Differences between a Cashbook and a Bank Book

What is a Cashbook?

A Cashbook is a consolidated statement of a company’s cash and bank transactions within a financial year. It records cash receipts on the debit side and cash payments on the credit side. The advantage of a cashbook is that it performs the role of a journal as well as a ledger for all cash transactions.

What are the features of a cashbook?

The main features of a Cashbook are as follows:

  • Cash and Bank Transactions: A cashbook records the transactions related to cash/bank receipts and payments in the organisation. Non-cash transactions are not a part of the cash book.
  • Chronological Order: All transactions in the cashbook get recorded in chronological order. It helps the company maintain a day-to-day record of the cash/bank receipts and payments that have taken place within a financial year.
  • No Credit Balance: The cash column of a cashbook cannot show a credit balance. It means that the credit side of a cash column is not supposed to exceed the debit side. This rule is that an organisation cannot pay more than what it already has in terms of cash/bank balance.
  • Similarities with Journal and Ledger: A cashbook is similar to a journal. It is because the cash/bank transactions get recorded chronologically and in the order of their occurrence. It also contains a column for the ledger folio. A cashbook records transactions along with a brief narration describing its nature and purpose.

The format of a cashbook is similar to a ledger. It has two sides, i.e. debit and credit. The Debit side records the receipts and the credit side records payments. LIke a Ledger, the cash book also uses ‘To’ and ‘By’ for the transactions. It gets balanced at the end of the financial year. The cashbook balance is also carried forward into the next financial year or brought forward from the previous financial year.

  • Serves as a Subsidiary and a Principal book – A Cashbook works both as a subsidiary and a principal book. Meanwhile, other subsidiary books like sales or purchases do not provide a complete detail for cash transactions. Thus, the organisation must look at the respective ledger accounts to calculate the total sales or purchases in a financial year. Cashbook has no such issue and the details recorded in it present a complete picture of the cash/bank transactions in a financial year.

What is a Bank book?

A bank book, also known as a passbook or bank reconciliation statement, is a record of an account holder’s bank transactions. It records the total amounts deposited within and withdrawn from an account during a particular period. A bank book summarises all the transactions within a customer’s account and helps account holders keep track of their funds. Banks provide information to a customer regarding the status of their account from the bank book.

What are the features of a bank book?

The main features of a bank book are as follows:

  • Similarities with a Ledger: A bank book, like a ledger, has a debit column (that records the withdrawals) and a credit column (that records the deposits) from an account within a particular period. It also has a narration of every transaction in the descriptive column, enabling the account holder to understand his transactions clearly.
  • Overdraft: If the deposits are lower than withdrawals in a bank book, it will show a debit balance or overdraft.
  • Recording all transactions: The primary purpose of a bank book is to have a detailed view of all the transactions that have taken place in the customer’s account. It can help the account holder thoroughly scrutinise all entries in the bank book and inform the bank in case of any errors.
  • Reconcile balance with the cashbook: The balance of a company’s cashbook and bank book may not tally for several reasons. They include Cheque issued by the bank but not deposited for payment, Cheque paid in the bank but not yet cleared, Dishonour of Cheques deposited in the bank or Direct debit/payments made by the bank. In these instances, the bank book can help reconcile transactions with the cashbook of a company and ascertain the reason for the difference in the final balance.

What are the differences between a Cashbook and a Bank book?

The main differences between a cashbook and a bank book are as given below:

Cashbook

Bank book

Definition

A cashbook records the cash and bank transactions of an organisation that takes place within a financial year.

A bank book is issued to the account holder by their bank and it keeps a record of deposits and withdrawals.

Who prepares it?

The organisation prepares the cashbook.

The bank prepares the bank book.

Recording in the book

The cashbook records receipts on the debit side and withdrawals on the credit side.

The bank book records receipts on the credit side and withdrawals on the debit side.

Recording cheques deposited for purpose of collection

The cashbook records cheques deposited for collection on the date of deposit.

The bank book records cheques deposited for collection when the amount gets collected from the debtor’s bank.

Recording cheques that are issued to a creditor

The cashbook records cheques given for paying the creditor on the date of issuing it.

The bank book records cheques given for paying the creditor the day it makes the payment.

Balance

The debit balance in a cash book reflects cash in hand or cash at the bank.

The credit side in a bank book shows cash at the bank, while the debit side shows bank overdraft.

Conclusion

The differences between a cashbook and a bank book highlight the importance of reconciling their balances from time to time. It helps to check discrepancies between the two and ascertain the reasons for it as well.

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