Bank a/c balance as per Cash Book & in Pass Book :: Difference - Analysis

Some transactions affecting Bank a/c

Consider the following transactions.
Aug 1st : Paid Cash into bank (new account opened) 18,000.
5th : Issued a cheque (No. AS01) to Sam 5,400 in full settlement of 5,500 due.
8th : Received a cheque (No. MG41) for 12,000 towards sale proceeds and deposited the same into bank.
11th : Issued a cheque for 4,920 (No. AS02) to a supplier Jax & Co in full settlement of the amount due of 5,000.
13th : Withdrawn for Mr. Rao's personal use by cheque (No. AS03) 5,000
14th : Mr. Rao, issued a cheque (No. TR82) for 50,000 towards additional capital 50,000.
15th : Issued a cheque (No. AS04) for 24,000 towards purchase of Furniture.

To make it easy we are considering the same transactions we have dealt with earlier in knowing how these are recorded and appear in the books of the bank as well as the organisation.

Bank a/c in Organisation's Books

We assume that the organisation maintains a Triple Column Cash Book (subsidiary book).
Cash Book
DrCr
Date Particulars L/F D/A Cash Bank Date Particulars L/F D/R Cash Bank
01/08/
08/08/
14/08/
To Cash
To Sales
To Capital
C



18,000
12,000
50,000
01/08/
05/08/
11/08/
13/08/
15/08/
 
By Bank
By Sam
By Jax & Co
By Drawings
By Furniture
By Balance c/d
C

100
80
18,000

5,400
4,920
5,000
24,000
40,680
  Total       80,000   Total       80,000
16/8 To Balance b/d     40,680            

Pass Book as per Bank Books

We assume that the cheques received by the organisation have been deposited into the bank account and the cheques issued to outsiders have been presented for payment to the bank.
M/S Manzil Enzymes
 
Date Particulars Cheque No Withdrawal
[Debit]
Deposit
[Credit]
Balance Initial
01/08/
05/08/
10/08/
12/08/
13/08/
17/08/
18/08/
18/08/
By Cash (Deposit)
To Cheque (Sam)
By Cheque (Collection)
To Cheque (Jax & Co)
By Cheque (Self)
By Cheque (Pine Wood Traders)
To Cheque (Collection)
By Collection Charges
 

AS01
MG41
AS02
AS03
AS04
TR82

5,400

4,920
5,000
24,000

120
18,000

12,000



50,000
18,000
12,600
24,600
19,680
14,680
−9,320
40,680
40,560

Date wise Analysis of balance in the Bank a/c

Aug 1st

Cash Book - 18,000
Pass Book - 18,000

The transaction has been recorded on the same date in both the books. Therefore, there is no difference in the Bank balance as revealed by both the books.

Aug 5th

[18,000 − 5,400]
Cash Book - 12,600
Pass Book - 12,600

The transaction is also recorded on the same date in both the books. Therefore, there is no difference in the Bank balance as revealed by both the books.

Aug 8th

Cash Book - 24,600   [12,600 + 12,000]
Pass Book - 12,600

Cheques deposited but not yet collected

The cheque that has been received towards sale proceeds has been entered in the cash book immediately and deposited in the bank. The bank however would not credit the customer account with this amount till the cheque is collected which would take some time.

The bank sends the cheques so deposited for collection and records them in the cheques sent for clearance record, which is a general record for reference and information only. If the cheque is dishonoured (not collected) no credit is made in the customers account.

The Bank balance as revealed by both the books differs.

Aug 10th

Cash Book - 24,600
Pass Book - 24,600

The cheque that was deposited on 8th was collected and credited by the bank. There are no bank transactions after that date.

There is no difference in the bank balance as revealed by both the books.

Aug 11th

Cash Book - 19,680   [24,600 − 4,920]
Pass Book - 24,600

Cheques issued but not yet presented for payment

A cheque has been issued and has been recorded in the cash book immediately. The bank would deduct this amount from the account only after it has been presented for payment and is paid to the payee.

The Bank balance as revealed by both the books differs.

Aug 12th

Cash Book - 19,680
Pass Book - 19,680

The cheque issued on Aug 11th has been presented and got paid.

The Bank balance as revealed by both the books is the same.

Aug 13th

[19,680 − 5,000]
Cash Book - 14,680
Pass Book - 14,680

This transaction is also recorded on the same date in both the books. Therefore, there is no difference in the Bank balance as revealed by both the books.

Aug 14th

Cash Book - 64,680   [14,680 + 50,000]
Pass Book - 14,680

Cheques deposited but not yet collected

The cheque that has been given by the proprietor towards additional capital contribution has been entered in the cash book immediately and deposited in the bank. The bank however would not credit M/s Manzil Enzymes a/c with this amount till the cheque is collected which would take some time.

The Bank balance as revealed by both the books differs.

Aug 15th

Cash Book - 40,680   [64,680 − 24,000]
Pass Book - 14,680

Cheques issued but not yet presented for payment

The cheque issued towards the purchase of furniture has been recorded in the cash book immediately. The bank however would not debit M/s Manzil Enzymes a/c with this amount till the cheque is presented to it for payment and it has paid the amount on it. If the cheque is an account payee cheque, it would surely take some time to come to the bank for payment.

Cheques deposited but not yet collected

The cheque deposited on 14th remains uncollected still.

The Bank balance as revealed by both the books differs.

Aug 17th

Cash Book - 40,680
Pass Book - −9,320   [14,680 − 24,000]

The cheque issued to pine wood traders has come up for payment and the bank has paid out the cheque even though the amount in the account is less than the cheque amount since it has sanctioned overdrawal limits to M/s Manzil Enzymes. This would create a situation where (as per the banks books here) the organisation is due to the bank.

The Bank balance as revealed by both the books differs.

Aug 18th

Cash Book - 40,680
Pass Book - 40,560   [−9,320 + 50,000 − 120]

The cheque deposited on Aug 14th is collected by this day. The bank has debited collection charges to the account. This information has not yet reached the organisation and as such it has not been recorded in the organisation books.

The Bank balance as revealed by both the books differs.

Bank Overdraft

As long as the organisation has its money with the bank, we say that the bank a/c balance is normal or favourable. The situation where the organisation owes money to the bank, the balance is said to be unfavourable or overdraft.

The term overdraft balance is not used in all the situations where the organisation owes money to the bank. Even in cases where the organisation takes some loan from the bank it owes money to the bank. This owing is not termed overdraft.

Overdrawal Limit

The term overdraft is used with regard to regular banking accounts used by the organisations, generally called current accounts. Overdraft account allows the customer to overdraw his account to a certain limit. Fixing that limit is called sanctioning the limit by the bank. This limit is fixed based on the needs of the organisation, its business turnover and the security provided by the organisation.

Loan is different

A loan is given for a fixed term and the repayments are scheduled at the time of sanctioning the loan. Overdraft is a facility that is availed by the organisation as and when needed. The limit of overdrawal is only fixed. Repayment happens as and when amounts are deposited into the bank either in cash or by cheques which are received from regular business transactions.

Interest Calculation

For the period when the account shows an overdraft balance, interest is payable to the bank and for the period when the account shows a regular balance interest is payable to the customer. Thus interest is calculated based on daily balances on such accounts.