Session 2 - Causes of differences in Cash book and Pass book

Session Plan : Causes of differences in Cash book and Pass book

0–5 min: Introduce BRS concept and purpose.

5–15 min: Explain main causes of differences with examples.

15–30 min: Demonstrate BRS with simple case examples.

30–40 min: Interactive Q&A and student exercise on causes.

40–45 min: Recap and 5 important questions discussion.

Lecture Material : (PDF, PPT)

Learning Material (IV Quadrant Approach)

(Q1) : Text and Image based Content (PDF/Image Formats)

The common causes of discrepancies between the Cash Book and the Pass Book:

1. Timing Differences

• Unpresented Cheques: Cheques issued by the business but not yet presented to the bank for payment.

• Deposits in Transit: Amounts received and recorded by the business but not yet credited by the bank.

2. Bank Transactions Not Recorded in Cash Book

• Bank Charges: Fees such as service charges or penalties debited by the bank but not yet recorded in the cash book.

• Interest Earned: Interest credited by the bank to the account but not yet entered in the cash book.

• Direct Payments: Payments made directly by the bank on behalf of the business (e.g., loan repayments) not yet recorded in the cash book.

3. Cash Book Transactions Not Recorded in Pass Book

• Cheques Deposited: Cheques deposited by the business but not yet cleared by the bank.

• Direct Deposits: Amounts deposited directly into the bank account by customers but not yet recorded in the pass book.

4. Errors and Omissions

• Recording Errors: Mistakes in recording transactions, such as incorrect amounts or dates.

• Omissions: Transactions that are recorded in one book but not in the other.

5. Reconciliation Process

To reconcile the balances:

1. Compare Transactions: Match entries in the cash book with those in the pass book.

2. Identify Discrepancies: Note any transactions present in one book but not the other.

3. Adjust Records: Update both books to reflect all transactions accurately.

Causes of Differences between the Cash Book and the Pass Book

1. Cheques Issued but Not Yet Presented

• When the business issues cheques to suppliers or others, it immediately records them in the Cash Book.

• However, the cheque may not yet be presented to the bank for payment.
  Effect: Cash Book balance decreases, but the Pass Book still shows a higher balance.

2. Cheques Deposited but Not Yet Collected (Cleared)

• When cheques are deposited into the bank, they are recorded in the Cash Book immediately.

• The bank credits the amount only after collection or clearance.
  Effect: Cash Book shows higher balance than the Pass Book until clearance.

3. Bank Charges and Commission

• The bank may deduct service charges, cheque book charges, or commission directly from the account.

• These are recorded in the Pass Book, but not yet in the Cash Book.
  Effect: Pass Book balance is lower than Cash Book balance.

4. Direct Deposits by Customers or Others

• Sometimes customers deposit money directly into the business’s bank account.

• Such deposits appear in the Pass Book, but the business is unaware until it receives intimation.
  Effect: Pass Book shows higher balance than Cash Book.

5. Direct Payments by Bank

• The bank might make payments on behalf of the business (e.g., insurance premium, loan installment, standing instructions).

• These appear in the Pass Book, but not in the Cash Book until recorded.
  Effect: Pass Book balance becomes lower than Cash Book.

6. Interest Allowed or Credited by Bank

• Banks sometimes credit interest on savings or deposits.

• This increases the balance in the Pass Book, but the Cash Book is not updated until informed.
  Effect: Pass Book shows higher balance than Cash Book.

7. Errors or Omissions

• Errors can occur either in the Cash Book or Pass Book, such as:

  • Recording wrong amounts.

  • Omitting entries.

  • Double posting or transposition errors.
    Effect: Differences arise until errors are rectified.

8. Dishonour of Cheques or Bills

• If a deposited cheque or bill is dishonoured by the bank, it is recorded in the Pass Book but not immediately in the Cash Book.
  Effect: Pass Book balance becomes lower than Cash Book.

In Summary

Cause Effect on Cash Book Effect on Pass Book

Cheques issued but not presented Decrease No change

Cheques deposited but not cleared Increase No change

Bank charges deducted No change Decrease

Direct deposits by customers No change Increase

Direct payments by bank No change Decrease

Interest credited by bank No change Increase

Dishonoured cheque Increase Decrease

(Q2) : Video Based Content (Youtube)

(Q3) : Formative Assessment (Google Form/Any Other Online Quiz Platform)