# What do a favourable and an unfavourable balance mean on a bank reconciliation statement, and how is each dealt with?

Applies to: United States · Updated 2026-09-20

Favourable means the account holds funds — a debit balance in the entity's own cash book, matched by a credit balance in the bank's records of the same account. Unfavourable means an overdraft: a credit balance in the cash book, a debit balance on the bank's side. Neither changes how the statement is drawn up. The same reconciling items run the same way; only the sign of the opening figure and the words describing it change.

## What does each label describe?

The two words are a matched pair, and they only make sense against each other. They describe the direction in which the balance of one bank account runs on one date — the balance the reconciliation statement starts from.

The pair is study-material vocabulary; the wording here follows the exam texts that use it. A favourable balance is the position where deposits exceed withdrawals, so money is sitting at the bank. In the records of the business that owns the account, that is a debit balance in the bank column of the cash book; in the bank's own record of the same account, it is a credit balance. Both descriptions are of one position: funds held at the bank.

An unfavourable balance is the other direction. Withdrawals have exceeded deposits, the account is overdrawn, and the business owes the bank rather than the other way round. In the cash book that shows as a credit balance; in the bank's record of the account it shows as a debit balance. Unfavourable and overdraft mean the same thing here.

Nothing in either word tells you the amount, the period, or whether the figure has already been reconciled. They classify direction, and that is all they classify.

## Whose records is the label stated from, and why does the other side call the same position the opposite?

This is where most readers go wrong. A label is only complete when you know which set of records produced it, because the two sides of the same account are mirrors.

Your bank account is an asset to you: you hold a claim on the bank, so a funded account carries a debit balance in your books. The bank's books run the other way. When it takes in your deposit the bank debits its own cash and credits a liability account for customer deposits, because it owes the money back to you. A position that is a debit to you is therefore a credit to the bank, and the same funded account is described as a debit balance as per the cash book and a credit balance as per the pass book — the bank's own record of your account, which in the United States you meet as the bank statement.

That is why a single position carries two opposite-looking descriptions, and why the pair "favourable balance as per cash book" and "favourable balance as per pass book" are not two different situations. The overdrawn position mirrors in exactly the same way: credit balance as per cash book, debit balance as per pass book.

So before you classify anything, ask who wrote the wording you are reading. A label lifted from a document the bank produced is stated from the bank's side; a label on a statement your bookkeeper prepared is stated from yours. If the wording is debit or credit, flip it when it came from the other side: the bank's credit balance is your debit balance. If the wording is favourable or unfavourable, do not flip it — the label describes the same position from either side, which is why the study text pairs "favourable balance as per the cash book or passbook" as one thing.

## Which position is my account in, and what does my own ledger show?

Open your own bank or cash account and look at which side the balance falls on. A debit balance is the favourable position. A credit balance in that account is the unfavourable one: the account is overdrawn.

That gives you a two-step test. Is the balance a debit, or positive? Favourable. Is it a credit, or negative? Unfavourable.

## Which way do the reconciling items run from each starting position?

With signed figures, the direction of a reconciling item is set by what the item is, not by which position the account is in.

A bank reconciliation statement is a form used to compare internal records of checking account activity to those stated by the bank, so each item is applied to the figure that does not yet include it. Working from the bank's figure toward your own, you add the total of all deposits in transit to the bank, because you have recorded them and the bank has not yet. You subtract the total of all checks that have not yet cleared the bank, because you have already recorded those payments and the bank has not. The statement is finished when the two sides meet: the eventual result should be a variance of zero.

When the starting balance is unfavourable, it is a negative balance. An item that is subtracted from that negative balance increases the overdraft, and an item that is added to it decreases the overdraft.

