Balance per Cash Book and Bank Statement Causes, Examples

Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years.

At the end of an accounting period, the book balance is reconciled with the bank statement to determine if the cash in the bank account matches the book balance. When it comes to pending deposits, it is usually not a good idea to add that amount to the book balance in order to determine how much of the account balance can be withdrawn or otherwise used. This is because of what is known as the float on the funds on deposit. Many banks have a policy of not applying the deposit to the account until the funds clear from the issuing bank. Depending on the nature of the deposit, this float period may take up to three business days.

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Cash balance at the bank of a company and the cash balance maintained at the company’s cash book often do not match due to a number of factors. Thus, companies are required to perform bank reconciliation that showcases the difference between the cash balance in company’s cash account and the cash balance according to its bank statement. A credit memorandum attached to the Vector Management Group’s bank statement describes the bank’s collection of a $1,500 note receivable along with $90 in interest. The bank deducted $25 for this service, so the automatic deposit was for $1,565. The bank statement also includes a debit memorandum describing a $253 automatic withdrawal for a utility payment. Unlike deposits in transit or outstanding checks, which are already recorded in the company’s books, automatic withdrawals and deposits are often brought to the company’s attention for the first time when the bank statement is received.

If this still seems confusing, you may want to review the chart on page 19 and think about how the company classifies their account as an asset while the bank classifies the company’s account as a liability. The calculated book balance amount on the Bank Reconciliation Report is calculated automatically by the system. The calculation takes the amount in the Current Balance field in Bank Code Maintenance and either subtracts or adds all documents dated after the ending date on the Bank Reconciliation Report. The adjusted bank balance amount is calculated by taking the amount entered in the Statement Ending Balance field in Reconcile Bank, adding all deposits in transit, subtracting or adding all adjustments, and subtracting all outstanding checks. Banks often require customers to pay monthly account fees, check printing fees, safe‐deposit box rental fees, and other fees. Unrecorded service charges must be subtracted from the company’s book balance on the bank reconciliation.

What Is Book Balance?

Also, a deposit could be recorded incorrectly in a company’s book balance resulting in the amount received by the bank not matching the company’s accounting records. The result would lead to a higher book balance than the bank balance. Also, sometimes the bank can make an error and record a transaction incorrectly, leading to an inaccurate bank balance. Bank account service charges might have been deducted from a company’s bank account throughout and at the end of the month. Those debits would not be recorded in the book balance until the month-end numbers are reconciled with the bank. For example, if a company wrote out several checks, those amounts would be reflected in the book balance, and at the end of the accounting period, they would be reconciled with the cash balance in the bank account.

Service charges, interest income and NSF (Not Sufficient Funds) checks are entries that result in a discrepancy since these are recorded in the bank statement but not included in the cash book. When all differences between the ending bank statement balance and book What Is Bank Balance And Book Balance? balance have been identified and entered on the bank reconciliation, the adjusted bank balance and adjusted book balance are identical. The ending balance on a bank statement almost never agrees with the balance in a company’s corresponding general ledger account.

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At the end of each month, the cash book is not balanced until a bank statement is received from the bank. NSF checks are deposited by the company in the bank account; however, the bank is unable to proceed with making payments since the balance in the company’s account is insufficient. The term book balance, which is also used in the bank reconciliation is the amount shown in the company’s general ledger for the bank account.

• The book balance is the in-house general ledger record of the same account.
• The interest revenue must be journalized and posted to the general ledger cash account.
• If an adjustment is entered in the Bank Reconciliation module, this adjustment must be posted to the General Ledger module, so that the two modules balance.
• Banks often require customers to pay monthly account fees, check printing fees, safe‐deposit box rental fees, and other fees.
• Bank statement balance is the cash balance recorded by the bank in bank records.

It is also known as the balance per bank or balance per bank statement. Typically it is the ending balance on the bank statement for each month. The bank balance is the balance reported by the bank on a firm’s bank account at the end of the month. Checks deposited, particularly on the last day of the month, may not be credited by the bank until they are collected from the drawee’s bank.

As a result, the interest earned would not be reflected in the book balance until the interest has been credited and the bank account reconciliation has been performed. For this reason, the only recourse is to prepare a statement to reconcile the balance shown by the cash book to the balance shown by the bank statement. Except for the above fact, under normal circumstances, if both the bank and account holder have kept their books properly, the cash book and the bank statement should show identical balances. This process of adjusting the book balance to match the bank balance is known as bank reconciliation. Suppose that at the end of May, according to your company’s ledger (your “books”), your company has a balance of $10,000 in its bank account. The month-end bank statement would not reflect the debit if Company XYZ did not deposit it before the end of May.

The book balance is the in-house general ledger record of the same account. We follow strict ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources. A payment is made by the bank on behalf of the account holder without the latter issuing a check (e.g. standing order payments https://kelleysbookkeeping.com/corporate-income-tax/ for rent or insurance premiums). The notification of bank charges may have been sent by the bank before the month-end but may have been received by the account holder after the month-end. The articles and research support materials available on this site are educational and are not intended to be investment or tax advice.

Balance per Cash Book and Bank Statement FAQs

Cash is debited for $1,565, bank fees expense is debited for $25, notes receivable is credited for $1,500, and interest revenue is credited for $90. Therefore, each transaction on the bank statement should be double‐checked. If the bank incorrectly recorded a transaction, the bank must be contacted, and the bank balance must be adjusted on the bank reconciliation. If the company incorrectly recorded a transaction, the book balance must be adjusted on the bank reconciliation and a correcting entry must be journalized and posted to the general ledger. While reviewing the bank statement, Vector Management Group discovers that check #1569 for $381, which was made payable to an advertising agency named Ad It Up, had been incorrectly entered in the cash disbursements journal for $318.

• Those debits would not be recorded in the book balance until the month-end numbers are reconciled with the bank.
• It is also known as the balance per bank or balance per bank statement.
• Checks issued by the account holder to their suppliers may not have been presented to the bank for payment by the last day of the month to which the bank statement relates.
• As a result, a company’s book balance would be lower than the bank balance until the checks have been deposited by the payee into their bank and presented to the payor’s bank for payment to the payee.

The interest revenue must be journalized and posted to the general ledger cash account. In the journal entry below, cash is debited for $18 and interest revenue is credited for $18. Interest earned on an account is often paid on a company’s cash balance and is credited to the bank account at the end of the month. The interest could be from a savings account or a cash sweep, which is when the bank withdraws unused funds in a company’s checking account and invests that money in short-term investments. The cash sweep allows the company to earn interest on their idle cash. When the difference between the calculated book balance amount and the adjusted bank balance amount equals zero, compare the calculated book balance amount to your general ledger for the current period-ending date.