Two records of the same cash disagree at almost every date, and almost never because either one is wrong.
The schedule has two columns and one rule. On the bank side go the things the entity knows and the bank does not yet: deposits in transit, added, and outstanding checks, subtracted. On the book side go the things the bank knows and the entity does not yet. Service charges and returned checks are subtracted. Collections the bank made and interest it credited are added. Errors go on the side of whoever made them.
Only the book side generates entries. The bank-side items will clear on their own when the deposit posts and the checks present; nothing on the entity's books is wrong. The book-side items are transactions the entity has not recorded at all, and each one needs a journal entry before the ledger balance is right.
When both columns reach the same adjusted balance, that figure is the cash reported on the balance sheet. If they do not reach the same number, something is still unexplained. The difference itself is the lead. Divisible by nine suggests a transposition. Exactly twice a known item suggests it was put on the wrong side.
The reconciliation is also a control. It is the routine check most likely to surface an unrecorded disbursement. So the person who prepares it should not be the person who writes the checks.
The adjusted deposit balance can feed the financial-statement cash population, but it is not that population by itself. ASC 230-10-45-24 addresses the broader opening-to-closing total. Add supported cash equivalents and applicable restricted amounts only after the account reconciliation is complete.
Put the concept to work
Understand this concept
- Explain why a ledger cash balance and a bank statement balance differ at the same date, and say which side of the reconciliation a timing difference belongs on and which side an unrecorded item belongs on.
Apply this concept
- Prepare a bank reconciliation from a ledger balance, a bank statement, and a list of differences, and write the adjusting entries the book side requires.
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Build on these ideas
- Bank reconciliation — Understand
To apply this concept: Required. Preparing the schedule requires knowing which side each item belongs on.
- Cash — Understand
To understand this concept: Required. The schedule reconciles the entity's own cash balance.
- Deposit in transit — Apply
To apply this concept: Required. Deposits in transit are one of the two standard bank-side timing items.
Show 2 more prerequisites
- Non-sufficient funds check — Apply
To apply this concept: Required. A returned check is a standard book-side adjustment.
- Outstanding check — Apply
To apply this concept: Required. Outstanding checks are the other.
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Related concepts
Show 2 more related concepts
Use this idea next
- Bank reconciliation — Apply
Required level here: understand. Required. Preparing the schedule requires knowing which side each item belongs on.
- Bank service charge — Understand
Required level here: understand. Required. The item is defined by its place on the reconciliation.
- Deposit in transit — Understand
Required level here: understand. Required. The item is defined by its place on the reconciliation.
Show 2 more next steps
- Non-sufficient funds check — Understand
Required level here: understand. Required. The item is defined by its place on the reconciliation.
- Outstanding check — Understand
Required level here: understand. Required. The item is defined by its place on the reconciliation.