Cash book versus bank statement

Every cashier tries to keep the cash book as accurate and up to date as possible. Many receipts and many payments may have to be entered up each day. Then, at regular intervals, the firm receives bank statements from the bank—weekly, monthly or quarterly. Unfortunately, the balance shown on the cash book hardly ever agrees with the one shown on the bank statement! There can be various reasons for this.

Noting unpresented cheques

When you get the bank statement and compare the balance with that shown in your cash book, you’ll see that some cheques you drew have not yet been presented to the bank for payment: they simply don’t appear on the bank statement at all, as yet. The cashier enters cheque transactions within a day or two of handling the cheques; but it could be days or even weeks before the payee presents them to your bank for payment.

Noting bank lodgements

Payments into the bank will have been recorded in the cash book, but if they haven’t yet been recorded by the bank they won’t appear on the bank statement. This could happen, for example, if a bank statement was sent out between the time the cashier lodged the bankings in the night safe and the time he actually paid them in over the counter.

Automatic payments

Payments by direct debit or standing order may have been omitted by the cashier, but they will still appear on the bank statement.

Bank charges and interest

A cashier may know nothing about these until the bank statement arrives, containing the details.

Returned cheques

A customer’s cheque may have been returned unpaid—’bounced’ in popular jargon. The cash book will show the money having been received, but the bank won’t have received funds for the cheque; so the statement will show a contra entry.

Errors

The cashier could simply have made an error. Bank errors can happen, but they are rare.

On comparing A. Frazer’s bank balance as per bank statement with his bank balance as per cash book, it is found that the former shows £500 in favour while the latter shows £320 in favour. In looking for the reasons we find that a cheque drawn by D. Davidson in favour of the firm in the sum of £10.00 has been dishonoured, a cheque drawn by the firm in favour of S. Jones for £200 has not yet been presented by his bank for payment, bank charges have been made in the sum of £50 and a customer’s (M. Bandura’s) bill of £40.00 has been paid via telephone banking and the cashier was not aware of this. Figure 17 shows how we would write up a Bank Reconciliation Statement.