Briefly explain three causes of difference in the Cash Book and Pass Book balances.
Briefly explain three causes of difference in the Cash Book and Pass Book balances.
The difference in cash book & passbook may arise because of the following causes :
(i) Cheques issued but not presented for payment: Whenever a cheque is issued for payment, the entry in the cash book is made immediately. But the entry will be made by the bank only when the cheque is presented for payment. There will, thus, be a gap of some days between the entry in the cash book and in the passbook. Let us clear this point with an example. Suppose, a customer issued a cheque of Rs 2,000 on 27 December 2012 which is presented to the bank on 2 January 2013. The customer will record it in the cash book on 27 December 2010 whereas the bank will record in the passbook on 2 Jan. 2013 only. On 31 December 2012, the cash book balance will be less by Rs 2,000 due to this reason only.
(ii) Cheques paid into the bank not yet cleared: As soon as cheques are sent to the bank, entries are made in the bank column on the debit side of the cash book. But usually, banks credit the customer’s account only when they have received the payment from the bank concerned. In other words, when the cheques have been cleared again there will be some gap between the depositing of the cheques and the credit given by the bank. For example, the customer deposited a cheque of Rs 1,000 into the bank on 30 March 2013 which is collected by the bank on 4 April 2013 only. Now, if the balances on 31 March 2013 are compared, the cash book will be higher by Rs 1,000.
(iii) Interest allowed by the bank: If the bank has allowed interest to the customer, the entry will normally be made in the customer’s account and later shown in Passbook. The customer usually comes to know of the amount of the interest by pursuing the passbook and only then he makes the relevant entry in the cash book.
(iv) Interest and expenses charged by the bank: Like (iii) above, the interest charged by the bank and the amount of the bank charges are entered in the customer’s account and later in the passbook the customer makes the required entries in his cash book only after he sees the passbook.
(v) Dishonor of a bill discounted with the bank: If the bank is not able to receive payment on promissory notes discounted by it, it will debit the customer’s account together with any charges that it may have incurred. The customer will naturally make the entry only when he sees the passbook. But till such entry is passed, the balances shown by cash book and pass book would differ.
(vi) Bills collected by the bank on behalf of the customer: If goods are sold, the documents may be sent through the bank. If the bank is able to collect the amount, it will credit the customer’s account. The customer may make the entry only on receiving the passbook on a later date.
The difference in cash book & passbook may arise because of the following causes :
(i) Cheques issued but not presented for payment: Whenever a cheque is issued for payment, the entry in the cash book is made immediately. But the entry will be made by the bank only when the cheque is presented for payment. There will, thus, be a gap of some days between the entry in the cash book and in the passbook. Let us clear this point with an example. Suppose, a customer issued a cheque of Rs 2,000 on 27 December 2012 which is presented to the bank on 2 January 2013. The customer will record it in the cash book on 27 December 2010 whereas the bank will record in the passbook on 2 Jan. 2013 only. On 31 December 2012, the cash book balance will be less by Rs 2,000 due to this reason only.
(ii) Cheques paid into the bank not yet cleared: As soon as cheques are sent to the bank, entries are made in the bank column on the debit side of the cash book. But usually, banks credit the customer’s account only when they have received the payment from the bank concerned. In other words, when the cheques have been cleared again there will be some gap between the depositing of the cheques and the credit given by the bank. For example, the customer deposited a cheque of Rs 1,000 into the bank on 30 March 2013 which is collected by the bank on 4 April 2013 only. Now, if the balances on 31 March 2013 are compared, the cash book will be higher by Rs 1,000.
(iii) Interest allowed by the bank: If the bank has allowed interest to the customer, the entry will normally be made in the customer’s account and later shown in Passbook. The customer usually comes to know of the amount of the interest by pursuing the passbook and only then he makes the relevant entry in the cash book.
(iv) Interest and expenses charged by the bank: Like (iii) above, the interest charged by the bank and the amount of the bank charges are entered in the customer’s account and later in the passbook the customer makes the required entries in his cash book only after he sees the passbook.
(v) Dishonor of a bill discounted with the bank: If the bank is not able to receive payment on promissory notes discounted by it, it will debit the customer’s account together with any charges that it may have incurred. The customer will naturally make the entry only when he sees the passbook. But till such entry is passed, the balances shown by cash book and pass book would differ.
(vi) Bills collected by the bank on behalf of the customer: If goods are sold, the documents may be sent through the bank. If the bank is able to collect the amount, it will credit the customer’s account. The customer may make the entry only on receiving the passbook on a later date.
