1. Why Bank Balances Disagree
The closing balance in the company’s Bank Cash Book rarely matches the closing balance shown on the official bank statement. This happens because of timing differences, unrecorded transactions, or mistakes made by either the business or the bank.
2. Categorizing Discrepancies
Timing Differences (No Action Needed in Cash Book)
- Unpresented Checks: Checks written and handed to suppliers by the business that the suppliers have not yet cashed at the bank.
- Outstanding Deposits (Lodgments): Cash or checks deposited by the business late in the day that the bank has not yet processed or cleared on the statement.
Unrecorded Items (Requires Cash Book Updates)
- Direct Payments: Automated bank transfers, such as direct debits, standing orders, or automated customer deposits (EFTs).
- Bank Fees: Service charges, overdraft fees, or check-processing fees added directly to the account by the bank.
- Dishonored Checks (Bounced Checks): Checks from customers that were deposited but rejected by the bank because the customer did not have enough money to cover them.