Financial Accounting · Bank reconciliations

Updating the Cash Book from the Bank Statement

Updated 11 October 2026 · Fact-checked

Updating the cash book means adjusting your own bank records for items the bank has processed that you have not yet recorded, or for your own errors. Compare the statement to the cash book, find the unrecorded items, then debit receipts and credit payments to get the corrected cash book balance.

Understand Updating the Cash Book

The cash book is your business's own record of its bank account. The bank statement is the bank's record of the same account. The two rarely agree on a given date, and there are two reasons.

The first reason is timing differences. You have written a cheque, but it has not yet cleared (an unpresented cheque). Or you have banked cash or a cheque, but the bank has not yet credited it (an outstanding lodgement). These need no cash book entry. You already recorded them. They only appear in the bank reconciliation.

The second reason is items the bank knows about and you do not, or mistakes in your own records. Examples are bank charges, interest, direct debits, standing orders, direct credits and dishonoured cheques. These need an entry in the cash book, because they change the true amount of cash you have.

The key idea is simple. Any item that is on the statement but not in the cash book must be written into the cash book. Any error in the cash book must be corrected. After you do this, the cash book shows the correct balance. Then you reconcile that balance to the statement using only timing differences.

Remember the viewpoint. The bank is a business that holds your money. A positive balance in your cash book is a debit (an asset to you). On the bank's statement, the same money is a credit, because the bank owes it to you. Be careful about this reversal when you read the statement.

Key formulas to remember

Corrected cash book balance: Corrected balance = Original cash book balance + unrecorded receipts − unrecorded payments ± error corrections; This works for both a favourable (debit) balance and an overdrawn balance, as long as you enter an overdraft as a negative number.
Bank charges and interest paid: Dr Bank charges (or Interest expense); Cr Bank; Reduces the cash book balance. Charged by the bank and unrecorded until the statement arrives.
Direct debit or standing order paid out: Dr Relevant expense or payable; Cr Bank; Reduces the cash book balance. Use the expense account for items such as insurance, or payables if it settles a liability.
Direct credit, bank transfer or interest received: Dr Bank; Cr Receivables (or Interest income or other income); Increases the cash book balance. A customer paying direct by transfer credits receivables.
Dishonoured (bounced) cheque from a customer: Dr Receivables; Cr Bank; The cheque was already recorded as a receipt. Reverse it, and the customer owes you the money again. Also called a refer to drawer item.
Cash book error corrections: Transposition or wrong amount: adjust Bank by the difference only; If receipts were recorded too low, debit Bank by the difference. If payments were recorded too low, credit Bank by the difference. If receipts were recorded too high, credit Bank by the difference. If payments were recorded too high, debit Bank by the difference.

How to solve Updating the Cash Book questions

Use this method for any question that asks you to update the cash book, find the adjusted balance or state the entries.

1Write down the original cash book balance and whether it is a debit (favourable) or a credit (overdrawn).
2Go through the bank statement line by line and tick each item that is already in the cash book.
3List the items that are on the statement but not in the cash book: charges, interest, direct debits, standing orders, direct credits and dishonoured cheques.
4Separate out timing differences (unpresented cheques and outstanding lodgements). They need no cash book entry. Leave them for the reconciliation.
5Check the cash book for errors, such as a wrong amount, a transposed figure or an item posted to the wrong side. Work out the correction to the bank balance only.
6Mark each adjustment as an increase (debit bank) or a decrease (credit bank). Then update the cash book balance by adding or subtracting.
7State the double entry for each item, including the other side, such as receivables, expenses or interest income.
8Check the answer by reconciling to the bank statement balance using only timing differences.

Quickest way: Plus and minus on the cash book balance

When to use it: Use this for multiple choice or number entry questions that ask for the adjusted cash book balance and not the full ledger entries.

Start with the cash book balance. Make an overdraft a negative number.
For each unrecorded item, ask: does this add money to my account or take money away?
Money in (direct credits, interest received, error that understated receipts) means add. Money out (charges, direct debits, standing orders, dishonoured cheques, interest paid) means subtract.
Ignore unpresented cheques and outstanding lodgements. They are already in the cash book.
For an error, find the size of the difference, not the full amount. Decide if it adds or subtracts.
Total the adjustments and apply them. A negative result means an overdraft.

