BBA 1st Semester Bookkeeping Notes

Causes of Difference between Cash Book and Passbook Balance

BBA Bookkeeping Notes

The following are the causes of difference between the bank balance as shown by the bank passbook and the cash book :

1. Cheque Issued but not yet Presented for Payment: When a cheque is issued to the creditor in payment of his dues, it is immediately recorded in the cash book in the bank of the column. If the cheque is not presented for payment in the bank, it will not record in the firm’s account. Generally, there is a time lag between the issue of a cheque and its presentation to the bank. Thus, until the cheques are presented for payment, the cash book will show lesser balance in comparison to the passbook.
2. Cheques paid into Bank for Collection but not yet Credited by the Bank: A trader receives cheques, drafts, etc. from time from its customers and sends them to its banker for collection. The trader debits bank column of cash book as soon as he deposited cheques, drafts, etc. with the bank for collection but the bank credits the trader’s account only when these cheques have been collected. The Collection generally takes a few days. It results in bank balances as per the cash book higher than the balance as per the passbook.
3. Cheques paid into Bank for Collection but Dishonoured by the Bank: Sometimes, a cheque deposited into the bank is dishonored. It has the same effect as a cheque deposited but not yet credited.
4. Interest Allowed by the Bank: When the bank allows interest to a customer for deposits, it will credit customer’s account and his bank balance will increase. But the customer is not making the entry in the cash book simultaneously till he knows the fact, therefore, two balances differ. Thus, the balance shown is the cash book is less than the balance shown in the passbook.
5. Interest and Dividend Collected by the Bank: A banker may receive amounts due to the customer by way of dividends, interest etc. directly from the persons on account of standing instructions of the customer to such persons. The bank credits the account of the customer for such collection as soon as it gets such payments, but same will be entered in the cash book only when the customer receives the statement from the bank. Thus, the balance shown in the cash book is less than the balance shown by the passbook.
6. Bank charges and Commission Charges by the Bank: The bank charges incidental Charges, commission, collection charge etc. to its customer for the services rendered to them from time to time. The bank debits the customer’s account as soon as it renders such a service and this reduces the ban balance, but the customer will know about such charges only when he receives a statement of account from the bank. Until then, bank balance as per passbook will be less then bank balance as per cash book.
7. Interest on Bank Overdraft : When a trader is allowed by the bank to withdraw more than his deposits in the account, the excess withdrawal is known as ‘Overdraft’. The bank charges interest on overdraft and debts the customer’s account with these charges. But the customer will record this is the cash book either on receiving intimation from the bank, in this regard or when he receives the bank passbook duly completed. Thus, the balances of both books will differ.
8. Direct Payment made by the Bank on Behalf of Customer: Usually account holder instructs the bank to make certain payment on his behalf such as payment for insurance premium. Interest on loan, electricity bill etc. The bank will debit the party’s account on making the payment and this reduces the bank balance. But the party has no information of the same by it is informed. Thus, the balance shown in the cash book will be more than the balance shown by the passbook.
9. Direct Deposit into Bank by the Debtors: Sometime, debtors may directly deposit the amount due in the firm’s bank account. The bank credits the firm’s account immediately on receipt of such payment but the firm will make entry in the cash book only after receiving intimation in this regard. Thus, passbook shows more balance than the cash book balance.
10. Any Wrong Entry made by the Bank in the Passbook: Sometimes, the bank may commit a mistake in making entries in the account of customer. A wrong debit or credit may be given by the bank leads to the difference in the balances shown by cash book and passbook. A difference on this account can be eliminated when the error is detected.