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What are the reason of difference between Bank balance of cash book and Bank Pass Book?

Category : Accounting | Answer: 1 11 Months Ago

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When a businessman compares the Bank balance of its cash book with the balance shown by the bank pass book, there is often a difference. As the time period of posting the transactions in the bank column of cash book does not correspond with the time period of posting in the bank pass book of the firm, the difference arises. The reasons for difference in balance of the cash book and pass book are as under :

1. Cheques Issued By The Firm But Not Yet Presented For Payment : When cheques are issued by the firm, these are immediately entered on the credit side of the bank column of the cash book. Sometimes, receiving person may present these cheques to the bank for payment on some later date. The bank will debit the firm’s account when these cheques are presented for payment. There is a time period between the issue of cheque and being presented in the bank for payment. This may cause difference to the balance of cash book and pass book.

2. Cheques Deposited into Bank But Not Yet Collected : When cheques are deposited into bank, the firm immediately enters it on the debit side of the bank column of cash book. It increases the bank balance as per the cash book. But, the bank credits the firm’s account after these cheques are actually realised. A few days are taken in clearing of local cheques and in case of outstation cheques few more days are taken. This may cause the difference between cash book and pass book balance.

iii. Amount Directly Deposited in The Bank Account : Sometimes, the debtors or the customers deposit the money directly into firm’s bank account, but the firm gets the information only when it receives the bank statement. In this case, the bank credits the firm’s account with the amount received but the same amount is not recorded in the cash book. As a result the balance in the cash book will be less than the balance shown in the Pass book.

3. Bank Charges : The bank charge in the form of fees or commission is charged from time to time for various services provided from the customers’ account without the intimation to the firm. The firm records these charges after receiving the bank intimation or statement. Example of such deductions is : Interest on overdraft balance, credit cards’ fees, outstation cheques, collection charges, etc. As a result, the balance of the cash book will be more than the balance of the pass book.

4. Interest and Dividend Received by the Bank : Sometimes, the interest on debentures or dividends on shares held by the account holder is directly deposited by the company through Electronic Clearing System (ECS). But the firm does not get the information till it receives the bank statement. As a consequence, the firm enters it in its cash book on a date later than the date it is recorded by the bank. As a result, the balance as per cash book and pass book will differ.

5. Direct Payments Made By The Bank On Behalf Of The Customers : Sometimes, bank makes certain payments on behalf of the customer as per standing instructions. Telephone bills, rent, insurance premium, taxes, etc are some of the expenses. These expenses are directly paid by the bank and debited to the firm’s account immediately after their payment. but the firm will record the same on receiving information from the bank in the form of Pass Book or bank statement. As a result, the balance of the pass book is less than that of the balance shown in the bank column of the cash book.

6. Dishonour of Cheques/Bill discounted : If a cheque deposited by the firm or bill receivable discounted with the bank is dishonoured , the same is debited to firm’s account by the bank. But the firm records the same when it receives the information from the bank. As a result, the balance as per cash book and that of pass book will differ.

7. Errors Committed in Recording Transactions by the Firm : There may be certain errors from firm’s side, e.g., omission or wrong recording of transactions relating to cheques deposited, cheques issued and wrong balancing etc. In this case, there would be a difference between the balances as per Cash Book and as per Pass Book.

8. Errors Committed in Recording Transactions by the Bank : Sometimes, bank may also commit errors, e.g., omission or wrong recording of transactions relating to cheques deposited etc. As a result, the balance of the bank pass book and cash book will not agree.

11 Months Ago
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