The bank gives to its customers a pass book or a statement of account. Pass book or statement of account is a copy of the customers account in the books of the bank. The bank keeps the customer informed of the entries made in its books. The customer is expected to compare the pass book with the cash book (bank columns) and to inform the bank immediately regarding the errors that may have come to his notice.
The statement of account is similar to the pass book with the only difference that it is on loose sheet. The statement of account is sent by the bank to the customer of its own whereas it is the customer’s duty to send the pass book to the bank for being written up-to-date. Recording banking transactions Banking transactions are recorded in three column cash book. However, jf the triple column cash book is not maintained the transactions would be journalized.
The journal entries are as follows:
Current Account
When cash is deposited in the bank
Bank account … Dr
To Cash account (for cash deposited into bank)
When cash is withdrawn from bank for use in business.
Cash account …Dr.
To Bank account (for cash withdrawn.)
When payment is made to creditor by cheque to settle his account.
Creditor’s account …Dr.
To Bank account (for cheque issued-to settle his account.)
When an expenditure is met by the issue of cheque.
Expense account ….Dr.
To Bank account (for expenses paid by cheque)
When cheque is issued to meet the personal expenses of the proprietor.
Drawings account …Dr.
To Bank account (for cheque issued to meet personal expenses.)
When cheque or draft is received from a party.
Cash account …Dr.
To Personal account (for cheque received)
When cheque or draft received is paid into the bank.
Bank account …Dr.
To Cash account (for cheque received paid into bank)
When cheque or draft is received from a party and is paid into the bank the same day.
Bank account…Dr.
To Personal account (for cheque received and paid into bank)
When a customer pays the money directly to the bank.
Bank account…Dr.
To Customer’s account (for payment made by a customer directly into the bank)
When a cheque or draft is received from one party and is endorsed in favor of someone’ else.
Endorsee’s personal account …Dr.
To Payee’s personal account (for cheque received from – endorsed over to -.)
When bank debits the customer’s account with the incidental or collection charges.
Bank charges account…Dr.
To Bank account (for bank charges charged by bank)
When bank credits customer’s account with interest.
Bank account …Dr.
To Interest account (for interest credited by bank)
When cheque is dishonored
Personal account (Party from whom cheque was received)
To Bank account …Dr.
(if it was sent to bank)
To Endorsee’s personal account (If the cheque was endorsed)
When draft is purchased from bank and sent to some one. Personal account …Dr.
Bank charges account …Dr.
To Cash account (for draft purchased and sent to-)
Fixed Deposit Account
When amount is deposited in fixed deposit account.
Fixed deposit account …Dr.
To Cash account (for cash deposited in fixed deposit account)
When fixed deposit is made by the issue of a cheque.
Fixed deposit account …Dr.
To Bank account (for cheque issued and deposited into fixed deposit)
When interest becomes due on fixed deposit.Fixed deposit accountTo Interest account(for interest due on fixed deposit account)
When cash is received on realization of fixed deposit.
Cash account …Dr.
To Fixed deposit account (for cash received on realization of fixed deposit)
When the amount of fixed deposit is paid in the bank current account.
Bank account …Dr.
To Fixed deposit account (for fixed deposit amount on realization paid into bank account)
Savings Bank
When money is paid in savings bank account.
Savings bank account …Dr.
To Cash account (for cash paid into savings bank account)
When interest is due.
Savings bank account …Dr.
To Interest account (for interest credited by bank)
When cash is withdrawn from bank
Cash account …Dr.
To Saving bank account (for cash withdrawn from bank)
Bank Loan
When loan is given by bank in cash
Cash account …Dr.
To Bank loan account (for loan withdrawn from bank)
When the amount of loan is credited by bank in current account.
Bank account …Dr.
To Bank loan account (for loan credited by bank in ‘current account)
When interest becomes due on loan. Interest account to Bank loan account (for interest due on loan)
When loan is repaid.
Bank loan account …Dr.
To Cash account (if paid in cash)
To Bank account (if repaid by cheque).
