Reconciling the cash book balance with the bank statement balance, identifying timing differences, errors, and unrecorded items.
Aligned to the KASNEB Financial Accounting syllabus.
In financial accounting, it is crucial to understand why the cash book balance may not match the bank statement balance. The discrepancies typically arise from several factors:
Outstanding Cheques: These are cheques issued by the business that have not yet been presented to the bank for payment. They reduce the cash book balance but do not affect the bank statement until cleared.
Deposits in Transit: These are amounts received and recorded in the cash book but not yet reflected in the bank statement. They increase the cash book balance and will appear in the bank statement once processed.
Bank Charges: Fees charged by the bank (e.g., monthly service fees) may not be recorded in the cash book until the business updates it. This results in a lower cash book balance compared to the bank statement.
Direct Credits: These include payments made directly into the bank account (e.g., customer payments) that the business has not yet recorded in the cash book, leading to a higher bank statement balance.
Dishonoured Cheques: If a cheque received from a customer bounces, it will reduce the bank balance but may not be recorded in the cash book until the business updates it.
Understanding these differences is essential for accurate financial reporting and ensuring that the cash book is properly reconciled with the bank statement.
Key points
Cash Book Balance: KES 50,000
Bank Statement Balance: KES 60,000
Cash Book Adjustments:
| Date | Particulars | KES |
|------------|----------------------|---------|
| 2026-01-01 | Outstanding Cheques | 10,000 |
| 2026-01-02 | Bank Charges | 1,000 |
| 2026-01-03 | Direct Credits | 6,000 |
New Cash Book Balance:
= 50,000 - 10,000 - 1,000 + 6,000 = KES 45,000
Bank Statement Adjustments:
| Date | Particulars | KES |
|------------|----------------------|---------|
| 2026-01-01 | Deposits in Transit | 5,000 |
New Bank Statement Balance:
= 60,000 + 5,000 = KES 65,000
The differences can now be further investigated to ensure all transactions are accurately recorded.
3 of 12 questions. Beta-flagged questions are AI-drafted and pending CPA review — flag anything that looks wrong.
Which of the following is NOT a reason for a difference between the cash book and bank statement balances?
List two reasons why the cash book balance may differ from the bank statement balance.
1. Bank charges may not have been recorded in the cash book. 2. Cheques issued but not yet presented for payment may cause a difference.
A business has a cash book balance of KES 150,000. The bank statement shows a balance of KES 145,000. Bank charges of KES 2,000 have not been recorded in the cash book. Calculate the adjusted cash book balance.
Adjusted cash book balance = Cash book balance - Bank charges Adjusted cash book balance = KES 150,000 - KES 2,000 = KES 148,000.
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Reserve beta accessOutstanding cheques reduce cash book but not bank statement.
Update cash book for bank charges, interest, and direct credits.
Start with the updated cash book balance.
Dishonoured cheques are added back to the bank balance.
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