What are the reasons for the disagreement between the Cash Book and Bank Statement balances?


There are four main reasons for the disagreement between the Cash Book and Bank Statement balances.  These are as follows:

Time lag differences
A bank will record deposits, cheques drawn and other items on the date they are received at the bank, which may be different from the date when they were recorded in the depositor's accounting records.  For example, Ado wrote a cheque to Biye on 20th November and Biye presented the cheque to the bank for payment on 5th December. Biye's cash book will show a payment on 20th November but the bank will record that payment on 5th December.  At the end of November that outstanding cheque will result in a difference between closing balance of the bank and that of Ado's cash book.  Time lag differences occur with deposits as well.

Other debits and credits in bank books
The bank would have made certain entries but without being communicated to the depositor until the date the bank statement is issued.  Examples are bank charges, dishonored cheque entries, credit transfers, etc.

Errors in depositor's books
In the course of recording cash transactions in the Cash Book errors may be committed.  These will be reflected in a difference between the bank statement and cash book closing balances.  Usually these errors will be corrected before a reconciliation statement is prepared.

Errors in bank records
Sometimes banks make errors in recording transactions in a depositor's account.  The depositor cannot correct such errors but should notify the bank of the errors and include the errors in a reconciliation statement as reconciling items.

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