the bank has not yet paid them, and deposits in transit are added because the bank has not yet credited them.
For the single-direction methods, the formula is one chain:
- Book to bank: balance per books + outstanding checks − deposits in transit − bank-only debits + bank-only credits ± book errors = balance per bank statement.
- Bank to book: balance per bank statement − outstanding checks + deposits in transit + bank-only debits − bank-only credits ± book errors = balance per books.
Every sign flips between the two chains, which is the easiest way to check your work.
Bank and book reconciliation example
Here is one month, worked all three ways. At April 30 the cash book shows $12,400 and the bank statement shows $13,870. Comparing the two records turns up these items:
- Checks issued but not yet presented: $2,150
- Deposit made on April 30, credited by the bank on May 1: $960
- Monthly bank service charge: $25
- Customer check returned unpaid (NSF): $340
- Interest credited by the bank: $15
- A customer paid an invoice by ACH directly into the account: $720
- Check #518 for $540 was entered in the cash book as $450
Adjusted balance method
| Bank side | Book side | ||
|---|---|---|---|
| Balance per bank statement | $13,870 | Balance per books | $12,400 |
| Add: deposit in transit | +960 | Add: interest | +15 |
| Less: outstanding checks | −2,150 | Add: ACH customer receipt | +720 |
| Less: service charge | −25 | ||
| Less: NSF check | −340 | ||
| Less: error on check #518 | −90 | ||
| Adjusted bank balance | $12,680 | Adjusted book balance | $12,680 |
Both sides arrive at $12,680, so the reconciliation is complete. The balance sheet shows cash of $12,680, and five journal entries bring the ledger there: interest, the ACH receipt, the fee, the NSF reversal and the $90 correction.
Book to bank method
| Book to bank reconciliation, April 30 | Amount |
|---|---|
| Balance per books | $12,400 |
| Add: outstanding checks | +2,150 |
| Less: deposit in transit | −960 |
| Less: service charge | −25 |
| Less: NSF check | −340 |
| Add: interest | +15 |
| Add: ACH customer receipt | +720 |
| Less: check #518 understated in books | −90 |
| Balance per bank statement | $13,870 |
Bank to book method
| Bank to book reconciliation, April 30 | Amount |
|---|---|
| Balance per bank statement | $13,870 |
| Less: outstanding checks | −2,150 |
| Add: deposit in transit | +960 |
| Add: service charge | +25 |
| Add: NSF check | +340 |
| Less: interest | −15 |
| Less: ACH customer receipt | −720 |
| Add: check #518 understated in books | +90 |
| Balance per books | $12,400 |
The single-direction formats prove that the two balances are explained, but neither one shows the corrected cash figure on its face. That is why accountants prefer the adjusted method for the working paper and use the others mainly in exams and in countries where a "bank reconciliation statement" is traditionally prepared that way.
When would you choose one method over the other?
- Adjusted balance method: best for real books. It produces the cash number for the balance sheet and makes the needed journal entries obvious, since they are every line on the book side.
- Book to bank: handy when you trust your cash book and want to show a bank or auditor how its figure was reached.
- Bank to book: common in coursework that starts from a passbook or statement. In some textbooks the cash book's bank column has a debit balance and an overdraft shows as a credit; the logic is the same, only the signs of the starting figure flip.
Accounting software uses the adjusted approach. In QuickBooks Desktop, for example, the Reconcile window asks for the statement's ending balance plus any service charge or interest not yet entered, then has you tick cleared items until the difference is zero.
What mistakes break a book and bank reconciliation?
- Putting an item on the wrong side. A fee belongs on the book side. Subtracting it from the bank balance double-counts it.
- Getting the sign backwards in the single-chain methods. Remember that moving from books to bank reverses anything only the books recorded.
- Forgetting last month's outstanding items. A check outstanding in March that still has not cleared in April stays on the list.
- Treating a bank error like a book entry. If the bank charged you for someone else's check, you do not record it; you ask the bank to reverse it and list it on the bank side until it does.
Debits and credits can also trip people up, because the bank describes your deposit as a credit while your books record it as a debit to cash. Intuit's explainer on debits and credits by account type is a good primer, and the debit and credit rules for bank reconciliation covers that mirror effect.
Getting the statement data into a usable form
The comparison step is faster when both records are spreadsheets. Most banks offer a CSV download of recent activity; if you have only PDF statements, QuickBankConvert reads them into dated, signed rows with the statement's opening and closing balance shown above the preview, which you can then match against your cash book export. For more practice with the layout, see the bank reconciliation example walkthrough and the guide to the bank reconciliation statement and cash book.
Related guides
Frequently Asked Questions
What is the difference between book to bank and bank to book reconciliation?
They start from opposite balances. Book to bank begins with the cash book figure and adjusts it to the bank statement; bank to book begins with the statement and adjusts it to the cash book. The items are identical and only their signs change.
Which reconciling items need journal entries?
Only the book-side items: bank fees, interest, direct receipts, NSF checks, automatic debits and errors in your own records. Outstanding checks and deposits in transit need no entry because the bank will record them later.
What is the adjusted cash balance?
It is the true cash figure at the reconciliation date, reached by correcting the book balance for items only the bank has recorded. When the reconciliation is right, it equals the adjusted bank balance.
Is a bank reconciliation statement the same as a book reconciliation statement?
The terms are used loosely for the same document: a schedule that explains the difference between the cash book and the bank statement on a given date. Some courses call the book-side schedule a book reconciliation.
Where do outstanding checks go on a bank reconciliation?
Subtract them from the balance per bank statement under the adjusted balance method, or add them to the book balance when working book to bank.
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