Interpreting the Cash at Bank Account · Chapter 8

Key Concepts

The cash at bank account records all receipts (debit) and payments (credit) made through the business's bank account. Each entry tells a story about what happened.

Every transaction is recorded in two accounts — that is double entry. To interpret an account, check two things for each entry: whether it is a debit or a credit in this account, and the Particulars column, which names the other account in the entry. Together they tell you what the entry was for.

Entry side	What it means
Debit	Money received — deposited into bank account
Credit	Money paid — withdrawn from bank account

A credit balance in the cash at bank account means the business has a bank overdraft — it has spent more than it has in the bank.

How to Remember

Read the Particulars column — it names the other account. That tells you the real transaction (e.g. "Trade receivables — [Name]" = received from a credit customer; "Trade payables — [Name]" = paid to a credit supplier). A debit increases the bank balance (money in); a credit decreases it (money out). A credit balance left over = bank overdraft.

Worked Example

The following cash at bank account was extracted from the books of Firefly Traders for the month of May 20X5.

Cash at bank a/c

Date	Particulars	Dr ($)	Cr ($)	Balance ($)
20X5
1 May	Balance b/d			310 Dr
8 May	Trade receivables — Hui Lin	1,960		2,270 Dr
13 May	Inventory		680	1,590 Dr
17 May	Cash in hand		120	1,470 Dr
22 May	Sales revenue	1,980		3,450 Dr
27 May	Trade payables — Rockford Goods		1,260	2,190 Dr
30 May	Trade receivables — Hui Lin (dishonoured cheque)		1,960	230 Dr

Interpret each entry:

Date	Interpretation
8 May	Received a cheque of $1,960 from credit customer Hui Lin
13 May	Purchased inventory worth $680 by cheque
17 May	Withdrew $120 from the business bank account for office cash use
22 May	Made cash sales of $1,980 (banked in)
27 May	Issued a cheque of $1,260 to credit supplier Rockford Goods
30 May	Cheque of $1,960 received from credit customer Hui Lin was dishonoured

Common Mistakes

Confusing debit and credit direction for the bank. In the business's books, a debit to Cash at bank means money received; a credit means money paid out.

Misreading a credit balance. A credit balance in the cash at bank account is a bank overdraft, not income.

Check Your Understanding

A debit entry in the cash at bank account means money has [entered / left] the bank account.

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Entered — a debit increases the cash at bank balance (receipt).

True or false — a credit balance in the cash at bank account means the business has surplus funds.

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False. A credit balance means the business has a bank overdraft — it owes the bank.

Firefly Traders pays a supplier by cheque. Which side of the cash at bank account is this recorded on?

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Credit side — the payment reduces the cash at bank balance.