Use of a Bank Statement | Accounting for GCSE/IGCSE - Year 11 PDF Download

Use of a Bank Statement

What is the purpose of a bank statement?

• Banks provide statements to customers regularly: 
  • Customers can also request statements at any time. 
  • Online banking offers 24/7 access to statements.
• Bank statements serve various purposes:
  • They help in identifying errors in ledger accounts.
  • They facilitate comparison between the cash book balance and the actual bank balance.
• Bank statements reflect transactions from the bank's perspective:
  • A debit entry on a bank statement signifies money leaving the account.
  • A credit entry on a bank statement signifies money entering the account.
  • A debit balance indicates an overdrawn account.
  • A credit balance indicates a positive balance in the account.

Why might the balance on the bank statement differ from the balance in the cash book?

• Timing discrepancies can occur:
  • Certain transactions recorded in the cash book may not yet reflect on the bank statement.
  • Amounts won't reflect on the bank statement until they are processed and cleared by the bank.
• Unrecorded bank transactions might exist, not yet documented in the cash book.
• Errors are a possibility, either within the cash book entries or on the bank statement.

Which items might appear in the cash book but not on the bank statement?

Certain items may appear in the cash book but not on the bank statement:

• Cheques written by the business but not yet deposited by the recipient, known as unpresented cheques.
  • Cheques deposited by the business but not yet cleared by the bank, termed uncredited deposits.
  • Errors in the cash book that require correction by the business.
• These are cheques that have been issued but have not yet been presented for payment.
  • They are also known as "cheques not yet presented" in older exam papers.
  • Unpresented cheques will only appear on the bank statement once the recipient deposits them.
  • These will appear once the bank processes the cheques and the money is transferred
• There could be errors in the cash book, which are corrected by the business

Which items might appear on the bank statement but not in the cash book?

• Transactions involving bank transfers:
  • Direct debits
  • Standing orders
  • Credit transfers
  • Dividends
• Amounts applied by the bank:
  • Bank charges
  • Bank interest paid or received
• There could be cheques that the business deposited but that have been returned by the bank. These are called dishonoured cheques.
• A cheque could be dishonoured because:
  • It is not dated or signed
  • The amount written in words does not agree with the amount written as a number
  • The person or business who wrote the cheque does not have enough money in their bank to cover the payment
• There could be errors in the bank statement. The business needs to inform the bank and request corrections.

Updating the Cash Book

How do I use a bank statement to update the cash book?

• Identify any transactions present on the bank statement that do not reflect in the cash book.
• Add these transactions to the cash book.
  • If the transaction increased the bank balance, debit the cash book.
  • If the transaction decreased the bank balance, credit the cash book.
  • Ensure that the entries in the cash book are the opposite of how they appear on the bank statement.
• Rectify any errors in the cash book highlighted by the bank statement.
• Calculate the updated bank account balance in the cash book.
• The recalculated balance may still not match the bank statement balance, necessitating the creation of a bank reconciliation statement to elucidate the variance.