Explain the reasons where the balance shown by the bank passbook does not agree with the balance as shown by the bank column of the cash book.
Explain the reasons where the balance shown by the bank passbook does not agree with the balance as shown by the bank column of the cash book.
Here are some of the reasons which results in mismatch between bank passbook balance and bank column of cash book.
I. Timing Differences:
1. Cheques issued by the firm but not yet presented for payment: Cheques issued by the firm to the suppliers or creditors are immediately recorded on the credit side of the cashbook. However, there will be a time gap when the receiving party presents it to the bank. So the bank cannot debit the amount. It will result in changes in the balance amount between two books.
2. Cheques are deposited into the bank but not yet collected: A firm receives cheques from its debtors/customers, which are then immediately recorded in the debit side of the cashbook. However, when those cheques are deposited into the bank, the bank credits the firm’s account only after the cheques are actually realised. It creates a difference between the two balances.
3. Direct debits made by the bank on behalf of the customer: Bank deducts various charges like cheque collection charges, interest on overdraft, check bounce charges, the firm will not be aware of such debits and hence these changes will not be reflected in the firm’s cash book. Due to this reason the cashbook will not be in sync with the passbook.
4. Amounts directly deposited in the bank account: When debtors or customers directly deposit money into the firm’s bank account, the firm will not be aware of such deposits. Due to this, these entries will not be recorded into the cashbook. This will also create an imbalance between the bank passbook and firm’s cashbook.
5. Interest and dividends collected by the bank: The banks collects interest and dividend on behalf of the customer. It will not be known to the customer and hence will not be recorded into the firm’s cash book. This creates an imbalance between the bank passbook and firm’s cashbook.
6. Direct payments made by bank on behalf of customers: When the customers give standing instructions to the bank for making payments to the third parities like telephone bill, insurance premium, rent taxes etc., the firm will not be aware of these payments and hence such transactions will not be recorded into the firm’s cashbook. It is also a reason for imbalance.
7. Cheques deposited and bills dishonoured: A cheque deposited by the firm if dishonoured or a bill of exchange drawn by the business firm which is discounted with the bank is dishonoured on the date of maturity, the same is debited to customer’s account by the bank. This information is not available to the firm immediately, and it will not be recorded in the firm’s cashbook. This will also create an imbalance between the bank passbook and the firm’s cashbook.
II. Differences due to recording Errors: The difference between the two balances could be due to an error of human nature. The following types of error can occur
1. Errors committed in recording transaction by the firm: When wrong recording of transactions relating to incorrect totalling, cheques issued, and cheques deposited etc. are committed by the firm in the cashbook. It will create an imbalance between the bank passbook and the firm’s cashbook.
2. Errors committed in recording transactions by the bank: When wrong recording of transactions related to cheques issued, wrong totalling, and cheques deposited etc. are committed by the bank in the passbook. It will create an imbalance between the bank passbook and the firm’s cashbook.
Here are some of the reasons which results in mismatch between bank passbook balance and bank column of cash book.
I. Timing Differences:
1. Cheques issued by the firm but not yet presented for payment: Cheques issued by the firm to the suppliers or creditors are immediately recorded on the credit side of the cashbook. However, there will be a time gap when the receiving party presents it to the bank. So the bank cannot debit the amount. It will result in changes in the balance amount between two books.
2. Cheques are deposited into the bank but not yet collected: A firm receives cheques from its debtors/customers, which are then immediately recorded in the debit side of the cashbook. However, when those cheques are deposited into the bank, the bank credits the firm’s account only after the cheques are actually realised. It creates a difference between the two balances.
3. Direct debits made by the bank on behalf of the customer: Bank deducts various charges like cheque collection charges, interest on overdraft, check bounce charges, the firm will not be aware of such debits and hence these changes will not be reflected in the firm’s cash book. Due to this reason the cashbook will not be in sync with the passbook.
4. Amounts directly deposited in the bank account: When debtors or customers directly deposit money into the firm’s bank account, the firm will not be aware of such deposits. Due to this, these entries will not be recorded into the cashbook. This will also create an imbalance between the bank passbook and firm’s cashbook.
5. Interest and dividends collected by the bank: The banks collects interest and dividend on behalf of the customer. It will not be known to the customer and hence will not be recorded into the firm’s cash book. This creates an imbalance between the bank passbook and firm’s cashbook.
6. Direct payments made by bank on behalf of customers: When the customers give standing instructions to the bank for making payments to the third parities like telephone bill, insurance premium, rent taxes etc., the firm will not be aware of these payments and hence such transactions will not be recorded into the firm’s cashbook. It is also a reason for imbalance.
7. Cheques deposited and bills dishonoured: A cheque deposited by the firm if dishonoured or a bill of exchange drawn by the business firm which is discounted with the bank is dishonoured on the date of maturity, the same is debited to customer’s account by the bank. This information is not available to the firm immediately, and it will not be recorded in the firm’s cashbook. This will also create an imbalance between the bank passbook and the firm’s cashbook.
II. Differences due to recording Errors: The difference between the two balances could be due to an error of human nature. The following types of error can occur
1. Errors committed in recording transaction by the firm: When wrong recording of transactions relating to incorrect totalling, cheques issued, and cheques deposited etc. are committed by the firm in the cashbook. It will create an imbalance between the bank passbook and the firm’s cashbook.
2. Errors committed in recording transactions by the bank: When wrong recording of transactions related to cheques issued, wrong totalling, and cheques deposited etc. are committed by the bank in the passbook. It will create an imbalance between the bank passbook and the firm’s cashbook.
