Reasons a Bank Balance Will Differ from a Company's BalanceSome of the reasons for a difference between the balance on the bank statement and the balance on the books include: - Outstanding checks
- Deposits in transit
- Bank service charges and check printing charges
- Errors on the company's books
- Electronic charges and deposits that appear on the bank statement but are not yet recorded in the company's records
How to Document the DifferencesAny items that are already recorded in the company's general ledger accounts, but have
not yet appeared on the bank statement (outstanding checks, deposits in transit), will be noted as an adjustment to the balance per bank statement. Outstanding checks are a deduction to the balance per bank; deposits in transit are an addition to the balance per bank. If an item is on the bank statement but has not yet been entered on the books, the items are noted as an adjustment to the balance per books. Bank service charges, check printing charges,
and other electronic deductions that are not yet recorded in the company's accounts will become deductions from the cash balance per the books. Electronic deposits not yet recorded by the company will become additions to the cash balance per books. Outstanding checks. The company has issued checks that have not yet been presented to the bank for payment. Since they have not been presented, the bank does not record these checks in its records. This difference will
eventually vanish, when the bank receives the checks. Deposits in transit. The company records received cash and then sends the cash to the bank. If the cash is still in transit as of month-end, then the bank will not record it until the following month. As was the case with outstanding checks, this difference will vanish when the bank receives the deposits. Interest
on deposited cash. Depending on the nature of the account, the bank may credit interest income to the account. The company is not aware of this amount until the bank statement arrives, and so has not yet recorded it. Bank service fees. The bank charges the account for a variety of
services, and removes the related cash from the company’s account. The company is not aware of these charges until the bank statement arrives, and so has not yet recorded them. Check printing charges. The bank charges the company to print additional checks for it, and removes the related cash from the company’s account. The company is not aware of the amount of this charge until the bank statement arrives, and so has not yet recorded it. Bank
error. The bank has incorrectly recorded a transaction. In this case, the bank must be notified to correct the error. Company error. The company has incorrectly recorded a cash-related transaction. In this case, the company accountant corrects the error.
Documentation of Bank Balance and Book Balance DifferencesWhen any of these differences have already been recorded in
the company’s records but not those of the bank, they are itemized as reconciling items on the bank reconciliation. Examples are outstanding checks and deposits in transit. Outstanding checks are listed as a deduction from the bank balance, while deposits in transit are added to the bank balance. When any of these differences are listed on the bank statement, they should be recorded on the books of the
company, using journal entries. Examples of items to be entered in this way are the interest on deposited cash, bank service fees, check printing charges, and company recordation errors.
Syllabus E4b)Identify the main reasons for differences between the cash book and the bank statement.
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 Time lag between writing a cheque and the payment appearing on the bank statement (unpresented cheques)
Time lag between depositing amounts into the bank account and these appearing on the bank statement (unrecorded lodgements) Direct debits and standing orders are not yet recorded in the cash account (or cash book) Bank charges not recorded in the cash account (or cash book) Errors, such as transposition errors, or casting errors in the cash account (or cash book) Errors made by the bank on the bank statement
Differences between the cash book and the bank statementTherefore, differences between the cash book and the bank statement arise for 3 reasons Errors – usually in the cash book Omissions – such as bank charges, standing orders and direct debits not posted in the cash book Timing differences – such as unpresented cheques and unrecorded lodgements
Always
remember In our cash book,
A debit bank balance indicates an asset but In the bank statement,
A debit balance indicates a bank overdraft (we owe money to the bank – an asset for the bank) 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) | 
