Comparison Table: Cashbook vs Bank Book in Accounting
Understanding the differences between a cashbook and a bank book is crucial in accounting. These two records help track cash and bank transactions accurately. This topic is vital for school and competitive exams and is used in daily business financial management. Let’s explore their meanings, distinctions, and practical applications.
| Basis | Cashbook | Bank Book (Passbook) |
|---|---|---|
| Definition | Records all cash and bank transactions by the business. | Records all account transactions as maintained by the bank. |
| Maintained By | Business/Organization | Bank (for account holder) |
| Entries | Receipts on debit, payments on credit side. | Deposits are credits, withdrawals are debits (from bank’s view). |
| Nature | Primary, subsidiary as well as principal book | External statement reflecting business’s bank account |
| Balance | Cannot show credit (overdraft) in cash column | Can show overdraft (debit balance for account holder) |
| Purpose | Records all cash and bank activity for the business | Sends confirmation and statement of transactions |
| Use in Reconciliation | Base for preparing Bank Reconciliation Statement (BRS) | Basis for verifying/adjusting business’s bank balances |
Difference Between a Cashbook and a Bank Book
The main difference between a cashbook and a bank book is that a cashbook records all cash and bank transactions from the business’s perspective, while a bank book (passbook) records transactions from the bank’s perspective for the account holder. This helps track discrepancies and reconcile balances accurately.
What is a Cashbook?
A cashbook is a financial journal used to record all receipts and payments involving cash and bank transactions for a business. It works both as a subsidiary book and as a ledger, making it an essential accounting tool for daily cash management. At Vedantu, we simplify complex accounting terms like cashbook for easy learning.
Features of a Cashbook
- Records both cash and bank transactions in chronological order.
- Has two sides: receipts (debit) and payments (credit).
- Shows only debit or zero balance in the cash column, never a credit.
- Functions as both a subsidiary and a principal book.
- Balances are carried forward to the next accounting period.
- Includes narration to explain each transaction.
What is a Bank Book (Passbook)?
A bank book, commonly called a passbook or bank statement, is provided by the bank to the account holder. It shows all deposits, withdrawals, bank charges, and interest credited or debited to the account during a particular period. It reflects the bank’s record of the account holder’s bank activity.
Features of a Bank Book
- Maintained and issued by banks for account holders.
- Records all transactions as per bank's books.
- Can show overdraft or debit balances if withdrawals exceed deposits.
- Used to cross-check and reconcile business’s cashbook balances.
- Shows transaction dates, narration, and running balance.
Cashbook vs Bank Book: Examples
| Transaction | Cashbook Entry | Bank Book Entry |
|---|---|---|
| Deposit cash into bank | Debit: Bank; Credit: Cash | Credit for deposit (amount added) |
| Withdraw cash from bank | Debit: Cash; Credit: Bank | Debit for withdrawal (amount deducted) |
| Cheque issued but not yet presented | Credit: Bank (in cashbook) | No effect yet (in bank’s book) |
Why Differences Arise and Importance of Reconciliation
Differences between the cashbook and bank book may occur due to cheques issued but not presented, cheques deposited but not credited, bank charges, interest, or errors. This makes preparing a Bank Reconciliation Statement (BRS) vital for finding and correcting discrepancies.
- Ensures both books match the correct bank balance.
- Helps identify bank charges, direct deposits, or possible errors.
- Essential for exam questions and to keep business records accurate.
Real-World Application and Internal Linking
Knowing the differences between a cashbook and a bank book helps students answer direct and practical exam questions. In business, it enables finance teams to detect errors early. For a detailed look at cashbooks, visit our page on Cash Book. To understand the importance of reconciliation, read about Preparation of BRS.
Both books play a key role in the double-entry system and are linked to Ledger Accounts. For more on how transactions flow to ledgers, see Ledger Posting.
At Vedantu, we ensure that Commerce topics such as cashbook vs bank book are explained in a straightforward way to boost learning for CBSE, ICSE, and other boards.
In summary, understanding the difference between a cashbook and a bank book helps keep financial records accurate and reliable. It is vital for academic success and real-life financial management. Always reconcile both books regularly for better business control and exam preparedness.
FAQs on Differences Between a Cashbook and a Bank Book
1. What is the difference between a cashbook and a bank book?
A cashbook records all cash and bank transactions within a business, while a bank book (or passbook) reflects transactions as recorded by the bank itself. The key difference lies in the source of the record: internal (cashbook) versus external (bank).
2. What are the reasons for the difference between cash book and passbook?
Differences between a cashbook and passbook arise due to timing discrepancies and unrecorded transactions. These include:
- Unpresented cheques: Cheques issued but not yet cleared by the bank.
- Uncredited deposits: Deposits made but not yet reflected in the bank statement.
- Bank charges: Fees deducted by the bank, not yet recorded in the cashbook.
- Direct debits/credits: Payments/receipts made directly by the bank.
- Errors: Mistakes in recording transactions in either book.
Reconciling these differences is crucial for accurate financial reporting.
3. What is the difference between bank statement and cash book?
A cashbook is an internal record of all cash and bank transactions of a business, while a bank statement is an external record provided by the bank, showing the bank's perspective of transactions in the account. The cashbook includes all transactions, while the bank statement only shows those processed by the bank.
4. Can a cashbook show a credit balance?
Yes, a cashbook can show a credit balance. This indicates that the business has an overdraft—it owes money to the bank. This situation is common, particularly for businesses with regular overdrafts.
5. What information does a bank book (passbook) provide?
A bank book (passbook) provides a summary of transactions in a bank account from the bank's perspective. It shows deposits, withdrawals, interest earned, and bank charges. It's a crucial record for monitoring account activity and reconciling with the business's internal cashbook.
6. How does a bank reconciliation statement (BRS) relate to the cashbook and bank book?
A Bank Reconciliation Statement (BRS) reconciles the balances shown in a business's cashbook and its bank statement (or bank book/passbook). The purpose is to identify and account for any differences between the two, ensuring the accuracy of financial records.
7. Are there examples of entries in cashbook and bank book?
Yes. Cashbook entries record transactions as they occur in the business, such as cash sales, bank deposits, cheque payments. Bank book entries show the bank's perspective on these transactions, including the date and amount. Discrepancies arise due to timing differences (e.g., unpresented cheques).
8. What is the difference between a cash book and a purchase book?
A cashbook records all cash and bank transactions. A purchase book is a subsidiary book specifically for recording credit purchases. They serve different purposes in accounting.
9. What is the difference between a day book and a cash book?
A day book is a chronological record of all transactions (cash and credit), while a cash book specifically records only cash and bank transactions. The cashbook is a type of day book.
10. What is the difference between a cash book and a financial statement?
A cashbook is a subsidiary book recording cash and bank transactions. A financial statement (e.g., balance sheet, income statement) summarizes the financial performance and position of a business using data from various sources, including the cashbook and other accounting records.
11. What causes the difference between cash book and bank statement?
Differences between a cashbook and bank statement result from several factors. These include:
- Timing differences (unpresented cheques, uncredited deposits)
- Bank charges and fees
- Direct debits and credits
- Errors in recording transactions
A Bank Reconciliation Statement (BRS) resolves these differences.
12. What is the difference between cash book and pass book with example?
A cashbook is an internal record of all cash and bank transactions, while a passbook (bank book) is the bank's record of the account. Example: A cheque issued by a business might be recorded in the cashbook immediately, but it won't appear in the passbook until the bank processes it. This causes a temporary difference.
