The difference between bank balance and book balance
/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. For example, when a company receives a checking account statement from its bank at the end of October, the $3,000 ending balance on the statement is its bank balance.
What is the Book Balance?
The book balance is the in-house general ledger record of the same account. For example, at the end of October, the balance in the same company’s general ledger cash account is $2,500. This amount differs by $500 from the bank balance for the same account, which requires a bank reconciliation to resolve.
Comparing the Bank Balance and Book Balance
There are multiple differences between the bank balance and book balance, which are as follows:
Checks outstanding. 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.
Deposits in transit. 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.
Unrecorded fees. 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.
Errors. 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
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FAQs
How are Differences Reconciled?
Differences are reconciled through a formal bank reconciliation process that compares the bank balance to the book balance. The accountant identifies timing differences such as deposits in transit, outstanding checks, or unrecorded bank activity. Any necessary adjustments are recorded in the company’s books to bring the book balance to the correct amount. The final reconciliation ensures that both balances align after accounting for all timing items and corrections.