ACCA Applied Knowledge · Financial Accounting · Bank reconciliations
Why might a business with an overdraft per the cash book show a credit balance in the cash book but a debit balance on the bank statement as received from the bank?
The bank statement reflects the bank's ledger, where a customer's overdraft is an amount owed to the bank and so appears as a debit. The business records the same overdraft as a credit in its cash book.
- ABecause the bank statement is prepared from the bank's viewpoint, so a customer's overdraft is a debit balance in the bank's recordsCorrect
- BBecause the bank has made an error in recording the overdraft
- CBecause the cash book follows cash accounting rules instead of accruals
- DBecause overdrafts are never shown on bank statements
Explanation
The bank statement is a copy of the customer's account in the bank's ledger. The bank sees an overdraft as a receivable, so it is shown as a debit, whereas the business sees a liability, which is a credit in its cash book. No error is involved.
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