Common mistakes in Updating the Cash Book

Adjusting the cash book for unpresented cheques or outstanding lodgements.
They are differences between the two records, so students think they must be fixed in the cash book.
Fix: They are already in the cash book. Only the bank statement is missing them. Use them in the bank reconciliation, not in the cash book update.
Treating a dishonoured customer cheque as an increase in the bank balance.
Students think of the cheque as a receipt, so they add it again or ignore it.
Fix: The cheque was already added when received. When it bounces, reverse it: Dr Receivables, Cr Bank. The bank balance falls.
Reading the statement from the wrong viewpoint, so a debit on the statement is treated as money in.
The bank's debits and credits are the opposite of your own cash book.
Fix: A debit on the bank statement means money out of your account (a decrease). A credit on the statement means money in (an increase). Do not rely on the labels alone. Ask whether the item increases or decreases your money. Charges reduce it. Receipts increase it.
Correcting an error with the full amount instead of the difference.
Students see the wrong figure and the right figure and adjust by one of them, such as $450 or $540, instead of by the difference.
Fix: A receipt of $450 was recorded as $540. The receipt is overstated by $90, so credit Bank $90. Adjust by the $90 difference, not by $450 or $540. An overstated receipt reduces the balance. An understated receipt increases it.
Forgetting the other side of the entry or using the wrong account.
Students focus on the bank balance and stop there.
Fix: Always name the other account: a charge goes to expenses, a customer transfer to receivables, interest received to income, a direct debit to the relevant expense or payable.
Losing the sign when the starting balance is overdrawn.
The cash book is overdrawn, and students add and subtract as if it were a positive balance.
Fix: Write an overdraft as a negative number before adjusting. Then the same plus and minus rules work, and the formula applies to both a favourable and an overdrawn balance.

Worked examples

Example 1

At 31 March, the cash book of Sera Traders shows a debit balance of $8,400. The bank statement shows these items that are not in the cash book: bank charges $65, a direct debit for insurance $240, a customer direct credit of $1,100, and interest received $30. What is the updated cash book balance?

Show the solution

Start with the cash book balance: $8,400 debit.
Bank charges $65 reduce the balance: Dr Bank charges, Cr Bank.
Direct debit $240 reduces the balance: Dr Insurance, Cr Bank.
Customer direct credit $1,100 increases the balance: Dr Bank, Cr Receivables.
Interest received $30 increases the balance: Dr Bank, Cr Interest income.
Total decreases: 65 + 240 = $305. Total increases: 1,100 + 30 = $1,130.
Updated balance: 8,400 − 305 + 1,130 = $9,225.

Answer: The updated cash book balance is $9,225 debit.

Example 2

The cash book of Ravi Ltd shows an overdrawn balance of $2,150 at 30 June. The bank statement shows: a cheque from a customer for $700 returned unpaid, a standing order of $120 for rent, and bank charges of $45. In addition, a payment to a supplier of $380 was entered in the cash book as $308. Unpresented cheques total $900. What is the corrected cash book balance?

Show the solution

Start with the overdraft as a negative number: −$2,150.
Dishonoured cheque $700: Dr Receivables, Cr Bank. Subtract 700.
Standing order $120: Dr Rent, Cr Bank. Subtract 120.
Bank charges $45: Dr Bank charges, Cr Bank. Subtract 45.
Error: payment was $380 but recorded as $308. Payments were understated by 380 − 308 = $72, so credit Bank $72. Subtract 72.
Unpresented cheques of $900 are already in the cash book, so ignore them.
Total decreases: 700 + 120 + 45 + 72 = $937.
Corrected balance: −2,150 − 937 = −$3,087.

Answer: The corrected cash book balance is an overdraft of $3,087.

Exam tips

Read the question for the word 'cash book' or 'bank statement'. Updating the cash book uses items missing from the cash book, not the timing items.
Ignore unpresented cheques and outstanding lodgements when the question asks for the adjusted cash book balance. They are distractors.
In multiple response questions, select only items that need a cash book entry. Charges, interest, direct debits, standing orders, direct credits, dishonoured cheques and cash book errors qualify.
Write an overdraft as a negative number at the start of number entry questions, then add or subtract. Give the answer with the correct sign or wording.
Check that your answer reconciles. If you also have the statement balance, adjust it for timing items and see if it matches your corrected figure.

Practice questions from Bank reconciliations

Updating the Cash Book in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Updating the Cash Book: frequently asked questions

How do I update the cash book from a bank statement?

Compare each line on the statement with the cash book. Write into the cash book any item that is only on the statement, such as charges, interest, direct debits and direct credits. Correct any cash book errors too. Then calculate the new balance.

What is the accounting entry for a dishonoured cheque?

If a customer's cheque is returned unpaid, debit Receivables and credit Bank. This cancels the earlier receipt and restores the customer's debt. If it was your own cheque to a supplier that was dishonoured, the effect is the reverse.

Do unpresented cheques need to be recorded in the cash book?

No. You already recorded them when you wrote the cheques. The bank has simply not yet processed them. They only appear as a reconciling item between the cash book balance and the bank statement balance.

Why does a direct debit reduce the cash book balance?

A direct debit is a payment taken from your account by someone else. Money leaves the bank, so you credit Bank in the cash book. The debit goes to the expense or payable it settles.