The reasons for the difference between the balance on the bank statement and the balance on the books consist of the following;
- Outstanding checks.
- Deposits in transit.
- Bank service charges.
- Check printing charges.
- Errors in the books.
- Errors by the bank.
- Electronic charges on the bank statement are not yet recorded in the books.
- Electronic deposits on the bank statement that are not yet recorded in the books.
These are briefly mentioned below;
Outstanding cheques
Cheque was issued but not presented in the bank in time for payment.
The depositor credits his books of account right after the issue of the cheque to a party. But that party might not present the cheque to the bank on that day for encashment.
So, there is the possibility of disagreement of balances between the depositor’s book and bank statement due to the time gap between the issue and the presentation of the cheque.
Cheque was deposited in the bank but not yet realized. The depositor debits his ledger account immediately after the deposit of a cheque into the bank.
But the bank does not credit it in the bank statement until collection.
Therefore, in between these two dates, if the balances are compared, a disagreement might be found.
Deposit in transit
Cash deposit?
Cash deposit into the bank on the date of submitting the bank statement to the depositor is recorded in the depositor’s ledger account on that day. Still, it is credited to the bank statement on the following date.
This results in a disagreement between two balances.
Cash deposit into the bank directly by the third party?
The depositor instructs its customers to deposit the amount due from them directly into his stipulated bank account.
In such a case, if a customer deposits cash into the depositor’s bank account directly, disagreement between two balances remains till it is recorded in the depositor’s ledger account.
Cash payment by the bank as per the standing order of the depositor?
In compliance with the standing order of the depositor, the bank makes payment on behalf of the depositor for the insurance premium, interest on borrowed money, share installment money, etc., and debits them in the bank statement of the depositor.
But the depositor cannot record all these in his ledger accounts for not receiving information in time. Therefore, for this interim period, disagreement between the two balances exists.
Dishonor of cheque
If dishonored for cash insufficiency, the depositor’s cheque for collection is debited in the bank statement and returned to the depositor marking N.S.F. on it.
But the depositor does not credit his ledger account till the information is available. As a result, during the interim period, the two balances differ.
Bank charge, Commission, etc.
Bank renders services to the depositor in collecting cheques, bills, a note, etc., for which the bank charges commission, interest, etc., and debits the depositor’s account for these charges.
But the depositor cannot credit his ledger accounts on the same date due to the non-availability of information. During this time gap, the two balances differ.
Interest on bank deposit
Bank grants interest regularly on interest-bearing bank accounts, namely savings accounts and fixed deposit accounts.
For this, the bank credits the depositor’s bank accounts.
But the depositor cannot debit his ledger account for this on the same date, which creates a disagreement between the two balances.
Banker’s error
If the bank erroneously deposits or credits the depositor’s account, disagreement between two balances remains until correction.
Depositor’s error
If the depositor records any amount in his books of account by mistake, disagreement exists between the two balances until correction.
