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If you open a new bank account and pay in £1,000, you have a balance of £1,000 in the account, and your bank statements will show a balance of £1,000.

If you then draw a cheque (number 123456)  for £3,000, what is your bank balance?

Until you post the cheque, or until the payee receives it and puts it in the bank, your bank statements will continue to show a balance of £1,000 in hand.

Some accountants might adjust for unposted cheques on the basis that they are still creditors, but in most cases we do not distinguish between cheques you have released and those you have not.

All accountants will adjust the bank balance shown on the bank statement by the cheques you have released, and in the above example we consider you to be £2,000 overdrawn, and that is the balance that your cash book will show.

Unless you have an agreed overdraft facility or provide some additional cleared funds before the cheque reaches your bank for clearing, your bank manager will not be pleased (unless he thinks of the unauthorised borrowing fees he will probably charge you).

The bank balance shown in your accounts is that which would show on your bank statements if all the cheques your have written had been processed by the bank by the accounting date.

We call the summary of outstanding cheques to compare the cash book balance with that shown on your bank statement a bank reconciliation.

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