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A Cash Book is a subsidiary book of account that is used to record the receipt and payment of cash and cheques by a business organization. The Cash Book functions both as a subsidiary book and a ledger. The Cash Book is part of the double entry system. BANK STATEMENTA Bank Statement is a statement prepared by a bank and sent to the customer at periodic intervals showing the transactions that has taken place between the bank and its customer for a particular period of time. USES OF A BANK STATEMENT
BANK RECONCILIATION STATEMENTA bank reconciliation statement is a statement prepared by an account holder (i.e. the trader or the business) for the purpose of identifying the causes of disagreement (or discrepancy) between the Cash Book balance and the Bank Statement balance and to reconcile (or harmonize) the two balances. ITEMS CAUSING DISCREPANCY (DISAGREEMENT) BETWEEN THE CASH BOOK BALANCE AND THE BANK STATEMENT BALANCEA Items in the Cash Book but not in the Bank Statement
B Items in the Bank Statement but not in the Cash Book
EVALUATION QUESTIONS
UNPRESENTED CHEQUESThese are cheques issued by the business but are yet to be presented for payment at the bank by the payee. Unpresented cheques will be found on the credit side of the Cash Book but not on the debit side of the Bank Statement The effect of unpresented cheques is to make the Bank Statement balance to be higher than the Cash Book balance. UNCREDITED CHEQUESThese are cheques received by the business and lodged (or deposited) in the bank but have not been credited in the Bank Statement Uncredited cheques will be found on the debit side of the Cash Book but not on the credit side of the Bank Statement The effect of uncredited cheques is to make the Cash Book balance to be higher than the Bank Statement balance. ERRORS IN THE CASH BOOKThese are mistakes of omissions, duplications, wrong figures etc. made in the recordings/entries posted into the Cash Book BANK CHARGESThese are amounts deducted by the bank from the customers account in respect of services rendered by the bank to the customer for that period. Bank charges will include Commission on Turnover (COT), cost of cheque books issued to customers etc. Bank charges will be found on the debit side of the Bank Statement but not on the credit side of the Cash Book The effect of bank charges is to make the Cash Book balance to be higher than the Bank Statement balance. DIVIDENDSDividends represent the part of the profits of a limited liability company that is given to shareholders as a reward for their investments in the company Dividends will be found on the credit side of the Bank Statement but not on the debit side of the Cash Book The effect of dividends is that the Bank Statement balance will be higher than the Cash Book balance STANDING ORDERSStanding orders represent instructions given by an account holder to the bank to pay on his behalf, on a regular basis, a fixed amount of money to a named beneficiary. Standing orders will be found on the debit side of the Bank Statement but not on the credit side of the Cash Book The effect of standing order is to make the Cash Book balance to be higher than the Bank Statement balance CREDIT TRANSFERS (or DIRECT CREDITS)Some customers or debtors of the business may settle their outstanding accounts by paying directly into the business account with the bank. Credit transfers will be found on the credit side of the Bank Statement but not on the debit side of the Cash Book The effect of credit transfer is to make the Bank Statement balance to be higher than the Cash Book balance. DIRECT DEBITSThis is an arrangement whereby a bank will pay on behalf of the account holder, bills that are presented by third parties. Direct debits will be found on the debit side of the Bank Statement but not on the credit side of the Cash Book The effect of direct debits is to make Cash Book balance to be higher than the Bank Statement balance. DISHONOURED CHEQUESThese are cheques received by the business and lodged into the bank but have been returned unpaid by the drawer’s bank. Dishonoured cheques will be found on the debit side of the Bank Statement but not on the credit side of the Cash Book The effect of dishonoured cheque is to make the Cash Book balance to be higherthan the Bank Statement balance. INTEREST RECEIVED FROM THE BANK e.g. on Fixed DepositsWhere a customer maintains both current account and fixed deposit account, the bank may pay interest on such fixed deposit into the customer’s current account. Interest on fixed deposits will be found on the credit side of the Bank Statement but not on the debit side of the Cash Book The effect of interest on fixed deposits is to make the Bank Statement balance to be higher than the Cash Book balance. INTEREST CHARGED ON OVERDRAFTSWhen a current account holder is allowed to overdraw his account, the bank will charge interest on the balance overdrawn on a monthly basis Interest on overdraft will be found on the debit side of the Bank Statement but not on the credit side of the Cash Book The effect of interest on overdraft is to make the Bank Statement balance to be smaller than the Cash Book balance. ERRORS IN THE BANK STATEMENTThese are mistakes of omissions,duplications, wrong figures etc. made by the bank in the recordings made in the Bank Statement EVALUATION QUESTIONS
READING ASSIGNMENT
GENERAL EVALUATION QUESTIONS
WEEKEND ASSIGNMENT
THEORY
What are the reasons for disagreement between pass book and cash book?Reasons for difference in Pass Book and Cash Book Balances. Cheques issued but not yet presented for payment in the bank.. Cheque paid into the bank for collection but not yet credited/collected by the bank.. Cheques paid into the bank for collection but dishonoured by the bank.. Interest allowed by the bank.. What are the reasons for difference between cash book and passbook PDF?Cash book keeps a record of cash transactions. Passbook is issued by the bank to the account holder that records the deposits and withdrawals. Cash book is prepared by the firms whereas Passbook is written by banks and retained by the customer.
What is the reason for differences in bank statement and cash book balance?Some of the reasons for a difference between the balance on the bank statement and the balance on the books include: Outstanding checks. Deposits in transit. Bank service charges and check printing charges.
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