Unrecorded Transactions Treatment in Bank Reconciliation Statement

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on September 8, 2021

Unrecorded Transactions

Depositors (customers) and banks sometimes do not align when a transaction takes place, which leads to a difference between the balances of their respective books. The bank records these transactions in the bank statement but does not alert the depositor, who may only find out when they receive the bank statement.

The following items tend to remain unrecorded when a bank statement is received:

  1. Interest on deposits credited by the bank but not recorded in the cash book
  2. Interest on investments collected by the bank but not recorded in the cash book
  3. Dividends collected by the bank but not recorded in the cash book
  4. The amount directly deposited into the bank by the debtors but not recorded in the cash book
  5. Interest on an overdraft debited by the bank but not recorded in the cash book
  6. Bank charges debited (deducted) by the bank but not recorded in the cash book
  7. Amounts directly paid by the bank as per standing orders but not recorded in the cash book

The following discussion will help clarify how these items cause a difference between the bank balance shown by the cash book and the bank statement.

Interest on Deposits Credited by the Bank but Not Recorded in the Cash Book

When banks allow interest on customers’ deposits, they credit their accounts without alerting them. The bank balances have increased, but the customers only find out about it at the end of the month when they receive a bank statement.

Effect of Interest on Deposits on the Bank Balance

When interest is allowed by the bank, it is credited to the customer’s account. The bank balance as per the passbook would increase. No entry is made in the bank column of the cash book regarding interest on deposits, meaning the cash book would show less bank balance.

Example

Suppose on 1 July 2019, the bank balance of Mr. John, as per the cash book and bank statement, was $10,000. In July 2019, the bank credited his account for interest on deposits of $300. 

At the same, this transaction was recorded in the cash book because no intimation was made by the bank. At the end of the month, Mr. John balanced his cash book and bank statement.

Cash Book Bank Column
Bank Statement Example

The bank statement records $300 for interest on deposits and shows a balance of $10,300. The customer has received no information, and the balance is less than that of the bank statement.

Treatment of Interest on Deposits Not Recorded In Cash Book In the Bank Reconciliation Statement

The above example has proved that when an amount is credited to the customer’s account and if that amount is not yet recorded in the cash book, the cash book shows less balance, and the bank statement shows more.

The amount of interest has been added to the customer’s account. Therefore, when preparing the bank reconciliation statement, the customer should debit the amount of interest to bring up the bank balance at the level of the bank statement.

2. Interest on Investments Collected by the Bank, but Not Recorded in the Cash Book

Sometimes the bank follows the instructions of its client and collects interest on their investment and credits the same to their bank account. However, it takes a few days to send an intimation to the customer. 

The customer makes the entry in the cash book only when receiving intimation. Meanwhile, the cash book shows less bank balance compared to the bank statement.

3. Dividend Collected by the Bank but Not Recorded in the Cash Book

The bank collects interest on investments and dividends on shares for its client. On receiving the dividend, the bank credits the customer’s account. In the bank statement, the customer’s bank balance has increased, but such information is not intimated to the customer.

Therefore, this transaction has not yet been recorded in the cash book, and it will show less balance than the bank statement.

4. Amount Directly Deposited into the Bank by Debtors but Not Recorded in the Cash Book

Sometimes debtors, instead of paying cash to the relvant individual or organization, directly deposit the due amount into their bank account. The bank, on receipt of the amount, credits the bank account.

However, it has not been recorded in the cash book because the bank has not intimated the customer. Therefore, the cash book shows less bank balance, and the bank statement shows more.

Effect and Treatment of All Above-mentioned Increments While Preparing a Bank Reconciliation Statement

All the items credited (added) in the bank statement but not recorded in the cash book have the same effect on the bank balance. In all these cases, the cash book shows less balance, and the bank statement shows more.

Any increment (amount credited or added by the bank) in the bank statement not recorded in the cash book is treated like interest on deposits credited by the bank but not recorded in the cash book. Thus, whenever the bank credits (adds) an amount to the customer’s account in the bank statement but has not yet recorded it in the cash book, it is debited while preparing the bank reconciliation statement.

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