There are several causes of differences between the balance as per cash book and balance as per bank statements, some of which are
1. ITEMS THAT APPEAR IN THE BANK STATEMENT ONLY
These items may come inform of payments or receipts
A. Direct lodgement in the Bank Statements
These are various transactions credited in the bank statements which are yet to be recorded in the company’s cash book. Examples are
i. Dividends credited directly into the company’s bank account
ii. Interest received on bank deposit and current accounts
iii. Traders’ credit. These are amounts received directly into the bank account from the company’s debtors who had been instructed to pay directly into the account
B. Direct withdrawal from the Bank Statement
These are various transactions debited in the bank statements which are yet to be recorded in the Company’s cash book. Examples include:
i. Standing Order. These are regular payments made by the bank on behalf of, and as instructed by, the company. Standing Order is an instruction to the bank to transfer funds of a specific amount to another account on a specific date on a recurring basis. Payments usually made by standing order includes but not limited to the following: (a) Annual Subscription, (b) Monthly security charges.
Example
XYZ LTD has made a standing order to its bank to transfer an amount of N10, 000 on the 27th day of every month , as monthly subscription charges, to an association. On 30 November 2016, the bank statement shows a balance of N200, 000 whereas the cash book balance was N210, 000. The difference represents the amount of payment through standing order not yet recorded by XYZ LTD.
ii. Dishonoured cheques. These are cheques earlier credited by the bank into the company’s account but later dishonoured by the paying banker by debiting the account of the company .Several factors can cause a bank to dishonour a cheque some of which are: irregular signature, amount in words not in agreement with amount in figures etc.
iii. Direct Debit. This is a direct payment out of the company’s bank account to a person or other company that has been authorized by the company to draw money from the account. This is slightly different from standing order as it may not be occurring on a specific regular time.
iv. Interest on loan and overdraft. Often time the bank usually deduct interest on loan or overdraft taken by the company from the account even without informing the company before making the deduction. When this interest is deducted without the company being informed on time, the balance as per bank statement usually differ from the balance as per cash book.
v. Bank Charges, commission on draft and VAT, Commission on turnover (C.O.T).
2. Transaction Posted in the Cash Book only
i. Uncredited Cheques/Lodgements.
These are cheques/cash received by the company, posted into the appropriate column of the cash book and then lodged into the bank account but not credited by the bank. Delay caused by the clearing system is one of the reasons for having uncredited cheques
ii. Unpresented Cheques. These are cheques issued by the company to the service providers and credited into the cash book but not presented to the bank for payment from the company’s account.
3. Other Causes are :
iii. Error(s) in the cash book. There may be several errors in either the debit or credit side of the cash book.
iv. Error(s) in the bank statement . There may be several errors made by the bank in posting into either the lodgement or withdrawal side of the bank statement