The balancing of a cash book is the process of ensuring that the cash book's balance matches the balance shown in the bank statement. This is done to ensure that all transactions recorded in the cash book are accurate and complete, and that there are no errors or omissions.
To balance a cash book, the following steps can be taken:
Compare the entries in the cash book with the corresponding entries in the bank statement. Mark off each item in the cash book that appears in the bank statement.
List any items in the bank statement that are not in the cash book, such as bank charges or interest earned. Add these items to the cash book.
List any items in the cash book that are not in the bank statement, such as outstanding cheques or deposits in transit. Subtract these items from the cash book.
Total all the entries in the cash book that have not been marked off and add or subtract them from the balance as appropriate.
Once all adjustments have been made, compare the adjusted balance in the cash book with the balance shown in the bank statement. The two balances should be the same.
If the two balances do not match, it may indicate an error in either the cash book or the bank statement. In this case, a detailed investigation will need to be carried out to identify the cause of the discrepancy and to correct any errors that are found.
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