Most often the difference between the cash book and the bank pass-book is due to the difference in the time period. This is because the time period of the bank posting the transactions in the bank column of the cash book might not march to the period of the firm’s pass book posting. Some of the reasons for these differences are:
- Check issued by the firm not yet presented to the bank: When a firm issues check, they are entered in the credit side of the bank column in the cash book. But the person who receives the check might not present it to the bank until sometime later. Hence the bank will debit the firm’s account only after the check is presented. There is a time-lapse between the issue of check and the presentation to the bank which might cause difference in the balance in both the books.
- Check deposited in the bank but yet to be collected: The firm enters the check deposited in the bank in the debit side of the bank column in the cash book. But the banks will credit the check in the firm’s account only after the check amount is realized. This again might cause difference in the balance in both the books.
- Direct deposits to the bank account: Sometimes money might be deposited in the firm’s bank account directly which transaction, the firm will be aware of only when they receive the bank statement. Hence the balance in the cash book will be lesser than the balance in the pass-book.
- Bank charges: The firm might not be aware of the bank fees or commissions for the different services provided till the bank statement is received leading to imbalance in the books.
- Interest and dividend received: the interest on the debentures or dividends on the shares held might be deposited directly through Electronic Clearing System. The firm will realize this only when they receive the bank statement. Hence the balance in the cash book might be lesser than the balance in the pass-book.
- Direct payments to customers: The bank makes certain payments as per standing instructions like – telephone bills, insurance premium, taxes etc. These are paid directly from the firm’s account which the firm realizes when it received the bank statement.
- Dishonor of Check/ Bill discounted: A check deposited by the firm or a receivable discounted with the bank is dishonored, though the amount is debited to the firm’s account, the firm will be aware of it only when it receives the notice from the bank.
- Transaction recording errors by the firm or the bank: Errors by the firm or the bank in recording transactions can also lead to the discrepancy between the cash book and pass-book balances.