A book balance is the account balance in a company's accounting records. The term is most commonly applied to the balance in a company's checking account at the end of an accounting period. An organization uses the bank reconciliation procedure to compare its book balance to the ending cash balance in the bank statement provided to it by the company's bank.
The bank and book balances are almost never the same, which most commonly calls for the adjustment of the book balance to conform to the information in the bank statement. The following reconciling items commonly arise as part of a bank reconciliation, and require the adjustment of the book balance:
- Interest earned. This amount is recorded in the bank statement, and must be added to the company's book balance.
- Service charges. These amounts are charged by the bank for its services in maintaining the checking account, and must be added to the company's book balance. This may also include a fee for supplying check stock to the company.
- Adjustments to deposits. The company may sometimes record a deposit incorrectly, or it may deposit a check for which there are not sufficient funds. If so, and the bank spots the error, the company must adjust its book balance to correct the error.
- Adjustments to checks. The company may occasionally record a check incorrectly. If so, and the bank spots the error, the company must adjust its book balance to correct the error.
On rare occasions, the bank will have made an error instead, in which case the bank corrects its records and the company's book balance is not adjusted.