Four Column Bank Reconciliation (Proof of Cash) Example

Quick Answer: A four-column bank reconciliation, usually called a proof of cash, reconciles the bank statement to the books in four columns at once: beginning balance, receipts, disbursements and ending balance. Because it checks the month's flows as well as the closing figure, it exposes unrecorded deposits and withdrawals that cancel each other out, which an ordinary two-balance reconciliation cannot see.

An ordinary bank reconciliation proves one number: cash at the end of the month. A four-column reconciliation proves the whole month. It lays the bank's opening balance, total deposits, total withdrawals and closing balance next to the same four figures from the books, then explains every difference in each column. Auditors use it when they need assurance about cash activity, not just the balance.

What problem does a four-column reconciliation solve?

Imagine someone deposits $9,000 of company money into the account and withdraws $9,000 two days later, and neither transaction is recorded in the books. The ending bank balance and the ending book balance still agree. A standard reconciliation balances, and nobody notices that $9,000 moved through the account.

A proof of cash catches it, because bank receipts for the month would be $9,000 higher than book receipts, and bank disbursements $9,000 higher than book disbursements. Neither column can be explained by timing items, so the difference stands out.

The same structure catches other things a closing-balance check misses:

• receipts recorded in the wrong month on purpose, to dress up a period;
• lapping, where one customer's payment is used to cover a shortage on another's account;
• transfers between company accounts recorded in one account but not the other;
• cash disbursements entered in the books at an amount different from what cleared.

How does a proof of cash reconcile all four columns?

Each row of the worksheet adjusts the bank figures toward the correct ones (or the book figures, depending on layout). The columns must cross-foot: in every row, beginning plus receipts minus disbursements equals ending.

Timing items appear in two columns each, because each one belongs to two months:

The prior month's timing items come straight from last month's reconciliation, which is why a proof of cash is easiest when the previous month was reconciled properly.

Four column bank reconciliation example

Here is a complete proof of cash for May. The bank statement shows: opening balance $50,000, deposits $120,000, withdrawals $115,000, closing balance $55,000. Last month's reconciliation listed a deposit in transit of $3,000 and outstanding checks of $4,500. This month's comparison finds a May 31 deposit in transit of $2,500, outstanding checks at May 31 of $6,000, a $50 service charge and a $400 customer check returned NSF, neither of which is in the books yet.

Part 1: bank to correct cash

Cross-foot the bottom row: $48,500 + $119,500 − $116,500 = $51,500. The row balances.

Part 2: books to correct cash

The general ledger shows April 30 cash of $48,500, May receipts of $119,500, May disbursements of $116,050 and May 31 cash of $51,950.

Both parts arrive at the same four numbers, so the proof of cash is complete. The two book adjustments become journal entries: bank charges expense for $50, and a receivable from the customer for $400.

Some practitioners record the NSF check as a reduction of receipts rather than an addition to disbursements, since it reverses a deposit. Either is acceptable as long as you are consistent and the bank's own presentation is matched. Many banks show a returned item as a withdrawal, which is why it sits in disbursements here.

What a failed proof looks like

Suppose instead that Part 1 showed correct receipts of $128,500 and correct disbursements of $125,500, while the books still showed $119,500 and $116,500 after adjustment. The ending balances would still agree at $51,500, but both flow columns would be $9,000 out. That is the unrecorded round-trip from the opening section, and no amount of timing items will explain it. The next step is to find the specific deposit and withdrawal on the statement and ask who made them.

When do auditors use a four-column reconciliation?

A proof of cash is more work than a standard reconciliation, so it is used where the extra assurance matters:

• Financial statement audits when cash controls are weak, when one person handles both receipts and payments, or when fraud risk factors are present.
• Testing revenue completeness, since receipts per the bank are an independent check on recorded sales collections.
• Fraud investigations and forensic reviews, where the movement of funds matters as much as the balance.
• Government grants and nonprofits, where funders want evidence that money in and money out match the reports.
• Reviews of a year at once, using annual totals instead of a single month. An annual proof of cash compares a year of statement deposits and withdrawals with the general ledger, with the opening and closing timing items at each end.

Internally, a business might run one when a new bookkeeper takes over, when the prior year's books were not reconciled, or after an error is found and you need to know if others exist. It also supports the IRS principle that your records should be able to substantiate the income and deductions you report: bank receipts that exceed recorded receipts are exactly the gap an examiner looks for.

How do you build a proof of cash in a spreadsheet?

1. Get the statement totals. Many statements print total deposits and total withdrawals in a summary box; if yours does not, sum the transaction lines.
2. Pull the general ledger cash account for the same period with opening balance, total debits, total credits and closing balance.
3. Copy last month's deposits in transit and outstanding checks from the prior reconciliation.
4. Match this month's transactions to find the new timing items and the bank-only items. A lookup on amount and date (for example with Excel's XLOOKUP function) flags lines that appear on one side only.
5. Lay out Parts 1 and 2 as above, with a cross-foot check formula on every row.
6. Post journal entries for the book-side items and file the worksheet with both statements.

Step 4 is where the time goes. Working from a statement export is far quicker than reading a PDF; banks usually provide CSV for recent months, and for older statement PDFs a converter such as QuickBankConvert produces one row per transaction with signed amounts, so deposits and withdrawals can be summed separately with a simple filter. If you are doing a full year, convert the twelve statements and stack them before matching. The bank reconciliation example walkthrough covers the matching step in more depth.

Four columns versus the standard method

For monthly bookkeeping the standard method is usually enough. The methods for that are in the guide to book-to-bank and bank-to-book reconciliation.

Related guides

• A month of bank reconciliation, worked line by line
• Preparing for and reading a bank audit report
• Adjusted balance formulas for each side
• Bank statement PDF to Excel