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What is the difference between a Debit Order and a Standard Order in a bank reconciliation?

A:

While both debit orders and standard orders represent recurring transactions that must be considered in bank reconciliations, the two transactions differ primarily in the fact that standard orders are for fixed amounts and dates, while debit orders are more flexible.

Debit Orders

Debit orders, also commonly known as direct debits, are recurring requests for funds to be transferred to an alternate account. The payer of the funds must authorize the account into which the funds are transferred, but the payee actually initiates the payment. Direct debit orders are particularly useful in situations where regular but varying payments need to be made, such as those for credit card bills or utility payments. These orders eliminate the need for a company to issue monthly checks.

These orders can be created for varying amounts and dates. As soon as the transfer through the direct debit order is made, the bank records it. The payee records the amount once it receives notification from the bank. Thus, the balance on a bank statement may be lower than the cash book balance because direct debits have not been accounted for by the payee. The cash book of the payee must be adjusted to eliminate the difference in a bank reconciliation.

Standard Orders

Standard orders, also referred to as standing orders, are similar to direct debit orders in they are recurring requests for a transfer of funds from a company account. They differ in that they can be made only for one specific date, and the amount cannot vary. Standing orders are particularly useful in situations where regular, fixed payment amounts are required, such as loan installments.

As with direct debit orders, the bank records the transaction as soon as it is made, while the cash books of either the payee or the receiving party may temporarily vary from the bank record until the next bank reconciliation is done.

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