Balance per cash book and bank statement

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on June 22, 2021


If deposits made by an account-holder exceed his withdrawals from the bank:

  • His cash book would show a debit balance (debit side exceeding credit side, resulting in a net asset)
  • The bank statement received by him would show a credit balance (credit column exceeding debit column, resulting in a net liability for the bank).

Similarly, in the event of an overdraft, the cash book would show a Cr. balance but bank statement would show a Dr. balance.
Except for the above fact, under normal circumstances, if both the bank and account holder have kept their books properly, the cash book and the bank statement should show identical balances, i.e. the amount of the balance is the same while it is on different sides of the ledger.

Causes of difference in balances per cash book and bank statement.

In practice, however, the balance is shown by the cash book seldom agrees with the balance disclosed by the bank statement. The following are the reasons for the difference between the two:
(a). Some entries that may have been made by the bank in the Bank Statement may not appear in the Cash Book. These include:

  • Bank Charges. The notification of these charges may have been sent by the bank before the month end but may have been received by the account holder after the month end.
  • Cheques deposited by the account holder that may have returned unpaid. A bank immediately notifies the account holder if any cheque is returned unpaid but such a notification may reach the account holder after the month end, particularly if the cheque was returned during the last few days of the month.
  • A deposit received for the account holder direct by the bank. The account holder may, in many cases, learn of such a direct deposit only on receipt of his monthly statement.
  • A payment made by the bank on behalf of the account holder without the latter issuing a cheque, e.g. standing order payments for rent, insurance premiums etc.

(b). Some entries that may have been made by the account holder in his cash book may not appear the bank statement. These include:

  • Cheques issued by the account holder to his suppliers that may not have been presented to the bank for payment by the last day of the month to which the bank statement relates. Banks would obviously show only those cheques on the bank statement that have actually been presented to them and paid by them on behalf of the account holder.
  • Cheques deposited, particularly on the last day of the month that may not be credited by the bank till they are collected from drawee banks.

Month end procedure

At the end of each month, the cash book is not balanced until a bank statement is received from the bank. Then the two are carefully compared and a list is prepared of all those items that may be present in one of them and missing from the other.
This done, all those items that are present in the bank statement but are missing from the cash book are entered in cash book on the last date of the month. The cash book is then balanced.
If the cash book still shows a balance that is different from the one shown on the bank statement, the difference must be due to the entries present in the cash book but missing from the bank statement.
As an account holder has no powers to amend the bank record nor will the bank agree to alter its
statement unless the un-presented cheques have been presented, or the uncollected cheques collected,
the only recourse is to prepare a statement to reconcile the balance shown by the cash book to balance
shown by the bank statement. Such a statement is a Bank Reconciliation Statement.

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