Differences between cash book balance and bank statement balance arise from timing differences and errors. Timing differences occur when transactions are recorded in one set of books before the other: cheques issued are recorded in cash book immediately but appear in bank statement only after presentation; deposits made are recorded in cash book immediately but credited later by bank; bank charges and interest are shown on statement but not yet recorded in cash book; direct deposits to bank are reflected in statement before entry in cash book. Errors can occur in cash book (arithmetic mistakes, wrong entries) or in bank statement (bank's posting errors). Standing instructions and automatic transfers may be in bank statement but unknown to company initially. Money sent for collection appears in bank statement after realization. Overdraft facilities might allow bank balance to go negative. NSF cheques create complications. Float period in cheque clearing creates most common timing differences. Reconciliation must identify and classify each difference appropriately. Understanding root causes helps implement better internal controls. Exam tip: Create a checklist of 10 common differences and practice categorizing them as adjustments to cash book vs bank statement.