Reasons for Differences

You would have observed, after matching the documents that indeed there are some differences. These are:

On the Cash Book

1. the rent paid in April 27 is not represented on the bank statement. This means that the cheque that was paid, has either not been encashed or it was encashed after the ban statement was already prepared. In accounting, this is called unpresented cheque or outstanding cheques.
2. A cheque received from R Simon did not get time the bank in time for it to be included on the bank statement. This is called late lodgements or lodgements not yet credited.

From the Bank Statement

1. Standing Order Insurance Payment of $350.00. This is where a customer has instructed his bank to pay regular amounts of money at stated dates to persons or firms.
2. Credit Transfer of $ 2 300 from S. Chen. A credit transfer takes place when a firm's customer pays money directly into the business's bank account. When this happens, the firm will not become until the bank statement is received from the bank.
3. Bank Charges of $1 210. Bank Charges are fees levied by banks on customers for maintaining their accounts. Maintenance includes: printing cheque leaves etc.
4. Returned Cheque or it is also called dishonored cheque. When a cheque is received from a customer and paid into the bank, it is recorded as a receipt in the cash book. It is also shown as a deposit on the bank statement. When the cheque is presented for payment, the customer's bank might refuse to honor payment. When this happens, the cheque is described as a dishonored cheque.

Cheques may be dishonored for several reasons:

1. a cheque where words and figures do not agree. 
2. cheques that bears a date that is six months old
3. where a customer has insufficient funds in his account to cover the amount on the cheque,         
   and no prior arrangement [overdraft facility], has been made with the bank.

Bank Reconciliation Quiz 1

Return to Lecture Notes 1