Disagreeing With The Bank StatementEvery cashier tries to keep the cash book as accurate and up-to-date as possible. Many receipts and many payments may have to be entered up each day. Then, at regular intervals, the firm receives bank statements from the bank weekly, monthly or quarterly. Unfortunately, the balance shown on the cash book hardly ever agrees with the one shown on the bank statement! There can be various reasons for this. The cashier, after all, is responsible for the firm’s money, so if the bank statement disagrees with his cash book balance, he/she must clearly show the reason why.

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Here are the common reasons:

 

Un-presented Check – Reason 1st

When you get the bank statement and compare the balance with that shown in your cash book, you’ll see that some check you drew have not yet been presented to the bank for payment: they simply don’t appear on the bank statement at all, as yet. The cashier enters check transactions within a day or two of handling the check; but it could be days or even weeks before the payee presents them to your bank for payment.

 

Bank Lodgments – Reason 2nd

Payments into the bank will have been recorded in the cash book, but if they haven’t yet been recorded by the bank they won’t appear on the bank statement. This could happen, for example, if a bank statement was sent out between the time the cashier lodged the banking in the night safe and the time he/she actually paid them in over the counter.

 

Automatic Payments – Reason 3rd

Payments by direct debit or standing order may have been omitted by the cashier, but they will still appear on the bank statement.

 

Bank Charges and Interest – Reason 4th

A cashier may know nothing about the bank charges and interest until the bank statement arrives, containing the details.

 

Returned Checks – Reason 5th

A customer’s check may have been returned unpaid [bounced-back in popular jargon] due toNot-Sufficient-Fund” [coded by the bank as ‘NSF’]. While the cash book will show the monies have been out [for the cashier does not realize that the bank balance was not sufficient to cover the check drawn present by the payees], the bank will return the check because of the NSF; so the statement will show a contra entry.

 

Errors – Reason 6th

The cashier could simply have made an error. Bank errors can happen, but they are rare.

 

What to do next?

So now you should be able to identify where is the un-matched and why. The next question is: what to do?

If a discrepancy arose from just one source it would be easy enough to deal with, but usually there are several discrepancies, some distorting the credit side and some distorting the debit side, and liable to cause confusion.

To remove this confusion, and explain the discrepancies, the cashier would need to perform and draws up a bank reconciliation statement“.

Bank Reconciliation

There are three ways of reconciling the two accounts:

  1. Reconcile cash book to bank statement: starting with the closing cash book balance, and check through step-by-step towards the bank balance, explaining the discrepancies as we go.
  2. Reconcile the bank statement to the cash book: the opposite process.
  3. Correct all the errors and omissions on both the cashier’s part and the bank’s part, showing how we did it, until we end up with the same balance from both viewpoints.

 

The third way is usually the best since it is easier to understand the reasons why the ending balance shown on the cash book is not matched with the bank statement and solve the real problem.