Accounting · Bank Reconciliation Statement

Causes of Differences Between Cash Book and Pass Book Balances

Updated 1 October 2026 · Fact-checked

The cash book is your record of bank transactions. The pass book is the bank's record of your account. Their balances differ because of timing (cheques issued or deposited but not yet processed), items the bank records first (direct credits, charges, interest, dishonours), and errors. A Bank Reconciliation Statement explains the gap.

Understand Causes of Differences Between the Two Balances

Your cash book (bank column) and the bank's pass book (bank statement) record the same account from two sides. In theory the balances should match. In practice they rarely do on a given date.

The first reason is timing. You write a cheque and enter it in your cash book the same day. The bank only records it when the payee presents it. A cheque you deposit is entered in your cash book at once, but the bank credits it only after clearing. Between these dates, the two books disagree.

The second reason is items the bank knows first. The bank may collect a customer's direct deposit, pay your standing instruction, charge fees, credit interest or debit you for a cheque that bounced. You learn of these only when you see the pass book, so your cash book has not recorded them yet.

The third reason is errors, in either book. These are covered separately, but you should check for them whenever a question gives hints.

The key skill is to ask for each item: has my cash book recorded this? Has the bank recorded this? The book that has not yet recorded it is the one that is behind. Remember that a favourable balance in the cash book is a debit balance, while in the pass book the same balance is a credit, because the bank owes you the money.

Key rules to remember

Cheque issued but not presented: Cash book: already credited. Pass book: not yet debited. Balance as per pass book is higher than the cash book by this amount.; Timing difference. No cash book entry needed. Add it to the cash book balance to get the pass book balance, or deduct it from the pass book balance to get the cash book balance.
Cheque deposited but not yet collected: Cash book: already debited. Pass book: not yet credited. Balance as per pass book is lower than the cash book by this amount.; Timing difference. No cash book entry needed.
Direct credit (direct deposit, collection, interest or dividend received by bank): Pass book: credited. Cash book: not yet debited. Entry: Bank A/c Dr.; Needs a cash book entry. Increases the cash book balance.
Direct debit (bank charges, standing instruction, insurance premium paid by bank): Pass book: debited. Cash book: not yet credited. Entry: Bank A/c Cr.; Needs a cash book entry. Reduces the cash book balance.
Interest on overdraft: Charged by bank. Cash book entry: Bank A/c Cr.; Treated like bank charges.
Dishonoured cheque: Cheque deposited earlier was debited in cash book. Bank reverses it. Entry: Customer A/c Dr to Bank A/c Cr.; Needs a cash book entry. Reduces the cash book balance.

How to solve Causes of Differences Between the Two Balances questions

Use this checklist on any question that asks you to identify or explain the differences between the two balances.

1Read the question and note which balance is given: cash book or pass book, and whether it is a debit (favourable) or overdraft.
2List every item given in the question separately. Do not combine them.
3For each item, ask whether the cash book has recorded it and whether the bank has recorded it.
4Classify each item: timing difference (no cash book entry needed), or bank-first item (cash book must be updated), or error.
5Decide the direction of effect on the balance you are starting from: add or subtract.
6State the reason for each item in one line, for example 'cheque issued but not yet presented'.
7Write the final balance or the explanation clearly and check that the total effect makes sense.

Quickest way: Two-question test for each item

When to use it: Use when a long list of items is given and you must classify them quickly in the exam hall.

Ask: does my cash book already show this item? If yes, it is a timing item (a cheque issued or deposited that you have already entered). If the item first appears in the pass book, it is a bank-first item. This includes a dishonoured cheque, because the dishonour is first known from the bank even though the original deposit was in your cash book.
Timing items never need a cash book entry. Bank-first items always do.
Write the memory line: 'Issued, deposited: wait. Charges, credits, dishonour: record.'
Put a tick or cross beside each item for add or subtract so you do not lose marks on signs.
Use a small two-column table for the working: item, effect, so the examiner can give step marks.

Common mistakes in Causes of Differences Between the Two Balances

Passing a cash book entry for cheques issued but not presented.
Students think every difference must be corrected in the books.
Fix: Timing differences are already correct in the cash book. Only show them in the statement.
Treating a favourable cash book balance as a credit.
The same balance is credit in the pass book, and students mix the two views.
Fix: In the cash book a bank balance is a debit. In the pass book it is a credit. An overdraft reverses both.
Adding bank charges to the cash book balance.
Students forget that charges reduce the money in the account.
Fix: Bank charges and interest on overdraft are deducted from the cash book balance. Interest earned is added.
Ignoring dishonoured cheques because the cheque was already entered.
They see the cheque in the cash book and assume nothing more is needed.
Fix: A dishonour means the bank has reversed the deposit. Credit the bank in the cash book and debit the customer.
Confusing a cheque deposited but not collected with a cheque issued but not presented.
Both are timing differences, so the names look alike.
Fix: Ask who gives the cheque. If you issued it, the bank has not paid out. If you deposited it, the bank has not received.

