Question

Explain the reasons where the balance shown by the bank pass book does not agree with the balance as shown by the bank account column of the cash book.

Answer 1

When a businessman compares the bank 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 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
i) 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.
ii) 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.
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 form gets the information only when it receives the bank statement.
iv) Bank Charges The bank charges 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.
v) 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 Electric Clearing System (ECS). But the firm does not get the information till it receives the bank statement.
vi) 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.
vii) 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.
viii) 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 of wrong balancing etc.In this case,there would be a difference between the balances as per cash book and as per pass book.
ix) 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.