What is the Bank Balance?

The bank balance is the balance reported by the bank on a firm’s bank account at the end of the month.

What is the Book Balance?

The book balance is the in-house general ledger record of the same account.

Comparing the Bank Balance and Book Balance

There are multiple differences between the bank balance and book balance. First, there are likely to be checks outstanding that were recorded in the company’s book balance, but which have not yet been presented to the bank, and so are not recorded in the bank balance. Second, the company may have incorporated a deposit in transit into its book balance, but the bank has not yet processed it, so it does not appear in the bank balance. Third, the bank may have charged the company for a variety of fees, such as interest charges, account maintenance charges, and check processing charges, which are included in the bank balance but not the book balance. Finally, the company or the bank may have erroneously recorded a transaction, which results in an unresolved difference between the two balances. These differences are formally stated in the bank reconciliation.