Which of the reason are for bank passbook showing less balance than cash book?

Some of the reasons for a difference between the balance on the bank statement and the balance on the books include:

• Outstanding checks
• Deposits in transit
• Bank service charges and check printing charges
• Errors on the company's books
• Electronic charges and deposits that appear on the bank statement but are not yet recorded in the company's records

How to Document the Differences

Any items that are already recorded in the company's general ledger accounts, but have not yet appeared on the bank statement [outstanding checks, deposits in transit], will be noted as an adjustment to the balance per bank statement. Outstanding checks are a deduction to the balance per bank; deposits in transit are an addition to the balance per bank.

If an item is on the bank statement but has not yet been entered on the books, the items are noted as an adjustment to the balance per books. Bank service charges, check printing charges, and other electronic deductions that are not yet recorded in the company's accounts will become deductions from the cash balance per the books. Electronic deposits not yet recorded by the company will become additions to the cash balance per books.

In the bank reconciliation process, the transactions recorded in the company’s cash book are compared with the bank’s passbook to identify any inconsistencies in the day-to-day transactions. In this simple process of tallying the cash book and bank statement, there could be multiple errors. These errors or bank reconciliation problems might differ based on the size of the organization.

In this blog, we will introduce you to some real-life bank reconciliation examples as well as the major roadblocks faced by organizations while reconciling their bank statements.

4 Common Examples of Bank Reconciliation Statement

Before deep diving into the practical examples of bank reconciliation statements, let us go through a few terminologies which are used in a recurring way while explaining the examples:

Example #1: Cash Book Balance More Than Bank

ABC Corp, has a balance of $2000 as per passbook as on 31st march 2021. However, the balance as per cash book as on 31st march 2021 is  $2210.

Let’s Understand the Transaction Details

1. A check of $500 was deposited, but it is not yet processed by the bank.
2. Bank charges of $60 were recorded in the passbook, but not in the cash book.
3. Checks worth $300 were issued, but not presented.
4. Bank interest of $50 was recorded in the passbook, but not in the cash book.

Solution #1: Bank Reconciliation Statement[BRS] Format

Example #2: Cash Book Balance More Than Bank

JPN & Co, has a balance of $20,000 as per passbook as on 31st march 2021.

Let’s Understand the  Transaction Details

1. Three checks of $1000, $1500, $1750 were deposited in the bank on 30th december 2021 but were recorded in the bank statement on January 2022.
2. A check of $1000 was issued on 31st december 2021, was not processed.
3. A dividend of $500 on stocks was credited to the bank account, but not recorded in the cash book.
4.  A direct deposit of $600 was made in a bank account by a customer, which was not recorded in the cash book.
5. Bank charges of $60 were entered only in the bank passbook.
6. Balance as per cash book on 31st december 2021 was $22,210.

Solution #2: Bank Reconciliation Statement[BRS] Format

Example #3: Bank Balance More Than Cash Book

Markson’s & co. has a difference in balance as per cash book and bank statement as on 31st march 2021.

Let’s Understand the Transaction Details

1. Balance as per bank statement as on 31st march 2021 is $5000. Balance as per the cash book is $1,650.
2. Checks of $2000 and $1000 issued as on 30th march 2021, but not yet cleared.
3. Insurance paid by the bank is $200. It is not yet recorded in the cash book.
4. An outgoing check of $1000 was recorded twice in the cash book. It is accurately recorded in the bank passbook.
5. Payment of a $500 check is recorded twice in the passbook.
6. Dividends received $600 recorded only in the bank statement and not in the cash book.
7. A check of $500 was deposited on 29th march 2021, but it is not collected.
8. Bank charges of $50 were debited, it is only recorded in the bank passbook.

Solution #3: Bank Reconciliation Statement[BRS] Format

Example #4: Cash Book Balance More Than Bank

Rutherford Inc. has  a difference in the balance as on 31st March 2021 between the bank statement and cash book.

Let’s Understand the Transaction Details:

Cash Book [March 2021] for Rutherford Inc:

Bank statement [March 2021] for Rutherford  Inc:

Solution #4: Bank Reconciliation Statement[BRS] Format

The balance transactions would appear in the Bank Reconciliation Statement:

Challenges Faced While Preparing Bank Reconciliation Statements

Businesses can gain a variety of advantages from effective reconciliation processes. Without good reconciliation, it is difficult determining which expected payments haven’t been made. In addition to detecting fraud, cash book and bank reconciliation
statements allow you to quickly identify any potential disruptions in your cash flow.

However, even today, the bank reconciliation process is highly manual in nature. The accountants are responsible for manually comparing the passbook and the cash book to prepare bank reconciliation statements. Additionally, sometimes due to the delay in cash being processed in the bank, there is a difference between the passbook and the cash book. This might lead to multiple errors or inconsistencies in the bank reconciliation statement. Let us explore the various problems in bank reconciliation process and real-life examples of errors in bank reconciliation:

• Cash-In Transit Not Being Reflected on Passbook

In case of electronic fund transfers such as ACH, wire transfers, credit card payments, the cash is not immediately reflected in the bank, which leads to a difference in the passbook as compared to the cash book.

• Outstanding Checks Not Being Reflected on Passbook

This is a predominant issue which leads to multiple errors in bank reconciliation statements. If there is a delay in checks getting deposited or being processed, the balance on the password would not match the cash book balance.

• Manual Errors Related to Bank Reconciliation

As discussed earlier, bank reconciliation is a highly manual process. The accountants might enter incorrect transaction details or not add the bank fees or interest details mistakenly. These human errors might lead to problems in the bank reconciliation process and eventually the statement.

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