Small and Home Business Owner Basic Bookkeeping – D.I.Y. Cash Book and Bank Reconcilliation

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This tutorial explains the basic concept to business owners of how to keep their own books of account in terms of writing their entries into a standard Cash Book and reconciling the Cash Book balance to the Bank Statement balance. This empowers the business owner to plan the cash flow effectively, which also ties in with many other business budgets and forecasts.

Small & Home Business Owner’s Basic Bookkeeping – Cash Book entries

Here is an example of how business owners can do their own cash book entries and how to do the bank reconciliation.

Remember that if you are using a computerised accounting system, they have cash book functions which work on exactly the same principles.

Cash books are all similar. Some have a RECEIPTS/DEPOSITS side on the left and a PAYMENTS side on the right, whilst others have RECEIPTS/DEPOSITS on top and PAYMENTS on the bottom. This one has them together in one column, but with separate columns for receipts values, payments values and a running balance value.

Keeping a Cash Book correctly and keeping it up to date is fairly straight-forward. It must however be a routine daily responsibility allocated to some-one in your office, or to yourself. Otherwise, it too will become a spider’s web when it comes time to reconcile it to your bank statement and analyse your Cash Flow.

  • In bookkeeping terms, receipts in the Cash Book are debits in your General Ledger Bank Account, which is an asset, and payments are shown as credits which are liabilities.

  • Left represents DEBIT and Right represent CREDIT – always.

  • In the above example, the receipts are in blue and on the left, whist the payments are in red and on the right.

  • Very important - Notice that if the balance in the Cash Book is positive, it indicates a favourable balance. Therefore, if it were to become a negative value (balance), it would be an unfavourable balance or overdraft. This does not happen in the example above because there was enough money in the bank to pay each payment that went through.

Monthly Bank Reconciliation

Once you have captured the cash book for the month and have received the bank statement, you would do the reconciliation as follows:

Points worth noting

  • The purpose of doing the bank reconciliation is to balance the balance in your cash book with that of the bank statement. This may seem like an overstatement, no pun intended, but it is very important that you do it every month. The reason is obvious.

  • The cash book & bank statement balances almost never agree because:

  1. Until you receive the bank statement you don’t know how much to expense for bank charges, interest, etc., unless you use Internet banking. Even then you won’t be 100% sure.
  2. Often a cheque received from a customer, which you deposited, may have been returned to drawer (RD) on the last or second last day of the month; you will not have known it. You will either have to reverse the receipt/deposit in your cash book or carry it as an outstanding deposit, or reconciling item, into the following month.
  3. A cheque or couple of cheques that you may have issued in the last couple of weeks of the month may not have been drawn by the recipients yet. These are known as outstanding cheques. If you use Internet banking you will know.
  4. You may have made an error in your cash book. For example, you entered a deposit or cheque payment amount as 110.00 in stead of 101.00, transposing the figures. This can happen very easily. The point is though, that you will only pick up the mistake when you reconcile your bank statement to your cash book. You can then put an adjusting entry through to correct it, the figures will then reconcile with each other.
  5. Conversely to 4 above, the bank might likewise make an incorrect entry as above. In such a case you inform them and carry the difference in amounts through as a reconciling item to your next reconciliation. Keep checking to ensure that the bank corrects its books. Internet banking would facilitate this.



  • Without doing bank account reconciliation you can not financially plan the future because you would be basing the future on inaccurate information.Without an accurate bank reconciliation your cash flow forecast and report on actual versus forecast figures will also be incorrect.

  • Without bank reconciliation you will totally loose track of how much money you have available in real terms. You will probably think that if the bank statement says that I have a balance of $10,000.00 and I can spend it. Not true if you have forgotten about the salaries payment coming due for payment is $12,500.00 within a couple of days, and there are still three O/S cheques totalling $3,500.00. In effect, you will be in overdraft within a couple of days at this rate.

  • Unfortunately very many business owners make this exact mistake in practice.

  • Remember always; to make any important business decision based on your considered opinion, you must be able to base it on facts, not fiction. Thumb suck information is garbage, therefore, garbage in – garbage out; every time guaranteed.

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© Vaughan Jones 5 Septmber 2011


About the Author ()

I am a semi-retired accountant/financial manager and have turned my energies on writing books, articles and tutorials. I wrote the book One Life-Love-Energy which covers my beliefs in one universal creation and one communal life for all.I founded

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