Book balance definition
/What is a Book Balance?
A book balance is the account balance in a company's accounting records. The term is most commonly applied to the balance in a firm's checking account at the end of an accounting period. An organization uses the bank reconciliation procedure to compare its book balance to the ending cash balance in the bank statement provided to it by the company's bank.
Related AccountingTools Courses
Bank Reconciliation Essentials
Comparing Book Balance and Bank Balance
The bank and book balances are almost never the same, which most commonly calls for the adjustment of the book balance to conform to the information in the bank statement. The following reconciling items commonly arise as part of a bank reconciliation, and require adjustment of the book balance:
Interest earned. The amount of interest earned is recorded in the bank statement, and must be added to the company's book balance with a journal entry.
Service charges. Service charges are charged by the bank for its services in maintaining the checking account, and must be subtracted from the company's book balance. This may also include a fee for supplying check stock to the company. If you maintain a sufficiently high balance in your account, the bank may waive its standard monthly service charge.
Adjustments to deposits. The company may sometimes record a deposit incorrectly, or it may deposit a check for which there are not sufficient funds (NSF). If so, and the bank spots the error, the company must adjust its book balance to correct the error. The bank may also charge an NSF fee, which must be recorded in the company’s books.
Adjustments to checks. The company may occasionally record a check incorrectly. If so, and the bank spots the error, the company must adjust its book balance to correct the error.
Bank errors. On rare occasions, the bank will have made an error instead, in which case the bank corrects its records and the company's book balance is not adjusted.