CAUSES OF DIFFERENCE BETWEEN BANK BALANCE SHOWN BY CASH BOOK AND THAT SHOWN BY PASS BOOK :
The following are the reasons for the difference between the balances shown by the cash book and the pass book.
(i) Cheques issued but not presented for payment:
When a cheque is drawn or issued in favour of a third party, it is immediately recorded in the cash book by debiting the party and crediting the bank and this has the effect of reducing the bank balance in the cash book. But the bank will not debit client’s account until that cheque is presented for payment, and honoured. So long as it is not presented, the balance shown in the pass book is more than the balance shown by the cash book.
(ii) Cheques deposited for collection but not yet collected:
The client debits bank column of cash book as soon as he deposits cheques with the bank for collection, but the bank credits client’s account only when it has collected cash on the cheque so deposited. It results in bank balance as per cash book being higher than the balance as per pass book.
(iii) Bank charges not entered in the cash book:
The bank charges some amount from each customer by way of incidental charges, collection charges, etc. and debits his account for this reason from time to time. As soon as these charges are made, the bank debits the customer’s account in its own books and this reduces the bank balance. But the customer will know such charges only when he receives a statement of account from the bank, until then, bank balance as per pass book will be less than bank balance as per cash book.
(iv) Interest credited or debited by bank, not entered in the cash book:
When bank allows interest to a customer for deposits, it will credit customer’s account and his bank balance as per pass book will increase. But the customer will not pass the entry in cash book simultaneously till he knows the fact, thus the balances will differ. Likewise, interest on overdraft is debited to the customers’ account and till the same is not entered in the cash book, it will result in a difference in the balances.
(v) Direct collections on behalf of customers:
A banker may receive amounts due to the customer by way of dividends, rent, interests etc. directly from the persons concerned on account of standing instructions of the customer to such persons. Similarly, debtors may also deposit the amounts directly to the bank. The bank credits the account of the customer for such collections as soon as it gets such payments. But same will be entered in the cash book only when customer receives the statement from the bank. Thus the balances differ.
(vi) Direct payment by bank:
Usually, the bank is given standing instructions for certain payments to be made, such as payment of insurance premium, interest on loan, electricity bill etc. Bank, while making payments, debits pass book but the customer has no information of the same till he is informed. It results in a difference in balances.
(vii) Dishonour of cheques/bills:
When cheque or bill of exchange discounted with the bank is dishonoured, the same is debited in the pass book but not given effect in the cash book until the intimation is received. It will cause a difference in the two balances.
(viii) Cheques received and entered in the cash book but omitted to be deposited into the bank.
When cheque is received, the same is entered in the cash book but it may not be deposited into the bank immediately. This will cause a difference in the two balances.
(ix) Errors:
There may be errors in the accounts maintained by the customer or/ and by the bank. A wrong debit or credit given by the customer or the bank leads to a difference in the balances.