Items recorded in cash book but not on the bank statement
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A Cash Book is a subsidiary book of account that is used to record the receipt and payment of cash and cheques by a business organization. The Cash Book functions both as a subsidiary book and a ledger. The Cash Book is part of the double entry system. BANK STATEMENTA Bank Statement is a statement prepared by a bank and sent to the customer at periodic intervals showing the transactions that has taken place between the bank and its customer for a particular period of time. USES OF A BANK STATEMENT
BANK RECONCILIATION STATEMENTA bank reconciliation statement is a statement prepared by an account holder (i.e. the trader or the business) for the purpose of identifying the causes of disagreement (or discrepancy) between the Cash Book balance and the Bank Statement balance and to reconcile (or harmonize) the two balances. ITEMS CAUSING DISCREPANCY (DISAGREEMENT) BETWEEN THE CASH BOOK BALANCE AND THE BANK STATEMENT BALANCEA Items in the Cash Book but not in the Bank Statement
B Items in the Bank Statement but not in the Cash Book
EVALUATION QUESTIONS
UNPRESENTED CHEQUESThese are cheques issued by the business but are yet to be presented for payment at the bank by the payee. Unpresented cheques will be found on the credit side of the Cash Book but not on the debit side of the Bank Statement The effect of unpresented cheques is to make the Bank Statement balance to be higher than the Cash Book balance. UNCREDITED CHEQUESThese are cheques received by the business and lodged (or deposited) in the bank but have not been credited in the Bank Statement Uncredited cheques will be found on the debit side of the Cash Book but not on the credit side of the Bank Statement The effect of uncredited cheques is to make the Cash Book balance to be higher than the Bank Statement balance. ERRORS IN THE CASH BOOKThese are mistakes of omissions, duplications, wrong figures etc. made in the recordings/entries posted into the Cash Book BANK CHARGESThese are amounts deducted by the bank from the customers account in respect of services rendered by the bank to the customer for that period. Bank charges will include Commission on Turnover (COT), cost of cheque books issued to customers etc. Bank charges will be found on the debit side of the Bank Statement but not on the credit side of the Cash Book The effect of bank charges is to make the Cash Book balance to be higher than the Bank Statement balance. DIVIDENDSDividends represent the part of the profits of a limited liability company that is given to shareholders as a reward for their investments in the company Dividends will be found on the credit side of the Bank Statement but not on the debit side of the Cash Book The effect of dividends is that the Bank Statement balance will be higher than the Cash Book balance STANDING ORDERSStanding orders represent instructions given by an account holder to the bank to pay on his behalf, on a regular basis, a fixed amount of money to a named beneficiary. Standing orders will be found on the debit side of the Bank Statement but not on the credit side of the Cash Book The effect of standing order is to make the Cash Book balance to be higher than the Bank Statement balance CREDIT TRANSFERS (or DIRECT CREDITS)Some customers or debtors of the business may settle their outstanding accounts by paying directly into the business account with the bank. Credit transfers will be found on the credit side of the Bank Statement but not on the debit side of the Cash Book The effect of credit transfer is to make the Bank Statement balance to be higher than the Cash Book balance. DIRECT DEBITSThis is an arrangement whereby a bank will pay on behalf of the account holder, bills that are presented by third parties. Direct debits will be found on the debit side of the Bank Statement but not on the credit side of the Cash Book The effect of direct debits is to make Cash Book balance to be higher than the Bank Statement balance. DISHONOURED CHEQUESThese are cheques received by the business and lodged into the bank but have been returned unpaid by the drawer’s bank. Dishonoured cheques will be found on the debit side of the Bank Statement but not on the credit side of the Cash Book The effect of dishonoured cheque is to make the Cash Book balance to be higherthan the Bank Statement balance. INTEREST RECEIVED FROM THE BANK e.g. on Fixed DepositsWhere a customer maintains both current account and fixed deposit account, the bank may pay interest on such fixed deposit into the customer’s current account. Interest on fixed deposits will be found on the credit side of the Bank Statement but not on the debit side of the Cash Book The effect of interest on fixed deposits is to make the Bank Statement balance to be higher than the Cash Book balance. INTEREST CHARGED ON OVERDRAFTSWhen a current account holder is allowed to overdraw his account, the bank will charge interest on the balance overdrawn on a monthly basis Interest on overdraft will be found on the debit side of the Bank Statement but not on the credit side of the Cash Book The effect of interest on overdraft is to make the Bank Statement balance to be smaller than the Cash Book balance. ERRORS IN THE BANK STATEMENTThese are mistakes of omissions,duplications, wrong figures etc. made by the bank in the recordings made in the Bank Statement EVALUATION QUESTIONS
READING ASSIGNMENT
GENERAL EVALUATION QUESTIONS
WEEKEND ASSIGNMENT
THEORY
What appears in the cash book but not in the bank statement?(ii) amounts not yet credited, which are cheques and other amounts which have been paid into the bank and debited in the cash book, but which do not appear on the bank statement. These items may not be recorded by the bank for a day or so.
Which transactions are only recorded in cash book?A cash book records the transactions related to cash receipts and cash payments. Thus, it records only those transactions that involve cash inflows or outflows. Credit transactions are not recorded in the cash book as it does not involve any cash inflows or outflows.
Which item is not reflected on the bank statement?The following items tend to remain unrecorded when a bank statement is received: Interest on deposits credited by the bank but not recorded in the cash book. Interest on investments collected by the bank but not recorded in the cash book.
What causes discrepancies between cashbook and bank statement?The difference between cash book balance and bank statement balance results due to certain transactions been recorded by either the company or the bank. Such discrepancies are regularly noted due to time lags in processing transactions and lack of knowledge of certain charges debited to the company account by the bank.
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