by Cash book refers to a business journal in which all the cash transactions of the business are recorded in a sequential manner. The record is helpful in the preparation of the ledger. It is a subsidiary book. However, its cash column and bank column acts like cash account and bank account in which the direct posting to trial balance is possible, so it is a principal book also.
Cash book keeps a record of cash receipts like sales, receivables, etc., disbursements, like purchases, payables, drawings, etc., deposits in bank and withdrawals, etc. Cash book is classified below:
- Simple cash book: Cash book with cash column only.
- Double column cash book: Cash book with cash and bank column.
- Triple column cash book: Cash book with cash, bank and discount columns.
- Petty cash book: For recording small value transactions, but it i a subsidiary book only.
Bank passbook is a book that records the bank transactions in a savings account. It is the exact copy of the customer’s account in the bank’s book. It records the deposits, withdrawals, interest credited, bank charges, etc. during a financial year.
The passbook is issued by the bank to its customers. The customer has to retain it and periodically update it to enter recent transactions. With the help of Passbook, a customer can keep an eye on the entries made in his account by the bank. As and when the entries are updated in the passbook the customer can check them and inform the bank, if he finds any error regarding the entries made.
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Cash book |
Passbook |
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| Meaning | A book that keeps a record of cash transactions is known as cash book. | A book issued by the bank to the account holder that records the deposits and withdrawals is known as passbook. |
| Prepared by | Firms | Bank |
| Side affected | Receipts will be shown in the debit side while payments are entered in credit side. | Deposits will be shown in credit side while withdrawals are shown in debit side. |
| Preparation | Discretionary | Compulsory |
| Recording of cheque deposited for collection | Date of deposit | Date on which the amount is actually collected from the debtor’s bank |
| Recording of cheque issued to the creditor | Date of issue. | When the amount is paid by the bank to the creditor. |
| What do the balances reflect? | Debit balance shows cash at bank while the credit balance shows overdraft. | Debit balance shows overdraft while the credit balance shows cash at bank. |
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
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.
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.
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.
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.
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.
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.
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.
Errors
There may be errors in the account maintained by the customer or bank. The two balances, therefore, may not tally.
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.
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
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.
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.
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