Balance as Per Bank
Balance as per bank refers to the end of period balance shown on a bank statement as a result of the transactions made by the company using the banking channel. Payments made to suppliers using the banking channel as well as other debits reduce the balance in the bank account while amounts received from customers through the banking channel along with other credits increase the balance in the bank account. Typically, it is the closing balance appearing on the bank statement for a specific month or period.
For example, when a chequing account statement is sent by the bank showing August’s activity, the balance shown on 31 August is the balance per bank. Generally, this balance does not agree with the balance appearing in the company’s books as some of the cheques issued by the company as well as the cheques issued to the company by its customers may not be cleared by the bank on August 31 and therefore it is necessary to reconcile the balance per bank with the balance per books as they are seldom the same at any given time.
An entity should match its balance as per bank statement with balance as per passbook at the end of each accounting period. In case of difference, it should prepare a reconciliation that identifies and highlights the reason causing the difference between the two balances.
Following are the entries which may cause a difference between an entity’s balance as per bank and balance as per cashbook:
- Charges the bank deducts from its customers’ account balances for providing services, for example, issuance of the cheque book, providing overdraft facility, etc. These charges may have been notified by the bank before the month end but the notification may have been received by the account holder after the month end.
- Uncleared cheques, which are returned unpaid, can also be a cause of the difference between the two balances as the customer may get the notification later.
- When the bank receives a direct deposit on behalf of a customer, then that customer may not know that an amount has been credited to its account which can also be a reason for the difference in both balances.
- Sometimes the customers give authority to their banks to make due payments on their behalf. The customer may not record the said payments in its books resulting in a difference between the balance as per bank and balance as per books.
- Cheques that have been issued by the account holder to his suppliers that are yet to be presented before the bank for payment.
- Cheques deposited, especially on the last day of the month that may not be credited by the bank until they are collected from drawee banks.