Worked examples

Example 1

On 31 March, the cash book of Mehta Traders shows a bank balance of ₹48,000 (debit). Compare with the pass book and state, with reasons, which items cause differences: (a) cheques issued ₹6,000 not yet presented; (b) cheques deposited ₹9,000 not yet collected; (c) bank charges ₹300 not recorded in the cash book; (d) direct deposit by a customer ₹4,000 not recorded in the cash book. Find the pass book balance.

Show the solution

Start with the cash book balance: ₹48,000 debit.
Item (c) is a bank-first item. Bank charges reduce the cash book balance: 48,000 − 300 = 47,700.
Item (d) is a bank-first item. Direct deposit increases the cash book balance: 47,700 + 4,000 = 51,700. This is the adjusted cash book balance.
Item (a) is a timing difference. The bank has not paid out ₹6,000, so the pass book is higher: 51,700 + 6,000 = 57,700.
Item (b) is a timing difference. The bank has not yet credited ₹9,000, so the pass book is lower: 57,700 − 9,000 = 48,700.

Answer: Balance as per pass book = ₹48,700 (credit). Items (a) and (b) are timing differences; items (c) and (d) need cash book entries.

Example 2

The pass book of Rao & Co shows a balance of ₹35,000 (credit) on 30 June. Differences: (i) cheque issued ₹5,000 not presented; (ii) cheque deposited ₹7,500 not yet credited; (iii) a customer's cheque of ₹2,000 deposited earlier was dishonoured and the bank has debited it, but the cash book is not updated; (iv) interest credited by bank ₹600 not in the cash book. Find the cash book balance and pass the entries needed.

Show the solution

Start with the pass book balance: ₹35,000 credit.
Item (i) is a timing difference. The cash book has already credited the cheque but the bank has not yet paid it, so the cash book is lower. Deduct: 35,000 − 5,000 = 30,000.
Item (ii) is a timing difference. The cash book has already debited the deposit but the bank has not yet credited it, so the cash book is higher. Add: 30,000 + 7,500 = 37,500.
Item (iii) is a bank-first item. The bank has already debited the dishonoured cheque, but the cash book still shows it as received. So the cash book balance is higher than the pass book balance. Add: 37,500 + 2,000 = 39,500.
Item (iv) is a bank-first item. The bank has credited the interest but the cash book has not recorded it. So the cash book balance is lower than the pass book balance. Deduct: 39,500 − 600 = 38,900. This is the cash book balance before updating.
Check in reverse: 38,900 − 2,000 (dishonour entry) + 600 (interest entry) = 37,500, which equals the pass book balance after timing items. Correct.
Entries in the cash book: Customer A/c Dr ₹2,000 to Bank A/c ₹2,000; Bank A/c Dr ₹600 to Interest Received A/c ₹600.

Answer: Balance as per cash book before updating = ₹38,900 (debit). After entries (−2,000 + 600) the adjusted cash book balance is ₹37,500.

Exam tips

Always label each item as a timing difference or a bank-first item. Examiners award marks for the reason as well as the number.
Check whether the question gives an overdraft. The add and subtract directions reverse.
Show your working line by line with the starting balance. A wrong final figure can still earn step marks.
When asked for journal entries, pass them only for bank-first items and errors, never for timing differences.
Read the date carefully. Items dated after the reconciliation date should not be included.

Practice questions from Bank Reconciliation Statement

Causes of Differences Between the Two Balances: frequently asked questions

Why does the cash book balance differ from the pass book balance?

The two books record the same transactions at different times. Cheques issued or deposited take time to clear, and the bank may record charges, interest or direct credits before you do. Errors in either book can also cause a difference.

What is the treatment of a cheque issued but not presented for payment?

The cash book has already credited the bank, but the pass book has not yet debited it. No cash book entry is needed. In the statement, it is deducted from the pass book balance or added to the cash book balance to reconcile.

What is the treatment of a cheque deposited but not yet collected?

The cash book has already debited the bank, but the pass book has not yet credited it. No entry is needed. In the statement, add it to the pass book balance, or deduct it from the cash book balance.

Which items appear in the pass book but not in the cash book?

Direct deposits by customers, interest or dividends collected by the bank, bank charges, interest on overdraft, standing instruction payments and dishonoured cheques. You must record these in the cash book once you see the pass book.