Use of a Bank Statement

Use of a bank statement

Use of a bank statement

What is the purpose of a bank statement?

• Banks issue bank statements to their customers at regular intervals

  • Customers can also request bank statements at any time

  • Online banking allows customers to view their statements at any time

• Bank statements are useful:

  • They can be used to check for errors in the ledger accounts

  • They can be used to compare the bank balance in the cash book with the actual bank balance

• Bank statements are written from the point of view of the bank

  • A debit entry on a bank statement indicates that money has left the account

  • A credit entry on a bank statement indicates that money has entered the account

  • A debit balance means the account is overdrawn

  • A credit balance means there is money in the bank account

Why might the balance on the bank statement differ from the balance in the cash book?

• There could be timing issues

  • Some transactions in the cash book might not yet appear on the bank statement

  • Amounts won’t appear on the bank statement until they have been cleared by the bank

• There could be bank transactions that have not yet been entered into the cash book

• There could be errors

  • Either in the cash book or on the bank statement

Which items might appear in the cash book but not on the bank statement?

• Cheques written by the business which have not yet been deposited by the person or business receiving the cheque

  • These are called unpresented cheques

    • Older exam papers refer to these as “cheques not yet presented”

  • These will appear on the bank statement when the person or business deposits the cheques

• Cheques deposited by the business which have not yet been cleared by the bank

  • These are called uncredited deposits

    • Older papers refer to these as “amounts not yet credited”

  • These will appear once the bank processes the cheques and the money is transferred

• There could be errors in the cash book

  • These are corrected by the business

Which items might appear on the bank statement but not in the cash book?

• Transactions involving bank transfers

  • Direct debits

  • Standing orders

  • Credit transfers

  • Dividends

• Amounts applied by the bank

  • Bank charges

  • Bank interest paid or received

• There could be cheques that the business deposited but that have been returned by the bank

  • These are called dishonoured cheques

  • A cheque could be dishonoured because:

    • It is not dated or signed

    • The amount written in words does not agree with the amount written as a number

    • The person or business who wrote the cheque does not have enough money in their bank to cover the payment

• There could be errors in the bank statement

  • The business needs to tell the bank and ask them to correct the errors

Updating the cash book

Updating the cash book

How do I use a bank statement to update the cash book?

• Identify any transactions that appear on the bank statement but do not appear in the cash book

• Enter these transactions into the cash book

  • Debit the cash book if the transaction increased the bank balance

  • Credit the cash book if the transaction decreased the bank balance

    • The entries should be opposite to how they appear on the bank statement

• Correct any errors in the cash book that are identified by the bank statement

• Calculate the updated balance for the bank account in the cash book

  • This still might not match the balance shown on the bank statement

  • A bank reconciliation statement is created to explain the difference