Bank statements

A bank statement is a summary of recent transactions (usually one month) that have taken place in the firm's bank account. The balance on the account is normally displayed as a running total (i.e. the balance is adjusted as each transaction occurs). A sample bank statement may look as follows:

Bank statement

2003	-	(Dr) £	(Cr) £	Balance £
April 1	Balance b/f	-	-	1,970 Cr.
April 3	Cheque	-	80	2,050 Cr.
April 8	Cheque - 1145	270	-	1,780 Cr.
April 16	Credit transfer: K Smith	-	35	1,815 Cr.
April 23	Cheque - 1146	560	-	1,255 Cr.
April 29	Bank charges	25	-	1,230 Cr.
April 30	Balance c/f	-	-	1,230 Cr.

The statement is always drawn up from the bank's point of view. This means that if we have money in the bank then from the bank's viewpoint, the bank owes us money. This is why the account is presented as a credit balance. If we were overdrawn (taken out more than we have in the account) then the balance would be a debit balance - i.e. we now owe the bank money. This can be confusing, because the cashbook will still be drawn up on the principles of double entry - debits involves money paid into the account, and credits involve money paid out of the account.

Notice how each cheque paid out of this account has a number attached to it - this refers to the actual number of the cheque - the person or firm it is paid to will not appear into the cheque.

Now we can compare the above bank statement with the firm's own cashbook. In this example we will only concern ourselves with the bank column of the cashbook, as this is the amount we are trying to reconcile with the bank statement.

Cashbook

2003	-	£	2003	-	£
Apr 1	Balance b/d	1,970	Apr 11	T Lawton	270
Apr 6	L Preston	80	Apr 26	C Groves	560
Apr 28	J Mason	140	Apr 29	J Cowens	195
-	-	-	Apr 30	Balance c/d	1165
-	-	2190	-	-	2190
May 1	Balance b/d	1165	-	-	-

So we have a discrepancy. According to the bank statement we have £1,230 in the bank. According to our cashbook we only have £1,165.

To see if this can be explained, we will draw up a bank reconciliation statement.