That one rule can be written two ways. If the overdraft is written as a positive figure labelled overdraft — an unsigned layout — every item runs the opposite way to the funded case: what would be subtracted from funds at the bank is added to the overdraft, and what would be added is deducted from it. With signed figures, as in the tables below, the overdraft is a negative number and every item keeps its direction. The two are the same arithmetic. On the second table below, -3,500.00 + 4,200.00 - 6,750.00 = -6,050.00 in signed figures; in the unsigned layout, overdraft 3,500.00, less 4,200.00, add 6,750.00, gives an overdraft of 6,050.00. The mistake to avoid is mixing the two: reversing the items while also carrying the opening overdraft as a negative number, or keeping the funded-case directions while writing the overdraft as a positive one.

## What does the same account look like reconciled from each position?

Take one account with one set of unrecorded items at March 31: deposits of 4,200.00 made but not yet on the statement, and checks of 6,750.00 written but not yet cleared.

Favourable starting position, with the statement showing 18,500.00 at the bank:

| Line | Amount |
|---|---|
| Balance per the bank statement, March 31 | 18,500.00 |
| Add: deposits made but not yet on the statement | 4,200.00 |
| Subtract: checks written but not yet cleared | (6,750.00) |
| Balance per the books, March 31 | 15,950.00 |

Unfavourable starting position, same two items, with the statement showing the account overdrawn by 3,500.00:

| Line | Amount |
|---|---|
| Balance per the bank statement, March 31 (overdrawn) | (3,500.00) |
| Add: deposits made but not yet on the statement | 4,200.00 |
| Subtract: checks written but not yet cleared | (6,750.00) |
| Balance per the books, March 31 (overdrawn) | (6,050.00) |

The items are the same, they appear in the same order, and each one runs in the same direction. Only the opening figure — carried as a negative amount — and the closing description, overdrawn rather than at the bank, differ.

The two sides can also disagree about which position you are in, which is worth seeing once. Change nothing except the statement figure, to 2,000.00 at the bank, and the same two items leave the books overdrawn by 550.00. Funds showing on the bank's document do not mean your own records are in the favourable position, and that gap is precisely what the reconciliation exists to expose.

## Does an unfavourable balance mean the business is in trouble?

No. The label reports the direction of one account balance on one date. It says nothing about revenue, profit, what is owed to the business, or what it holds elsewhere.

A favourable balance on March 31 can sit alongside a payroll run due on April 1 that will consume it. An unfavourable balance may be temporary or expected; the label does not say which. How an overdrawn position is presented on the balance sheet is a separate question and is not decided by the label. Treat the word as a direction marker, and read the health of the account from the trend and the amounts, not from which of the two labels applies.

## What wording will I meet instead in United States records and software?

The favourable and unfavourable pair belongs to the cash-book and pass-book tradition; the exam study text in the sources below is an example, presenting the pair alongside cash book, passbook and cheque vocabulary. You may also see the spellings favorable and unfavorable; they are the same pair. A plainer name for the unfavourable position is a cash overdraft: a bank account that contains a negative balance.

QuickBooks Online's reconcile screen uses neutral field names rather than either label. You enter the Ending balance and Ending date from your account statement, then continue matching until the Difference is $0.00, which means the account is balanced. The fields take whatever figure the statement shows.

## Sources

1. Unacademy — *A Key Note on Bank Reconciliation*, undated. https://unacademy.com/content/ssc/study-material/financial-accounting/a-key-note-on-bank-reconciliation/
2. AccountingCoach — *Can you help me to understand credit memo and debit memo in the bank reconciliation?*, undated. https://www.accountingcoach.com/blog/debit-memo-credit-memo-bank-reconciliation
3. AccountingTools — *Cash overdraft definition*, February 11, 2026. https://www.accountingtools.com/articles/what-is-a-cash-overdraft.html
4. AccountingTools — *Bank reconciliation statement definition*, February 11, 2026. https://www.accountingtools.com/articles/what-is-a-bank-reconciliation-statement.html
5. Intuit — *Reconcile an account in QuickBooks Online*, last updated 8/5/2026. https://quickbooks.intuit.com/learn-support/en-us/help-article/statement-reconciliation/reconcile-account-quickbooks-online/L3XzsllsK_US_en_US

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