Bank Reconciliation Step by Step: Unpresented Cheques, Uncleared Deposits and Mystery Credits
Take the bank statement and bank ledger for the same date. First book what the bank knows and you do not: charges, interest, bounced cheques and unknown credits. Then list unpresented cheques and deposits not yet credited. The adjusted book balance plus and minus these timing items must equal the bank balance.
Your books say ₹4.8 lakh is in the bank. The statement says ₹5.9 lakh. Until you can explain every rupee of that gap, you cannot trust your cash position, your GST payments or your vendor balances. This post sets out the order of work, the common differences and a monthly routine that takes an hour instead of a week.
Why the two balances differ
The ICAI's study material groups the causes into two kinds: timing differences, where one side has recorded an entry the other has not yet, and errors, where one side recorded something wrongly. Almost every difference falls into one of these rows.
| Item | Effect on bank balance vs books | Fix |
|---|---|---|
| Cheques issued but not yet presented | Bank higher | Timing only. List in the reconciliation |
| Cheques or cash deposited but not yet credited | Bank lower | Timing only. List in the reconciliation |
| Bank charges, GST on charges, SMS fees | Bank lower | Book them in your ledger |
| Interest credited (sweep FD, savings) | Bank higher | Book it as income |
| Interest or EMI debited on a loan or CC | Bank lower | Book it against the loan or interest expense |
| Customer cheque returned unpaid | Bank lower | Reverse the receipt, debit the customer |
| Direct credits you cannot identify | Bank higher | Book to a suspense account, then trace |
| Errors in the books (wrong amount, wrong bank) | Either way | Correct the entry |
The order of work
Doing things in the right order is what makes reconciliation quick.
- Freeze the date. Download the statement up to the last day of the month and run the bank ledger to the same date.
- Tick off matches. Match each statement line to a ledger entry by amount, date and reference (UTR, cheque number). Most software can auto-match the bulk of it.
- Book what the bank knows and you do not. Charges, interest, NACH debits, returned cheques and unknown credits go into the books now. This gives you the adjusted book balance.
- List the timing items. Whatever is still unmatched in the books should be unpresented cheques and deposits in transit, and nothing else.
- Prove it. Adjusted book balance + unpresented cheques − deposits in transit = bank statement balance. If it does not tie, you have a missed entry or an error.
- Sign and file. Save the statement, the reconciliation and the list of open items with the month's closing papers.
Old cheques and stale items
Cheques are payable only if presented within three months of their date. The RBI cut the validity from six months to three months from 1 April 2012. So a cheque you issued in June that has not been presented by the end of September will not be paid.
- ✓Do not carry it as "unpresented" forever. Reverse it: credit the bank, debit the vendor again, and ask the vendor whether it wants a fresh payment.
- ✓Deposits in transit should clear within a day or two. Since October 2025, the cheque truncation system clears cheques in continuous sessions through the day, so a deposit still uncredited after two working days needs a call to the bank, not another month on the list.
Unidentified credits
An unknown NEFT or UPI credit is the item most often left hanging. It is also the riskiest: an unexplained credit sitting in the books is exactly what a tax officer asks about.
- Book it to a "Receipts pending identification" suspense account on the day you see it.
- Ask the bank for the remitter's name and account details, and check the narration and UTR.
- Match it against open invoices, customer advances and refunds due to you.
- Once identified, move it to the right customer. If it is an advance for services, check whether GST is payable on it.
- Review the suspense account every month-end. It should be close to zero.
A worked example
A pharma distributor in Indore closes August. Its bank ledger shows ₹4,82,300. The bank statement shows ₹5,88,150.
Step 1: items the bank has recorded, the books have not
| Item | Amount | Adjusted book balance |
|---|---|---|
| Balance as per books | ₹4,82,300 | |
| Less: bank charges ₹1,000 plus GST ₹180 | ₹1,180 | ₹4,81,120 |
| Add: interest on sweep FD | ₹2,430 | ₹4,83,550 |
| Less: customer cheque returned unpaid | ₹15,000 | ₹4,68,550 |
| Add: unidentified NEFT credit (to suspense) | ₹28,000 | ₹4,96,550 |
Step 2: timing items
| Item | Amount | Running total |
|---|---|---|
| Adjusted book balance | ₹4,96,550 | |
| Add: cheques issued, not presented (₹1,25,000 + ₹38,600) | ₹1,63,600 | ₹6,60,150 |
| Less: cheque deposited on 31 August, credited 1 September | ₹72,000 | ₹5,88,150 |
The result matches the bank statement, so the reconciliation is complete. The GST of ₹180 on bank charges goes to input tax credit if the bank's invoice shows your GSTIN. The returned cheque goes back to the customer's account. The ₹28,000 stays in suspense until the bank names the remitter.
A monthly routine
| When | Task |
|---|---|
| Daily or weekly | Import the statement, auto-match, book charges and returned cheques |
| Month-end, day 1-2 | Full reconciliation for every account, including CC and OD accounts |
| Month-end, day 2 | Clear suspense items, chase deposits in transit |
| Quarterly | Reverse cheques older than three months |
| Year-end | Get a balance confirmation from each bank for the auditor |
Frequently asked questions
Should I start from the book balance or the bank balance?
Either works, as long as you are consistent. Starting from the adjusted book balance is easier, because the books are then already corrected for charges and interest.
Do I need to reconcile cash credit and overdraft accounts?
Yes. They often carry interest, processing fees and penal charges that never reach the books unless someone reconciles them.
What if the difference is a small round number?
Look for a transposition error (₹5,400 typed as ₹4,500) or an entry posted to the wrong bank account. A difference divisible by 9 often points to transposed digits.
Can the bank make a mistake?
Yes, though it is rare. If a debit has no explanation, raise it with the branch in writing and keep it as an open item until it is reversed.
Sources
- ✓Bank Reconciliation Statement, ICAI Foundation study material (Chapter 3)
- ✓RBI circular reducing validity of cheques and drafts to three months from 1 April 2012
This is a summary, not legal advice. Confirm instrument validity and clearing timelines with your bank and the RBI website.
Written by
Founder, Airwix Technologies (Sleet)
Vatsal Sutariya is the founder of Airwix Technologies in Ahmedabad, the company that builds Sleet: SleetHR for HR and payroll, and Sleet Accounting for GST billing and books. He writes about GST, invoicing, business tax and choosing software for Indian businesses, and checks each rule against the official notification before it is published.
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