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The main reason for a difference between a cash book and a passbook is the timing of when transactions are recorded. A cash book is maintained by the account holder to record all cash transactions, whereas a passbook is a record of all transactions maintained by the bank. Sometimes, there may be a delay in recording transactions in the passbook, resulting in a difference between the balance in the cash book and passbook. Additionally, errors in recording transactions or bank charges may also cause discrepancies. It is important to reconcile these differences regularly to ensure the accuracy of the account balance.
Following some reasons in detail for difference in passbook and cashbook balances:-
1. Cheques issued but not yet presented for payment in the bank
When a cheque is issued to a creditor by the firm, it is immediately recorded on the credit side of the bank column of the cash book. But the bank will debit the firm’s account only when this cheque is actually presented to the bank for payment. Generally, there is a gap of some days between the issue of a cheque and its presentation to the bank.
2. Cheque paid into the bank for collection but not yet credited/collected by the bank
When a firm receives cheques, drafts etc. from its customers, they are immediately deposited into the bank for collection and an entry is made on the debit side of the bank column of the cash book. But the bank will credit the firm’s account only when it has actually collected the payment of these cheques from other banks. Again there will be a gap of some days between the depositing of the cheques into the bank and credit given by the bank
3. Cheques paid into the bank for collection but dishonoured by the bank
When cheque received from outside parties are deposited with the bank, these are immediately recorded on the debit side of the bank column of the cash book, but if the cheques are dishonoured, the bank will not make any entry in the credit of the customer’s account. As a result, the cash book will show an increased balance in comparison to the passbook.
4. Interest allowed by the bank
Interest allowed by the bank is credited to the firm, but unless intimation is received by the firm from the bank to this effect, no entry is recorded in the bank column of the cash book. The difference in these balances may arise because of the following reasons.
5. Interest and dividend collected by the bank
If the bank collects dividend on shares, interest on investments, etc on behalf of its customer, it credits the amount in the passbook. This will increase the balance in the passbook and a difference in the two balances will exits unless a corresponding entry is recorded in the cash book by the firm.
6. Direct payment through bank
An account holder can instruct the bank to make certain payments such as insurance premium, rent of the shop, electricity and mobile bills, loan instalment, etc. on the behalf. The bank will debit the party’s account on making the payment.
7. Direct payment into the bank by a customer
If any customer of the firm directly deposits the amount of payment into the bank account of the firm, then credit entry in the passbook will be recorded by the bank. Unless the corresponding entry is recorded in the cash book, the balance of cash book and pass book will differ.
8. Advancement in technology
Today, there is a great impact of technology on the banking sector. This is the era of internet banking as well as mobile banking. The funds are transferred from one branch to another branch or from one bank to the other bank electronically. The electronic transfer will change the balance as passbook but balance as per cash book will remain unaffected.
9. Demat Services
Today, shares, debentures and bonds are purchased and sold in Demat form. Demat means shares and debentures exist in electronic form, not in paper form. If a businessman applies for shares and debentures from his business account and he is given partial allotment; the refund is directly transferred to his account. The transaction increases the balance as per pass book on a particular day but the balance as per cash book will be short by that amount.
10. Errors
There may be errors in the account maintained by the customer or bank. The two balances, therefore, may not tally.
11. Retiring a bill under rebate
When the bills are sent to the bank for making payment of the bill before its due date and earn some rebate for customers the bank will debit the customer’s account with fewer amounts. Until the information is received from the bank regarding the retirement of the bill under rebate, the balances as per passbook will be more than the balance as per cash book
12. Bank charges and commission charged by the bank
Bank provides several services to its customers. It collects their outstation cheques, dividends on their shares, pays some expenses on their behalf etc. bank charges commission in lieu of the services provided to the customer. Such charges and commission are debited in the passbook but no entry is recorded in the cash book unless the firm obtains the passbook from the bank and record these entries. This will cause the difference between the two balances.
13. Interest on bank overdraft charged by the bank
Generally, the bank allows the overdraft facility to traders on current accounts. If the bank charges interest on the overdraft, an entry will be made in the debit side of the passbook but no entry will be recorded in the cash book unless the firm receives information about the interest charged by the bank. This causes the difference in the two balances.