Falak
Leah, your order of chocolates comes to $10. How would you like to pay?
Leah
I'll write you a cheque right now — here you go.
Falak
Perfect, thank you! I'll head to the bank this afternoon to deposit it.
Narrator
Scene 2: Falak Makes the Entry
Falak
Back at her desk, Falak records the sale in her cash book the moment she receives the cheque — this is standard practice: a business updates its own books as soon as it has the cheque in hand, before the bank has actually processed it.
Narrator
Journal Entry (Cash Book)
Narrator
Leah Receivable $10
Falak (to herself)
My bank balance was $100 this morning. Now that I've recorded Leah's cheque:
Narrator
$100 + $10 = $110 (Cash Book balance)
Narrator
Scene 3: At the Bank — Friday Afternoon
Falak
Hi, I'd like to deposit this cheque, please.
Bank Teller
I'm sorry, Falak we're just closing for our half-day. And since tomorrow and Sunday are both non-working days, we won't be open again until Monday.
Falak
Oh no. So what happens to my deposit?
Bank Teller
I can take the cheque today, but it won't actually be processed and credited to your account until Monday. Until then, it doesn't show up in your bank balance at all.
Falak
I see so as far as the bank statement is concerned, this $10 hasn't arrived yet.
Bank Teller
Exactly. Your bank statement balance is still $100.
Narrator
Scene 4: The Discovery
Narrator
That evening, Falak compares her cash book to her bank statement and finds a mismatch:
Narrator
Cash Book (Falak's own records) $110
Narrator
Bank Statement (the bank's records) $100
Falak
Nobody made a mistake here it's just a timing difference. I recorded Leah's cheque the moment I received it, but the bank can't record it until it's actually processed on Monday. This $10 is an uncredited cheque also called a deposit in transit: money I've already accounted for, that the bank hasn't credited yet.
Narrator
Scene 5: The Reconciliation
Narrator
Because the cash book is ahead of the bank statement this time (money received but not yet credited), Falak must add the uncredited cheque back onto the bank statement balance to arrive at her true cash book balance.
Narrator
Bank Reconciliation Statement
Narrator
Bank Statement Balance $100
Narrator
Add: Uncredited Cheque (Leah, deposited but not yet cleared) $10
Narrator
Cash Book Balance $110
Falak
Once Monday comes and the bank processes the cheque, the bank statement will catch up to $110 on its own and the reconciling item disappears.
