What is the reason for differences in bank statement and cash book balance?

The reasons for the difference between the balance on the bank statement and the balance on the books consist of;

• Outstanding checks.
• Deposits in transit.
• Bank service charges.
• Check printing charges.
• Errors in the books.
• Errors by the bank.
• Electronic charges on the bank statement are not yet recorded in the books.
• Electronic deposits on the bank statement that are not yet recorded in the books.

These are briefly mentioned below;

Outstanding cheques

Cheque issued but not presented in the bank in time for payment.

Depositor credits his books of account right after the issue of cheque to a party. But that party might not present the cheque to the bank on that day for encashment.

So, there is the possibility of disagreement of balances between depositor’s book and bank statement due to the time gap of issue and the presentation of the cheque.

Cheque deposited in the bank but not yet realized. The depositor debits his ledger account immediately after the deposit of a cheque into the bank.

But the bank does not credit it in the bank statement until collection.

Therefore, in between these two dates, if the balances are compared, a disagreement might be found.

Related: Bank Reconciliation Statement (Definition, Types, Template)

Deposit in transit

Cash deposit?

Deposit of cash into the bank on the date of submitting the bank statement to the depositor is recorded in the depositor’s ledger account on that day. Still, it is credited in the bank statement on the following date.

This results in a disagreement between two balances.

Cash deposit into bank directly by the third party?

The depositor gives instructions to its customers to deposit the amount due from them directly into his stipulated bank account.

In such a case, if a customer deposits cash into the depositor’s bank account directly, disagreement between two balances remains till it is recorded in the depositor’s ledger account.

Cash payment by the bank as per standing order of the depositor?

In compliance with the standing order of the depositor, the bank makes payment on behalf of the depositor for the insurance premium, interest on borrowed money, share installment money, etc., and debits them in the bank statement of the depositor.

But the depositor cannot record all these in his ledger accounts for not receiving information in time. Therefore, for this interim period, disagreement between two balances exists.

Related: Bank Statement: Definition, Use, Importance, Sample, Example

Dishonor of cheque

If dishonored for cash insufficiency, the depositor’s cheque for collection is debited in the bank statement and returned to the depositor marking N.S.F. on it.

But the depositor does not credit his ledger account till the information is available. As a result, during the interim period, the two balances differ.

Bank charge, Commission, etc.

Bank renders services to the depositor in collecting cheques, bills, a note, etc., for which the bank charges commission, interest, etc., and debits the depositor’s account for these charges.

But the depositor cannot credit his ledger accounts on the same date due to the non-availability of information. During this time gap, two balances differ.

Related: Difference between Bank Overdraft and Cash Credit

Interest on bank deposit

Bank grants interest at a regular interval on interest-bearing bank accounts, namely savings accounts, fixed deposit accounts.

For this, the bank credits the depositor’s bank accounts.

But the depositor cannot debit his ledger account for this on the same date, which creates disagreement between two balances.

Banker’s error

If the bank erroneously deposits or credits the depositor’s bank account, disagreement between two balances remains till correction.

Depositor’s error

If the depositor records any amount by mistake in his books of account, disagreement exists between the two balances till correction.

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)

   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.

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   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 Transit

   These 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 Checks

   Outstanding 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 Charges

   Service charges are charges deducted by the bank. The company will come to know of such charges only when they receive the bank statement.

   Interest Income

   If 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 Checks

   NSF 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.

   • Deposit of $ 210 on 30.12.2016 is not reflected in the bank statement.
   • A check issued for customer HIJ with the value of $ 960 is still outstanding.
   • A service fee of $ 100 is charged as a bank charge.
   • Interest income earned during the month of January is $ 465.
   • A check amounting to $575 has been returned by the bank due to insufficient funds (NSF check).

   The bank reconciliation statement for PQR Ltd is shown below.

   

   What is the Difference Between Cash Book Balance and Bank Statement Balance?

   Cash Book Balance vs Bank Statement Balance

   Cash book balance states the cash balance recorded by the company in company’s cash book.Bank statement balance is the cash balance recorded by the bank in bank records.NatureCash book balance includes transactions that are not included in the bank balance.Bank statement balance includes transactions that are not included in the cash balance.TransactionsDeposits in transit and outstanding checks are examples of transactions entered in the cash balance, but not in the bank balance.Examples of transactions included in the bank balance but not in the cash balance include service charges, interest income and NSF checks.

   Summary – Cash Book Balance vs Bank Statement Balance

   The 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 Balance

   You 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.

   What causes difference in cashbook and bank statement?

   The reasons for the difference between the balance on the bank statement and the balance on the books consist of; Outstanding checks. Deposits in transit. Bank service charges.

   What is the difference between the bank statement and the book balance?

   Bank statement balance shows the cash balance that a bank records in their records. Book balance records some financial transactions that aren't included in the bank balance. Bank statement balance reveals transactions that are not recorded in the company's book balance.

   Why cash book and bank statement doesn't provide the same value?

   The balance recorded in your books (again, the cash account) and the balance in your bank account will rarely ever be exactly the same, even if you keep meticulous books. One reason for this is that your bank may have service charges or bank fees for things like too many withdrawals or overdrafts.