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Timing Differences

Timings for recording bank transactions in the cash book and pass book need not necessarily be the same. They may differ due to various reasons. When the same entry is recorded in either of the books earlier and in the other book later, it is termed as a timing difference. The timing difference may arise on account of the following:

 

Sl. No.

Transaction

Time of recording in Cash Book

Time of recording in Pass Book

Remarks

1

Cash deposits

When cash is deposited

When cash is deposited

Recorded on the same date

2

Cash withdrawn

When cash is withdrawn

When cash is withdrawn

Recorded on the same date

3

Cheque issued
 

When cheque is issued
 

When cheque is presented for payment

Recorded first in cash book & then in pass book

4

Cheque deposited
 

When cheque is deposited
 

When cheque is collected
 

Recorded first in cash book & then in pass book

5

Bank charges, interest charges
 

When intimation/pass book received from bank

When charges and interest are levied by the bank

Recorded first in pass book & then in cash book

6

Interest and dividends collected

 

When intimation/pass book received from bank
 

When interested and dividend is received by the bank

Recorded first in pass book & then in cash book
 

7

Interest allowed by the bank
 

When intimation/pass book received from bank

When interest is allowed by the bank

Recorded first in pass book & then in cash book

8

Direct payment on behalf of the customer

When intimation/pass book received from bank

When payment is made by the bank

Recorded first in pass book & then in cash book

9

Direct collection on behalf of the customer

When intimation/pass book received from bank

When amount is collected by the bank

Recorded first in pass book & then in cash book

10

Direct payment into the bank by a third party

When intimation/pass book received from bank

When amount is collected by the bank

Recorded first in pass book & then in cash book

11

Dishonour of a cheque/bill discounted with the bank

When intimation/pass book received from bank

When cheque/ bill is dishonoured
 

Recorded first in pass book & then in cash book


Now, let us analyse all those transactions which are not recorded on the same date in the cash book as well as in the pass book.

 

As there is no difference in recording the transactions in situation 1 and 2 in the table above, there is no requirement of reconciliation
 

Transaction 3: Cheques issued and entered in the cash book, but not yet presented for payment.
 

The entry in the cash book is made immediately on the issue of cheque, but naturally, the entry will be made by the bank only when the cheque is presented for payment (presented means the day when the receiver of the cheque will give or present the cheque for payment to the banker of the issuer of the cheque). Hence, there will be a gap of some days between the dates on which it is recorded in the cash book and in the pass book. Due to this, the balance shown in the pass book will be higher than the bank balance as per cash book. Let us understand this with an example.

 

Example: Abhishek Limited issued a cheque in favour of Bhachan Limited on 28th of March, 2014 for a sum of ₹ 4,000, when the Bank balance as per cash book was ₹ 50,000 Further, the cheque was presented for payment on 3rd of April, 2014. In this case, on 31st March i.e., on the last day of the financial year, there will be a difference of ₹ 4,000 between the balance as per pass book and the bank balance as per cash book. The BRS will be prepared as follows:

 

Bank Reconciliation Statement as on 31-03-2012

 

Particulars

A. Balance as per cash book

46,000

B. Add: Cheques issued but not yet presented for payment

4,000

C. Balance as per pass book

50,000

 

Note: The bank may refuse to make the payment if the cheque is presented before the due date of 3 months after the date of cheque. 

 

Transaction 4: Cheques deposited into the bank for collection and entered in the cash book, but not yet collected by the bank: As soon as the cheques are sent to the bank, entries are made in bank column of cash book signifying that the Bank has received the money and so the customer debit’s the Bank account. But usually, the bank receives the payment from the issuer’s bank on clearance of the cheque which may take couple of days and then credits the customer’s account. Hence, there will be a gap of few days between the dates on which it is recorded in the cash book and in the pass book. Due to this, the bank balance as per cash book will be higher than the balance as per pass book. Let us understand this with an example.

