What is the difference between a cash book and a bank statement?

Let’s explore the differences between a cash book and a bank statement:

1. Cash Book:
   • Purpose: The cash book is used to record all transactions related to cash, checks, money orders, or postal orders within a business.
   • Recording Transactions: Whenever cash is deposited in the bank, the cash book (specifically the bank column) is debited. Similarly, when a check is issued to a supplier, an entry is made in the bank column on the credit side of the cash book.
   • Business Perspective: Businesses maintain cash books to stay informed about their position with the bank.
   • Format: Cash books typically have two or three columns (including a bank column) to facilitate recording bank-related transactions.

2. Bank Statement:
   • Purpose: The bank statement is a record maintained by the bank itself to ensure its position with the account holder (the business or individual) is always known.
   • Content: The bank statement lists all the bank’s transactions with the account holder. It includes deposits received, checks paid, interest earned, bank fees, and other relevant details.
   • Frequency: Banks usually provide account holders with a monthly bank statement.
   • Format: Bank statements are often presented in a format that shows credits (increases in liabilities) and debits (reductions in liabilities) to the account holder’s personal account.

Example:

• When David deposits money with the bank, he records it in the debit side of his cash book.

• The bank, on its side, maintains David’s personal account and records all deposits received from him in the credit column of his bank statement.

In summary, while the cash book focuses on the business’s perspective, the bank statement reflects the bank’s viewpoint regarding transactions with the account holder¹.