Use of a Bank Statement (Cambridge (CIE) IGCSE Accounting)
Revision Note
Written by: Dan Finlay
Reviewed by: Lucy Kirkham
Use of a Bank Statement
What is the purpose of a bank statement?
Banks issue bank statements to their customers at regular intervals
Customers can also request bank statements at any time
Online banking allows customers to view their statements at any time
Bank statements are useful:
They can be used to check for errors in the ledger accounts
They can be used to compare the bank balance in the cash book with the actual bank balance
Bank statements are written from the point of view of the bank
A debit entry on a bank statement indicates that money has left the account
A credit entry on a bank statement indicates that money has entered the account
A debit balance means the account is overdrawn
A credit balance means there is money in the bank account
Why might the balance on the bank statement differ from the balance in the cash book?
There could be timing issues
Some transactions in the cash book might not yet appear on the bank statement
Amounts won’t appear on the bank statement until they have been cleared by the bank
There could be bank transactions that have not yet been entered into the cash book
There could be errors
Either in the cash book or on the bank statement
Which items might appear in the cash book but not on the bank statement?
Cheques written by the business which have not yet been deposited by the person or business receiving the cheque
These are called unpresented cheques
Older exam papers refer to these as “cheques not yet presented”
These will appear on the bank statement when the person or business deposits the cheques
Cheques deposited by the business which have not yet been cleared by the bank
These are called uncredited deposits
Older papers refer to these as “amounts not yet credited”
These will appear once the bank processes the cheques and the money is transferred
There could be errors in the cash book
These are corrected by the business
Which items might appear on the bank statement but not in the cash book?
Transactions involving bank transfers
Direct debits
Standing orders
Credit transfers
Dividends
Amounts applied by the bank
Bank charges
Bank interest paid or received
There could be cheques that the business deposited but that have been returned by the bank
These are called dishonoured cheques
A cheque could be dishonoured because:
It is not dated or signed
The amount written in words does not agree with the amount written as a number
The person or business who wrote the cheque does not have enough money in their bank to cover the payment
There could be errors in the bank statement
The business needs to tell the bank and ask them to correct the errors
Updating the Cash Book
How do I use a bank statement to update the cash book?
Identify any transactions that appear on the bank statement but do not appear in the cash book
Enter these transactions into the cash book
Debit the cash book if the transaction increased the bank balance
Credit the cash book if the transaction decreased the bank balance
The entries should be opposite to how they appear on the bank statement
Correct any errors in the cash book that are identified by the bank statement
Calculate the updated balance for the bank account in the cash book
This still might not match the balance shown on the bank statement
A bank reconciliation statement is created to explain the difference
Worked Example
Yana receives a bank statement on 31 January 2024. She identified the following items on the bank statement that have not been entered into the cash book.
$ | |
Cheque received from Kayleigh on 13 January dishonoured | 180 |
Electricty payment by direct debit | 145 |
Received payment from James, a credit customer, by credit transfer | 550 |
Bank charges | 81 |
Update the bank columns in the cash book below with these transactions. Balance the bank columns and bring down the balances on 1 February 2024.
Yana
Cash Book (Bank columns)
Date | Details | $ | Date | Details | $ |
2024 Jan 1 |
Balance b/d |
1 265 | 2024 Jan 3 |
Rent |
700 |
Jan 7 | Jasmine | 450 | Jan 24 | Wages | 850 |
Jan 13 | Kayleigh | 180 | Jan 29 | Insurance | 200 |
Jan 28 | Peter | 945 |
Answer
Enter the dishonoured cheque onto the credit side
Enter the payments for electricity and bank charges onto the credit side
Enter the payment received from a customer onto the debit side
Yana
Cash Book (Bank columns)
Date | Details | $ | Date | Details | $ |
2024 Jan 1 |
Balance b/d |
1 265 | 2024 Jan 3 |
Rent |
700 |
Jan 7 | Jasmine | 450 | Jan 24 | Wages | 850 |
Jan 13 | Kayleigh | 180 | Jan 29 | Insurance | 200 |
Jan 28 | Peter | 945 | Jan 31 | Kayleigh | 180 |
Jan 31 | James | 550 | Jan 31 | Electricity | 145 |
Jan 31 | Bank charges | 81 | |||
| Jan 31 | Balance c/d | 1 234 | ||
3 390 | 3 390 | ||||
Feb 1 | Balance b/d | 1 234 |
Last updated:
You've read 0 of your 5 free revision notes this week
Sign up now. It’s free!
Did this page help you?