 

Example: Rakesh Limited deposited a cheque received from Roshan Limited on 29th March, 2014 for a sum of ₹ 4,000. Whereas the cheque is collected by the bank on 2nd April 2014. In this case, on 31st March i.e., on the last day of the financial year, there will be a difference of ₹ 4,000 between the balance as per pass book and the bank balance as per cash book, i.e., bank balance as per cash book will be higher than the balance as per pass book. Bank balance as per cash book is ₹ 50,000 after recording the receipt of the above cheque. The BRS with the Bank balance as per cash book will be prepared as follows:

 

Bank Reconciliation Statement as on 31-03-2012

 

Particulars

A. Balance as per cash book

50,000

B. Less: Cheques deposited but not yet collected and entered in the pass book

 

(4,000)

C. Balance as per pass book

46,000


Transaction 5: Bank charges, bank interest and other expenses debited by the bank, but not recorded in the cash book : 
Bank charges, interest and other expenses might have been charged and debited to the customer’s account by the Bank in the pass book. But these items will not be recorded by the customer in his cash book until he gets intimation from the bank about these transactions or until he receives the pass book from the bank. Due to this, the bank balance as per cash book will be higher than the balance as per pass book. Let us understand this with an example.

 

Example: State Bank of India debited Amitab Limited’s account with bank charges for a sum of ₹ 6,000 on 25th March 2012. In this case, on 31st March i.e., on the last day of the financial year, there will be a difference of ₹ 6,000 between the balance as per pass book and the bank balance as per cash book (i.e., balance as per pass book will be lower than the bank balance as per cash book). The BRS with bank balance as per cash book of
₹ 50,000 will be prepared as follows:

 

Bank Reconciliation Statement as on 31-03-2012

 

Particulars

A. Balance as per cash book

50,000

B. Less: Bank charges debited by the bank but not yet recorded in the cash book

 

(6,000)

C. Balance as per pass book

44,000


Transaction 6: Interest and dividends collected and credited by the bank, but not recorded in the cash book: 
If the bank collects interest or dividends on behalf of the customer, the entry will normally be made in the customer’s account as and when such sums are received or credited. But no entry will be made by the customer in his cash book for such interest and dividend until he gets intimation from the Bank for such credits or until he receives the pass book. Due to this, the balance shown in the pass book will be higher than the bank balance as per cash book. Let us understand this with an example.

 

Example: SBI credited Salman Limited’s account with dividend received on 20th March, 2012 for a sum of ₹ 4,000. In this case, on 31st March i.e., on the last day of the financial year, there will be a difference of ₹ 4,000 between the balance as per pass book and the bank balance as per cash book (i.e., balance as per pass book will be higher than the bank balance as per cash book). The BRS with bank balance as per cash book of ₹ 50,000 will be prepared as follows:

 

Bank Reconciliation Statement as on 31-03-2012

 

Particulars

A. Balance as per cash book

50,000

B. Add: Dividend received by bank but not yet recorded in the cash book

4,000

C. Balance as per pass book

54,000


Transaction 7: Interest allowed by the bank : 
Bank allows interest on the amount kept with the bank by the individuals, institutions etc. When the interest is allowed by the bank, bank will credit the customer’s account. The customer may make the entry only on receiving the pass book. Due to this, the balance as per pass book will be higher than the bank balance as per cash book. Let us understand this with an example.

 

Example: SBI allowed interest of ₹ 200 on 15th March, 2014 to Rajni Limited. In this case, on 31st march i.e., the last day of the financial year, there will be a difference of ₹ 200 between the balance as per pass book and the bank balance as per cash book (i.e., balance as per pass book will be higher than the bank balance as per cash book). The BRS with bank balance as per cash book of ₹ 50,000 will be prepared as follows:

 

Bank Reconciliation Statement as on 31-03-2012

 

Particulars

A. Balance as per cash book

50,000

B. Add: Interest allowed by bank to Rajni Ltd. but not yet recorded in cash book

200

C. Balance as per pass book

50,200


Transaction 8: Direct payments on behalf of the customer by the bank : 
The bank may be given standing instructions for certain payments, such as for insurance premium, telephone charges or other utility bills etc. In the given case as well, the customer may come to know of the payment only on receiving the statement of bank account or updating the pass book. The entries in the pass book and in the cash book may thus be on different dates. Due to this, the bank balance as per cash book will be higher than the balance as per pass book. Let us understand this with an example.

