Timing DifferencesIn a business entity, when we compare the balance of its cash book with the balance shown in the bank passbook, often it shows a difference, which is because of the time gap in recording the transactions relating either to payments or receipts.
The general factors affecting time gap are:
5.1.1(a) Cheques issued by the bank but not yet presented for paymentIn this case, the cheques are issued by the firm to suppliers or creditors of the firm; these are immediately entered on the credit side of the cash book. But, the receiving party may not present the cheque immediately to the bank for payment. The bank will debit the firm's account only when these cheques are actually paid by the bank. Hence, there is a time lag between the issues of a cheque and its presentation to the bank which may cause the difference between the two balances.
5.1.1(b) Cheques paid into the bank but not yet collectedIn this case, the firm receives cheques from its customers (debtors) and they are immediately recorded in the debit side of the cash book. These increase the bank balance as per the cash book. But, the bank credits the customer account only when the amount of cheques is actually realised. Incase of outstation cheques or when the cheques are paid-in at a bank branch other than the one at which the account of the firm is maintained, the clearing of cheques is delayed. This leads to a cause of difference between the bank balance shown by the cash book and the balance shown by the bank passbook.
5.1.1(c) Direct debits made by the bank on behalf of the customerAt times, the bank deducts some amount for various services from the account without the firm's knowledge. It comes to the firms notice only when the bank statement arrives.
Examples of such deductions include:
Cheque collection charges, incidental charges, interest on overdraft, unpaid cheques deducted by the bank - i.e. stopped or bounced, etc.
As a result, the balance as per passbook will be less than the balance as per cash book.