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- Unit-3 Cash Book And Bank ReconciliationUnit-3
Unit-3 Cash Book And Bank Reconciliation
In this unit you will learn about the most important subsidiary book called Cash Book.
Give two examples of items which are usually recorded first in the cash book and later in the pass book?
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- Cheques issued but not yet presented for payment: Whenever a payment is made by cheque, the businessmen immediately records it in his cash book. But, the bank debits the firms account only when the cheque is presented for payment. You know that there is always a time lag between the issue of cheques and its presentation for payment and so the date on which it will be recorded by the bank will always be later than the date of its recording in the cash book. It is quite possible that on a particular date when the bank submits the statement of account, there maybe some cheques which have been issued but not yet presented for payment and so not recorded by the bank. Consequently, the balance shown by the pass book will be higher than the balance shown by the cash book. For example a firm issued a cheque for Rs. 3000 in favour of a creditor on December 28, 1987 which is presented to he bank for payment on January 2, 1988. The firm would record it in the cash book on December 28, 1987 whereas the bank would record it on January 2, 1988. When the firm would receive the pass book completed up to December 31, 1987 they would find the balance shown by the pass book in different from the balance shown by the cash book. The pass book balance would be higher by Rs. 3000.
- Cheques deposited into the bank but not yet collected: When a payment is received by cheque, the firm sends it to the bank for collection and records it immediately the debit side of the cash bank. This increases the bank balances as per cash book. But the bank will not credit the firms account till the cheque is actually collected. So, the balance, in the pass book remains unaffected till the proceeds of the cheque are collected and credited. Thus, on a particular date, it is possible that certain cheques which were sent for collection might hot have been collected by the bank and so not shown in the pass book. All such cheques pending collection would make the cash book balance different from the pass book balance, For example, the firm sends a cheque of Rs, 2,000 un June 28 to the bank for collection. The cheque is collected on July 6. Now, if the balances as on June 30 are compared, they will be different because the credit of Rs. 2,000 will not appear in the pass book.
- Interest allowed by the bank : The banks normally do not allow any interest on the current account balances. But if such interest is allowed, the bank credits it to the customer’s account. This increases the balance in the pass book. The firm would pass the corresponding entry in the cash book only when it receives the intimation from the bank or when it notices it in the pass book. Hence, the cash book balance will be lower till such entry is made.
- Interest on overdraft: When the businessman requires more funds he may request the bank for overdraft facility which means permitting him to draw more than the amount available in his account. When the businessman actually withdraws more than the available amount, he is said to have utilized the overdraft facility. The bank charges interest on the amount overdrawn and debits the same to his account periodically. The firm records the corresponding entry for interest on overdraft only when the pass book is received. Hence, the balance in the two books would differ till the entry is passed in the cash book.