 

Example: State Bank of India paid life insurance premium of ₹ 4,000 on behalf of Akshay Limited as per his standing instructions, on 15th March, 2014. In this case, on 31st March i.e., on the last day of financial year, there will be a difference of ₹ 4,000 between the balance as per pass book and the bank balance as per cash book (i.e., bank balance as per cash book will be higher than balance as per pass book). The BRS with bank balance as per cash book of ₹ 50,000 will be prepared as follows:

 

Bank Reconciliation Statement as on 31-03-2012

 

Particulars

A. Balance as per cash book

50,000

B. Less: Life insurance premium paid by the bank but not yet recorded in cash book

4,000

C. Balance as per pass book

46,000


Transaction 9: Direct collection on behalf of the customer : 
Many times bank collects payment on the customer’s behalf. In such scenarios, it will credit the customer’s account. The customer may make the entry only on receiving the pass book. Due to this, the balance as per pass book will be higher than the bank balance as per cash book. Let us understand this with an example.

 

Example: SBI collected a bill of ₹10,000 on 25th March, 2014 as per standing instructions of Madhur Limited. In this case, on 31st March i.e., the last day of the financial year, there will be a difference of ₹10,000 between the balance as per pass book and the bank balance as per cash book (i.e., balance as per pass book will be higher than the bank balance as per cash book). The BRS with bank balance as per cash book of ₹ 50,000 will be prepared as follows:

 

Bank Reconciliation Statement as on 31-03-2012

 

Particulars

A. Balance as per cash book

50,000

B. Add: Bill collected by bank on behalf of Madhur Ltd. but not yet recorded in cash book

10,000

C. Balance as per pass book

60,000


Transaction 10: Direct payment into the bank by a third party: 
Sometimes, a third party who owes money to the customer might have deposited the money into the customer’s bank account directly. The banker will credit the account as soon as the bank receives such payment. But the customer will record the same transaction only when it comes to his notice. Due to this, the balance as per the pass book will be higher than the bank balance as per cash book. Let us understand this with an example.

 

Example: Kareena Limited directly made payment of ₹ 5,000 into Katrina’s bank account on 17th March, 2014. In this case, on 31st March i.e., the last day of the financial year, there will be a difference of ₹ 5,000 between the balance as per pass book and the bank balance as per cash book of Katrina’s A/c (i.e. balance as per pass book will be higher than the bank balance as per cash book). The BRS with bank balance as per cash book of ₹ 50,000 will be prepared as follows:

 

Bank Reconciliation Statement as on 31-03-2012

 

Particulars

A. Balance as per cash book

50,000

B. Add: Direct payment made by the B Ltd. into bank but not yet recorded into cash book

5,000

C. Balance as per pass book

55,000


Transaction 11: Dishonour of a cheque/bill with the bank: 
If a cheque/bill is dishonoured and if the bank is not able to receive payment on the promissory notes discounted by it, it will debit the customer’s account along with the charges it may have incurred. The customer will make the entry for the same only when he sees the pass book. Due to this, the bank balance as per cash book will be higher than the balance as per pass book. Let us understand this with an example.

 

Example: Anush Limited discounted a bill amounting to ₹ 8,000 on 28th February, 2014, which got dishonoured on 20th March, 2014. Bank charged ₹ 500 as bill dishonoured charges. Anush Limited had not made any entry with regard to dishonour of the bill. In this case, on 31st March i.e., on the last day of financial year, there will be a difference of ₹ 8,500 between the balance as per pass book and the bank balance as per cash book (i.e. bank balance as per cash book will be higher than the balance as per pass book). The BRS with bank balance as per cash book of ₹ 50,000 will be prepared as follows:

 

Bank Reconciliation Statement as on 31-03-2012

 

Particulars

A. Balance as per cash book

50,000

B. Less: Bill which is discounted earlier is dishonoured

(8,000)

C. Less : Bank charges for dishonour (not recorded in cash book)

(500)

D. Balance as per pass book

41,500





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