What is the Difference Between Cash Book Balance and Bank Statement Balance?

The cash book balance and bank statement balance are two different records of a company's financial transactions. The key difference between them is that the cash book balance reflects the company's record of transactions, while the bank statement balance represents the transactions cleared by the bank.

Some common reasons for discrepancies between cash book balance and bank statement balance include:

1. Outstanding checks: Checks written by the company that have not yet been presented for payment by the recipient.
2. Deposits in transit: Deposits made by the company that have not yet been recorded by the bank.
3. Bank service charges and check printing charges: Fees charged by the bank for its services, which are recorded in the bank statement but may not be recorded in the company's cash book.
4. Errors in the company's books: Mistakes made by the company in recording transactions, which need to be corrected.
5. Electronic charges and deposits: Transactions that appear on the bank statement but have not yet been recorded in the company's cash book.

To resolve these discrepancies, companies need to perform a process called bank reconciliation, which involves comparing the cash book balance with the bank statement balance and identifying the differences. Once the differences are identified, adjustments can be made to the cash book and/or the bank statement to bring the two balances in line with each other.

Comparative Table: Cash Book Balance vs Bank Statement Balance

The difference between cash book balance and bank statement balance arises due to certain transactions that are recorded in one but not in the other. Here is a table summarizing the main differences:

To reconcile the cash book balance with the bank statement balance, a bank reconciliation statement should be prepared, which helps identify discrepancies, errors, and fraud, allowing corrective measures to be taken.