Treatment of Errors and Omissions When Preparing Bank Reconciliation Statement

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on September 9, 2021

Errors and Omissions

In some cases, discrepancies in the cash book and bank statement may arise from errors committed by the bank or by the person responsible for writing up the cash book. These errors have to be properly rectified.

This article shows several examples of such errors and omissions.

1. Errors Resulting in More Bank Balance in the Cash Book

A few examples of errors and omissions are given below that lead to a greater bank balance in the cash book.
(a) Check Not Sent to Bank For Collection
Sometimes checks are received from debtors and recorded in the cash book (on the debit side in the bank column), but the check does not get sent to the bank for collection.

Due to this omission, the cash book shows a greater bank balance while the bank statement shows less bank balance.
(b) Issued Check Not Recorded in Cash Book or Wrongly Recorded in Cash Column
Checks are issued on a daily basis to make payments to creditors. Sometimes a check issued to creditors is omitted from being recorded in the cash book (on the credit side in the bank column) or it is wrongly recorded in the cash column.

This leads to more bank balance in the bank statement.
(c) Wrong Casting of Bank Column in Cash Book
Errors may be committed to casting (totaling) the bank column of the cash book.

If the debit side of the cash book (bank column) is overcast, or if the credit side is undercast, then the cash book will show more bank balance compared to the bank statement.
(d) Deposited Check Not Recorded or Wrongly Recorded in the Debit Column of the Bank Statement by the Bank
Sometimes an error or omission is committed by the bank staff.

Suppose that on receiving a check from debtors, we deposit it at the bank after recording it in the cash book. The bank forgets to record it in the bank statement, or it is wrongly recorded in the debit column of the bank statement.

Due to this error, the cash book will show more bank balance and the bank statement will show less bank balance.
(e) Bank Account Wrongly Debited by the Bank
If the bank has wrongly debited the account in the bank statement, then the cash book will show more bank balance compared to that shown by the bank statement.

Treatment of Errors and Omissions Resulting in More Bank Balance in Cash Book When Preparing the Bank Reconciliation Statement

Whenever the bank balance in the cash book is higher than the bank statement balance due to an error or omission, the number of errors and omissions will be credited.

This will bring down the balance at the level of the bank statement while preparing the bank reconciliation statement.

2. Errors Resulting in Less Bank Balance in Cash Book

Examples are given below of errors and omissions that result in less bank balance in the cash book.
(a) Deposited Check Not Recorded in Cash Book
Businesses receive checks from debtors on a daily basis and deposit them into the bank.

Sometimes after receiving a check from debtors, it is deposited at the bank but not recorded in the cash book (on the debit side of the bank column). Due to this error, the cash book shows a lower bank balance compared to the bank statement.
(b) Wrong Casting of Bank Column in Cash Book
If the debit side of the cash book (bank column) is undercast, or if the credit side is overcast, the cash book will show less bank balance compared to the bank statement.

(c) Issued Check Not Recorded by the Bank
A business concern issues checks to creditors on a daily basis and pays these checks.

In some cases, we may issue a check to our creditor and the bank pays the amount of the check but forgets to record it in the bank statement (in the withdrawals column). For such mistakes, the cash book shows less bank balance compared to the bank statement.
(d) Bank Account Wrongly Credited by the bank
If the bank has wrongly credited the bank account in the bank statement, then the cash book will show less bank balance and the bank statement will show more bank balance.

Treatment of Errors and Omissions Resulting in Less Bank Balance in Cash Book When Preparing the Bank Reconciliation Statement

Whenever by any error or omission the cash book shows less bank balance compared to the bank statement balance, the number of errors and omissions will be debited to bring up the balance at the level of the bank statement, while preparing a bank reconciliation statement.

Summary of the Discussion

On a specific date when a bank reconciliation statement is prepared, the amount of the item is debited in the statement if (for any reason) the cash book shows less bank balance compared to the balance of the bank statement.

On the other hand, if for any reason the cash book shows more bank balance compared to the balance of the bank statement, then the amount of that item is credited in the bank reconciliation statement.

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