Syllabus E4b)Identify the main reasons for differences between the cash book and the bank statement. Show
The main reasons for differences between the cash book and the bank statementThe balance on the cash account (which should be the same as the balance in the cash book) is compared to the balance on the bank statements at a given date. However, these two balances may not agree. There are various reasons
Differences between the cash book and the bank statementTherefore, differences between the cash book and the bank statement arise for 3 reasons
Always remember In our cash book, but In the bank statement, In our cash book, A credit bank balance indicates a liability (overdraft) but In the bank statement, A credit balance indicates a positive balance (the bank owes us money) Cash balance at the bank of a company and the cash balance maintained at the company’s cash book often do not match due to a number of factors. Thus, companies are required to perform bank reconciliation that showcases the difference between the cash balance in company’s cash account and the cash balance according to its bank statement. The key difference between cash book balance and bank statement balance is that cash book balance states the cash balance recorded by the company in company’s cash book whereas bank statement balance is the cash balance recorded by the bank in bank records. CONTENTS1. Overview and Key Difference What is Cash Book Balance?Cash book balance states the cash balance recorded by the company in company’s cash book. Following transactions are generally included in the cash book but not in the bank statement, thus resulting in a discrepancy. Deposits in TransitThese are deposits sent by the company to the bank but have not been received by the bank on time before issuing the bank statement. Outstanding ChecksOutstanding checks refer to the checks issued by the company but were not presented or cleared prior to the issuance of the bank statement.  Figure 01: Bank Reconciliation Statement Given above is an image of a bank reconciliation form. Companies perform bank reconciliation to match the cash balance in company’s cash account and the cash balance according to its bank statement. What is Bank Statement Balance?Bank statement balance is the cash balance recorded by the bank in bank records. Service charges, interest income and NSF (Not Sufficient Funds) checks are entries that result in a discrepancy since these are recorded in the bank statement but not included in the cash book. Service ChargesService charges are charges deducted by the bank. The company will come to know of such charges only when they receive the bank statement. Interest IncomeIf interest income has been earned by the company on its bank account, it is not usually entered in company’s cash account before the bank statement is issued. NSF ChecksNSF checks are deposited by the company in the bank account; however, the bank is unable to proceed with making payments since the balance in the company’s account is insufficient. E.g. PQR Ltd.’s cash book balance and bank statement balance as of 31.12.2016 is $ 42,568 and $ 41,478 respectively. Consider the following information.
The bank reconciliation statement for PQR Ltd is shown below. What is the Difference Between Cash Book Balance and Bank Statement Balance?
Summary – Cash Book Balance vs Bank Statement BalanceThe difference between cash book balance and bank statement balance results due to certain transactions been recorded by either the company or the bank. Such discrepancies are regularly noted due to time lags in processing transactions and lack of knowledge of certain charges debited to the company account by the bank. These discrepancies have to be reconciled through preparing a bank statement. Download PDF Version of Cash Book Balance vs Bank Statement BalanceYou can download PDF version of this article and use it for offline purposes as per citation note. Please download PDF version here Difference Between Cash Book Balance and Bank Statement Balance. References:1. Jan
Irfanullah. “Bank Reconciliation.” Bank Reconciliation Statement | Process | Format | Example. N.p., n.d. Web. Available here. 10 July 2017. Image Courtesy:1. “y2cary3n6mng-lbraej-bank-reconciliation-statement” by Peter Baskerville (CC BY-SA 2.0) via Flickr Why there are differences in cash book and bank statement?What is the difference between cash book and a bank statement? Cash book is used to record all transactions for cash, checks, money orders, or postal order while a bank statement is the list of entries to each account holder that have been made in their personal account.
What would cause the balance of cash in the bank statement not to equal the balance of cash in the accounting records?Discrepancies between the two records may be caused by: Deposits in transit: Cash or checks may have been received by the business but not yet recorded by the bank. Outstanding checks: Outstanding checks are those that have been issued but not processed. Bank service fees: Banks deduct service charges regularly.
Why is my book balance different from my account balance?Book balance can include transactions that have yet to settle or clear through the bank account. Book balance reflects the funds that a company owns after adjustments have been made for checks that have yet to clear, deposits in transit, or other pending deductions from an account.
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What are some reasons that cause the balance on the bank statement to differ from the cash balance on the books?
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