Causes of disagreement between the balance shown by the cash book and the balance shown by the pass book :
1. Cheques paid into bank but not yet collected
The cheques paid into bank for collection but not credited into the account of the customer, because the cheque is
i. not collected and credited till that date.
ii. collected but the bank staff has forgotten to make entry.
iii. collected but credited to wrong account.
iv. dishonoured.
v. collected for No.I account but credited to No.II account of the same customer.
As soon as the cheques are sent to the bank, entries are made in the debit side of the cash book (bank column). But, usually bank credit the customers account only when they have received payment from the bank concerned, in other words, when the cheques have been collected. Hence, there will be a time gap between the depositing of the cheques and the collection by the bank.
For example, Bharat Company Limited deposited a cheque on March 28, 2003 for a sum of Rs.3,000. The cheque was collected on April 4, 2003. In case the bank sends a statement of account upto March 31, 2003, there will be a difference of Rs 3,000 between the balance shown by the cash book and the pass book.
2. Cheques issued but not yet presented for payment
The cheques issued but not debited customers account may be because the cheque is
i. not cashed till date.
ii. not presented till date.
iii. presented but dishonoured for some reasons or other.
iv. lost by the party to whom the cheque was issued.
v. cashed out of No.I account but wrongly debited to No.II account of the same customer.
In all of the above cases, the entry in the cash book is made immediately on the issue of cheque but naturally the entry will be made by bank only when the cheque is presented for payment. Thus there will be a gap of some days between the entry for issue of cheque in the cash book and the entry for payment made in the pass book. For example, Bharat Company Limited issued a cheque in favour of Mr.Krishna on March 28, 2003 for a sum of Rs.5,000. The cheque is presented for payment at the bank on April 4, 2003. In case, bank sends a statement of account upto March 31, 2003, there will be a difference of Rs.5,000 between the balance as shown by the cash book and the balance as shown by the pass book.
3. Amount credited by the banker in the pass book without the immediate knowledge of the customer
The following are some of the examples for the above statement
i. The bank might have collected rent, dividend, bills of exchange, interest etc., due for the customer as per standing instructions .
ii. Some debtors might have directly paid into bank.
iii. Bank credits interest on the credit balance of the customer’s account.
iv. The banker has wrongly credited this account instead of some other account.
In all the above cases, the entry will be first entered in the pass book. The customer will know this only after he verifies the entries in
the pass book. So there may be a time gap of some days before the customer includes entries made in the pass book. For example, the bank has credited Bharat Company Limited’s
account for interest amounting to Rs.500 on March 31, 2003. The bank prepares and sends a statement of account on March 31, 2003.
If the customer receives the statement of account on April 4, 2003, there will be a difference of Rs 500 bewteen the balance shown by the cash book and the balance shown by the pass book.
4. Amounts debited by the banker in the pass book without the immediate knowledge of the customer
The following are some of the examples for this.
i. The banker has recorded bank charges, interest on overdraft etc.
ii. The banker has paid insurance premium, subscription for periodicals,etc. on behalf of the customer as per the standing instructions.
iii. The banker has wrongly debited this account instead of some other account.
iv. The banker has paid the bills payable of the customer as per standing instructions .
v. Dishonour of a cheque deposited and discounted bills receivable
In all the above cases, the entry will be first entered in the pass book of the customer. And the customer will know only after he verifies the entries in the pass book or statement of account . So there may be a time gap of some days before the customer includes the entries made in the pass book.
For example, the bank has debited Bharat Company Limited’s account for its charges amounting to Rs. 250 on March 31,2003. In case, the bank sends a statement of account upto March 31,2003, there will be a difference of Rs.250 between the balance as per the cash book and the balance as per the pass book.
For example, A cheque for Rs.5,000 dishonoured on March 28, 2003. In case, the bank sends a statement of account upto March 31,
2003 there will be a difference of Rs.5,000 between the balance as shown by the cash book and the balance as shown by the pass book.
After tracing the various items of differences, a Bank reconciliation statement is prepared by starting with the balance shown by any of the two books. But in actual practice, a Bank reconciliation statement is prepared by the customer starting with the balance as per cash book and will ensure that the balance as per pass book is arrived at.