Use of a Bank Statement (Edexcel IGCSE Accounting)

Revision Note

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 outstanding lodgements

      • Older papers refer to these as “uncredited bankings

    • 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

  • 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 (dishonoured cheque)

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!

Join the 100,000+ Students that ❤️ Save My Exams

the (exam) results speak for themselves:

Did this page help you?

Dan Finlay

Author: Dan Finlay

Expertise: Maths Lead

Dan graduated from the University of Oxford with a First class degree in mathematics. As well as teaching maths for over 8 years, Dan has marked a range of exams for Edexcel, tutored students and taught A Level Accounting. Dan has a keen interest in statistics and probability and their real-life applications.

Lucy Kirkham

Author: Lucy Kirkham

Expertise: Head of STEM

Lucy has been a passionate Maths teacher for over 12 years, teaching maths across the UK and abroad helping to engage, interest and develop confidence in the subject at all levels.Working as a Head of Department and then Director of Maths, Lucy has advised schools and academy trusts in both Scotland and the East Midlands, where her role was to support and coach teachers to improve Maths teaching for all.