Banks usually maintain a record of all checking account transactions.A summary of all transactions,called a bank statement,is mailed to the depositor,usually each month.Like any account with a customer or a creditor,the bank statement shows the beginning balance,additions,deductions,and the balance at the end of the period.A typical bank statement is shown in Exhibit 4.
The depositor's checks received by the bank during the period could accompany the bank statement,perhaps arranged in the order of payment.The paid checks are stamped“Paid”with the date of payment.Other entries that the bank has made in the depositor's account are described in debit or credit memorandums enclosed with the statement.
You should note that a depositor's checking account balance in the bank's records is a liability.Debit memorandums issued by the bank on a depositor's account for service charges or for deposited checks returned because of insufficient funds.Likewise,a bank issues a credit memorandum when it increases the depositor's account for collecting a note receivable for the depositor,making a loan to the depositor,receiving a wire deposit,or adding interest to the depositor's account.
Bank Accounts as a Control over Cash
As we mentioned earlier,a bank account is one of the primary tools a business uses to control cash.For example,businesses often require that all cash receipts be initially deposited in a bank account.Likewise,businesses usually use checks or bank account transfers to make all cash payments except for very small amounts.When such a system is used,there is a double record of cash transactions-one by the business and the other by the bank