The balance of a cash book and a passbook can differ for several reasons, including:
Timing: Bank transactions are recorded in the customer’s account in real time. Therefore, the date a transaction is recorded in the cash book may be different from the date it is recorded in the passbook.
Cheques:
- Cheques issued to the customer but not yet presented by the beneficiary for payment in the bank.
- The cheque was deposited into the bank for collection but has not yet been credited/collected by the bank.
- Cheques were deposited into the bank for collection but dishonoured at the customer’s bank.
Interest payment:
Interest on deposit/SB account credited by the bank but not recorded in the cash book.
Bank charges:
The bank may deduct charges like interest on overdrafts, cheque bounce charges, or cheque collection charges, which the business has not recorded in the cashbook.
Direct deposits:
Customers of the business may directly deposit money into their bank account, which the business may not be aware of.
Interest and dividends:
The bank may collect interest and dividends on behalf of the business.
Standing Instruction:
An account holder can instruct the bank to make certain payments such as insurance premiums, rent of the shop, electricity and mobile bills, loan installment, etc. on their behalf. The bank will debit the party’s account on making the payment but it is simultaneously not recorded in the cashbook.
Bank charges and commission:
The bank provides several services to its customers. It collects their outstation cheques, dividends on their shares, pays some expenses on their behalf, etc., and charges commission instead of the services provided to the customer. Such charges and commissions are debited in the passbook but no entry is recorded in the cash book unless the firm obtains the passbook from the bank and records these entries. This will cause the difference between the two balances.
Errors: The business or the bank may have made an error.
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