The bank column of the cash book and the bank pass book (statement) should show the same balance, but they usually differ on a given date.
Causes of difference
- Cheques issued but not yet presented for payment
- Cheques deposited but not yet collected (cleared)
- Bank charges and interest debited by the bank
- Interest or dividend collected and credited by the bank
- Direct deposits by customers and direct payments by the bank
- Cheques dishonoured
- Errors in the cash book or the pass book
Preparing the statement (starting from a favourable cash book balance)
| Add | Less |
|---|---|
| Cheques issued but not presented | Cheques deposited but not cleared |
| Amounts credited by the bank only (interest, direct deposits) | Amounts debited by the bank only (charges, direct payments, dishonour) |
The result is the balance as per the pass book. When starting from the pass book balance, reverse the treatment. An overdraft is a negative balance, so the signs are reversed again.
Tip
Before preparing the statement, ask for each item: "Which book has already recorded it?" and "Did it increase or decrease that balance?"
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