CAT / FIA FFA Syllabus E. Preparing A Trial Balance - Differences between cash book and bank statement - Notes ^{2 / 4}

The main reasons for differences between the cash book and the bank statement

The 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

1. Time lag between writing a cheque and the payment appearing on the bank statement (unpresented cheques)

2. Time lag between depositing amounts into the bank account and these appearing on the bank statement (unrecorded lodgements)

3. Direct debits and standing orders are not yet recorded in the cash account (or cash book)

4. Bank charges not recorded in the cash account (or cash book)

5. Errors, such as transposition errors, or casting errors in the cash account (or cash book)

6. Errors made by the bank on the bank statement

Differences between the cash book and the bank statement

Therefore, 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)