It has been mentioned that depositor (Customer) and Bank do not intimate each other every time when a transaction takes place. This leads to a difference between the balances of both the books. For some, transactions bank has earlier knowledge, it records these transactions in Bank Statement but does not intimate the depositor. The customer comes to know of these transactions only when receives the Bank statement.
Following are the items which usually remain unrecorded at the time of Bank statement is received.
- Interest on Deposits credited by the bank but not recorded in Cash Book.
- Interest on investment (Govt. Securities) collected by the bank but not recorded in Cash Book.
- Dividend collected by the bank but not recorded in Cash Book.
- Amount directly deposited into the bank by the debtors but not recorded in Cash Book.
- Interest on overdraft debited by the bank but not recorded in Cash Book.
- Bank charges debited (deducted) by the bank but not recorded in Cash Book.
- Directly paid by the bank as per standing orders but not recorded in Cash Book.
The following discussion will help to learn how these items cause a difference between the bank balance shown by the Cash Book and that of the Bank Statement.
1. Interest on Deposits credited by the bank but not recorded in Cash Book
When a bank allows interest on customer’s deposits, it credits the customer’s account without intimating him. The bank balance of the customer has been increased, but the customer comes to
know about it only at the end of the month when he receives Bank Statement.
Effect of “Interest on deposits” on bank balance
When interest is allowed by the bank, it is credited in the customer’s account. The bank balance as per Pass Book would be increased. As no entry is made in bank column of Cash Book regarding “Interest on Deposits” so, Cash Book would show less bank balance
Suppose on July 1st, 2019 the bank balance of Mr. John as per Cash Book and Bank Statement was $10,000. On July 2019 bank credited his account for interest on deposits $300. But the same has not been recorded in the Cash Book because no intimation was made by the bank. At the end of the month, Mr. John balanced his Cash Book and Bank Statement.
It should be noted that in bank statement$300 for interest on deposits have been recorded and balance is shown $10300. As no information is given to the customer, that’s why Cash Book is showing less balance than that of Bank Statement.
Treatment of “Interest on deposit not recorded in cash book” in bank reconciliation statement
The above example has proved that when an amount is credited to the customer’s account and if that amount is not yet recorded in the Cash Book, then Cash book shows less balance and Bank Statement shows more. It is a fact that amount for interest has been added in customer’s account, therefore, while preparing the Bank Reconciliation Statement; the customer should debit the amount of interest to bring up the bank balance at the level of Bank Statement.
2. Interest on investment collected by the bank, but not recorded in Cash Book
Sometimes the bank following the instructions of his client collects interest on his investment and credits the same to his bank account. But it takes a few days to send intimation to the customer. The customer makes the entry in Cash Book only, when he receives intimation. Meanwhile, the Cash Book shows less bank balance as compared to the Bank Statement.
3. Dividend Collected by the bank, but not recorded in Cash Book
As the bank collects interest on investments on the behalf of his client, similarly bank collects
dividend on shares on the behalf of his customer. On receiving the amount of dividend, bank
credits the customer’s account. In Bank Statement, customer’s bank balance has been increased, but it
is not intimated to the customer. Therefore, this transaction has not yet been recorded in the Cash
Book and it will show less balance as compared to Bank Statement.
4. Amount directly deposited into the bank by the debtors but not recorded in Cash Book
Sometimes our debtors, instead of paying cash to us, they directly deposit the due amount into our bank account. Bank, on receiving the amount, credits our bank account immediately. Now our bank balance as per the record of the bank has been increased. But it has not been recorded in the Cash Book because the bank has not intimated us. Therefore, Cash Book shows less bank balance and Bank Statement shows more.
Effect and Treatment of all above-mentioned increments while preparing a bank reconciliation statement
All The items (e.g. interest on deposits, Interest and Dividend collected by bank, directly deposited by debtors or any other increment in Bank Statement) Which have been credited (added) in the Bank Statement, but not recorded in the Cash Book have the same effect on bank balance as mentioned in the example above. In all these cases Cash Book shows less balance and Bank Statement shows more.
Any increment (amount credited or added by the bank) in Bank Statement that is not recorded in Cash Book is treated just like “Interest on deposits credited by the bank, but not recorded in Cash Book”. Thus, whenever bank credits (adds) an amount to the customer’s account in Bank Statement, but not yet recorded in the Cash Book, it is debited while preparing the Bank Reconciliation Statement.