Fundamentals of Financial and Cost Accounting · Cash Book, Bank Book, Petty Cash Book, Bank Reconciliation Statement

Causes of Differences between Cash Book and Passbook

Updated 10 October 2026 · Fact-checked

The cash book is your record of the bank account. The passbook is the bank's record of the same account. The balances differ because of timing differences (cheques issued but not presented, cheques deposited but not yet collected, direct bank entries you have not recorded) and because of errors in either book.

Understand Causes of Differences between Cash Book and Passbook

You keep a bank column in your cash book. The bank keeps its own record of your account, which is the passbook (bank statement). Both record the same money, so in theory the balances should match. In practice they rarely do.

The first reason is timing. You record a transaction the day it happens. The bank records it only when it acts on it. A cheque you write today is entered in your cash book today, but the bank debits your account only when the payee presents it. A cheque you deposit is entered in your cash book at once, but the bank credits it only after collection.

The second reason is bank-only entries. The bank may charge fees, credit interest, pay your standing instructions or collect dividends directly. You learn of these only when you see the passbook. Until then your cash book does not have them.

The third reason is errors. You or the bank may post an amount wrongly, add up wrongly or omit an item. Errors in your own book are corrected in the cash book. Errors made by the bank are reported to the bank.

This is why you prepare a bank reconciliation statement. It explains the gap, confirms that the books are right, and finds items that need adjusting. Remember that the passbook is written from the bank's side. A positive balance in your favour is a credit in the passbook, but a debit balance in your cash book.

Key formulas to remember

Items that only affect the passbook (cash book already has them): Cheques issued but not yet presented; cheques deposited but not yet collected; These are timing differences. The cash book needs no correction.
Bank-only items that increase the cash book balance: Interest and dividends credited by the bank; direct deposits by customers (add to the cash book); The bank has recorded these first. Enter them in the cash book as receipts when you find them in the passbook.
Bank-only items that reduce the cash book balance: Bank charges; interest charged; direct payments (standing instructions); dishonoured cheques (subtract from the cash book); A cheque you deposited and the bank returned unpaid is recorded by the bank first. Enter it in the cash book as a reduction. If you have already recorded the dishonour, it is not a reconciling item.
Effect on passbook balance: Issued but not presented: passbook balance is higher than the cash book. Deposited but not collected: passbook balance is lower than the cash book.; Use this to judge the direction of each item.
Favourable and unfavourable balance: Favourable = debit balance in cash book (money in bank). Unfavourable = credit balance in cash book (overdraft).; The signs reverse in the passbook: an overdraft is a debit balance there.

How to solve Causes of Differences between Cash Book and Passbook questions

Use this method for any question that asks for the cause of a difference or the effect of an item on either balance.

1Identify which book the question starts from: the cash book balance or the passbook balance.
2For each item, ask: has my cash book already recorded this? Has the bank?
3If your cash book has it and the bank does not yet, it is a timing difference. No cash book entry is needed.
4If the bank has it and your cash book does not, it is a bank-only entry. Update the cash book.
5If an amount is wrong in either book, it is an error. Find who made it. An error in your cash book is corrected in the cash book. An error made by the bank is reported to the bank. It appears only as a reconciling item and needs no cash book entry.
6Decide whether the item raises or lowers each balance. Check whether the opening balance is favourable or an overdraft.
7Choose the option that matches your reasoning.

Quickest way: Who has recorded it first?

When to use it: Use this for MCQs that ask why the balances differ or which item is a timing difference.

Cheque you issued or deposited: you recorded first, the bank is late. It is a timing difference.
Charges, interest, direct credits and debits: the bank recorded first. Your cash book is late.
Wrong amounts: an error. Find who made it. A cash book error is corrected in the cash book. A bank error is reported to the bank and is only a reconciling item.
Eliminate options that put an item in the wrong group before doing any arithmetic.

Common mistakes in Causes of Differences between Cash Book and Passbook

Adjusting the cash book for cheques issued but not presented.
Students see the difference and assume every reconciling item needs an entry.
Fix: The cash book already has the cheque. Only the passbook is waiting. Make no entry.
Treating a deposited but uncollected cheque as a bank error.
The money seems to be missing from the passbook.
Fix: It is a timing difference. The bank credits it after clearing.
Mixing up debit and credit across the two books.
The passbook is the bank's account of you, so the sides are reversed.
Fix: A positive balance is a debit in the cash book and a credit in the passbook.
Ignoring bank charges and interest until the question mentions them.
These appear only in the passbook, so students forget them.
Fix: List every bank-only item as a cash book update.
Confusing an overdraft with a favourable balance.
Both words describe a balance, and the sign convention is easy to flip.
Fix: Favourable means money in the bank. An overdraft is unfavourable.

Worked examples

Example 1

On 31 March, the cash book of Sharma Traders shows a bank balance of ₹50,000 (debit). Cheques of ₹8,000 were issued but not presented. Cheques of ₹5,000 were deposited but not collected. The bank charged ₹200, which is not in the cash book. What is the cash book balance after making the needed correction?

Show the solution

Cheques issued but not presented are already in the cash book. No correction is needed.
Cheques deposited but not collected are already in the cash book. No correction is needed.
Bank charges of ₹200 are in the passbook only. The cash book must be updated by deducting them.
Adjusted cash book balance = ₹50,000 − ₹200 = ₹49,800.

Answer: ₹49,800 (debit). Only the ₹200 bank charges need an entry; the two cheque items need none.

Example 2

The cash book shows a favourable balance of ₹40,000. Cheques issued of ₹6,000 have not been presented. There are no other differences. What is the passbook balance?

Show the solution

The cash book has already deducted the ₹6,000 cheques.
The bank has not yet deducted them.
So the passbook balance is higher than the cash book balance.
Passbook balance = ₹40,000 + ₹6,000 = ₹46,000.

Answer: ₹46,000 (credit) in the passbook.

Exam tips

Learn the standard list of timing differences and bank-only items. Many MCQs just ask you to classify an item.
Always check the sign of the opening balance before adding or subtracting.
Read the question to see whether it starts from the cash book or the passbook.
If an option says a timing difference needs a cash book entry, eliminate it.

Practice questions from Cash Book, Bank Book, Petty Cash Book, Bank Reconciliation Statement

Causes of Differences between Cash Book and Passbook in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Causes of Differences between Cash Book and Passbook: frequently asked questions

What does cheque issued but not presented for payment mean?

You wrote a cheque and entered it in your cash book, but the payee has not yet deposited it with the bank. The bank has not yet deducted the amount from your account. The passbook balance is therefore higher.

What does cheque deposited but not yet collected mean?

You paid a cheque into the bank and recorded it as a receipt. The bank has not yet received the money from the drawer's bank. It will credit your account after collection.

Why do we need a bank reconciliation statement?

It explains the difference between the cash book and passbook balances. It also helps you find errors and unrecorded bank items, and reduces the risk of fraud.

What is a favourable and unfavourable balance in bank reconciliation?

A favourable balance means a debit balance in the cash book, so you have money in the bank. An unfavourable balance means a credit balance in the cash book, so you have an overdraft.