What is a bank reconciliation?
A bank reconciliation is a list that explains the difference between the balance in the cash book and the balance on the bank statement at the same date. Items that are on one record and not yet on the other are written out until the two balances agree. It is not a return, and it does not by itself prove that every payment was authorised.
What is being compared?
The company’s own cash book, which is part of the books of account, and the statement the bank issues. The reconciliation is prepared as on a chosen date. The adjusted balance is the figure the financial statements should carry as cash at bank, after the entries the books were missing.
Why do the two balances differ?
Ordinary timing differences need no correction in the books until the bank records them. Other differences do.
- Cheques issued and entered in the cash book, not yet presented to the bank.
- Receipts entered in the cash book, not yet credited by the bank.
- Bank charges, interest, or a dishonoured cheque on the statement and not yet in the cash book. Those are entered.
- A duplicated entry, a transposed figure, or a payment the bank made and the books omitted.
Someone other than the person who records receipts is the usual choice to prepare the list, so the same person is not checking their own entries. That is a control. It is not a rule in the Act.
How often is it done?
There is no filing date. Most businesses do it at least once a month, and some do it daily when the volume is high. Leaving it until the audit means a year of unidentified differences. A bank’s positive-pay service is a separate control the bank may offer. The Act does not require it.
How does it sit with the company’s books?
Section 128 requires the books to show a true and fair view. A cash book that has not been agreed to the bank is an incomplete book. The reconciliation supports the company audit. It is not the audit trail the accounting software must keep, which records edits inside the software rather than the difference with the bank.
Frequently asked questions
Four questions cover the Registrar, fraud, a due date, and positive pay.
Is a bank reconciliation filed with the Registrar?
No. It is a working paper. The financial statements are what go to the annual general meeting and into AOC-4.
Does a matching balance prove there is no fraud?
No. It shows items that appear on one record and not the other. A payment that was entered in both, and should not have been made, will still match.
Is there a statutory due date?
No. The Companies Act does not set a day for the reconciliation. A monthly reconciliation is a control, not a filing deadline.
Is positive pay compulsory?
No. Positive pay is a bank service that honours a cheque only if the customer has already sent the details. It is not a requirement of the Companies Act.
Sources
The reconciliation is an accounting control. A company’s books are kept under section 128.