(49)-BANK STATEMENT AND CASH BOOK

Bank Statement and Cash Book

The cash book of a business is the record of how much cash the business believes that it has in the bank. In the same way, you yourself might keep a private record of how much money you think you have in your own personal account at your bank, perhaps by making a note in your cheque book of income received and the cheques you write.

If you do keep such a record you will probably agree that when your bank sends you a bank statement from time to time the amount it shows as being the balance in your account is rarely exactly the amount that you have calculated for yourself as being your current balance.

Why might your own estimate of your bank balance be different from the amount shown on your bank statement?

There are three common explanations.

1. Error.
   Error in calculation, or recording income and payments, are more likely to have been made by you than by the bank, but it is conceivable that the bank has made a mistake too.
2. Bank charges or bank interest.
   The bank might deduct charges for interest on an overdraft or for its service, which you are not informed about until you receive the bank statement.
3. The differences
   There might be some cheques that you have received and paid into the bank, but which have not yet been “cleared” and added to your account.

Similarly, you might have made some payments by cheque, and reduced the balance in your account accordingly in the record that you keep, but the person who receives the cheque might not bank at a while.

If you do keep a personal record of your cash position at the bank, and if you do check your periodic bank statements against what you think you should have in your account, you are doing exactly the same thing that the bookkeepers of a business do when they make a bank reconciliation.