Which of the following is not a reason of difference in passbook and cashbook due to timing?

Wrong totaling of the book

The correct answer is option 4- Wrong totaling of the book.

Wrong totaling of the book is not a reason for the difference due to timing.

Sometimes the difference between the two balances may be accounted for by an error on the part of the bank or an error in the cash book of the business. This causes difference between the bank balance shown by the cash book and the balance shown by the bank statement.

(a) Errors committed in recording transaction by the firm-  Omission or wrong recording of transactions relating to cheques issued, cheques deposited and wrong totalling, etc., committed by the firm while recording entries in the cash book cause difference between cash book and passbook balance.

(b) Errors committed in recording transactions by the bank-  Omission or wrong recording of transactions relating to cheques deposited and wrong totalling, etc., committed by the bank while posting entries in the passbook also cause differences between passbook and cash book balance.

OTHER OPTIONS ARE REASON FOR THE DIFFERENCE DUE TO TIMING-

• Cheques paid into the bank but not yet collected- When firm receives cheques from its customers (debtors), they are immediately recorded in the debit side of the cash book. This increases the bank balance as per the cash book. However, the bank credits the customer account only when the amount of cheques are actually realised. The clearing of cheques generally takes few days especially in case 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. This leads to a cause of difference between the bank balance shown by the cash book and the balance shown by the bank passbook.

• Direct debits made by the bank on behalf of the customer- Sometimes, the bank deducts amount for various services from the account without the firm’s knowledge. The firm comes to know about it 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.

• Interest and dividends collected by the bank- When the bank collects interest and dividend on behalf of the customer, then these are immediately credited to the customers account. But the firm will know about these transactions and record the same in the cash book only when it receives a bank statement. Till then the balances as per the cash book and passbook will differ.