Why the bank balances differ

Your bank balance is written down in two places. You record it in the bank column of your cash book. The bank records it in your passbook (also called the bank statement), which is a copy of your account in the bank's own books. The two should agree, but often they do not, and usually nobody has made a mistake.

The two books look at the same money from opposite sides. To you, money in the bank is an asset, so a deposit is a debit in your cash book. To the bank, your money is a liability (it owes it to you), so the same deposit is a credit in the passbook. That is why the bank's message says "your account has been credited" when money comes in. So a favourable balance (money in the bank) is a debit balance in the cash book and a credit balance in the passbook. An overdraft is the other way round.

Most differences are just time gaps:

• Cheques issued but not yet presented. You give someone a cheque on 1 April and reduce your cash book at once. He deposits it on 3 April and it clears on 5 April. Until then the passbook shows more money than the cash book.
• Cheques deposited but not yet collected. You deposit a customer's cheque on 7 July and raise your cash book, but it clears only on 11 July.
• Items the bank records first: bank charges, interest charged, a dishonoured cheque, or payments made on your standing instructions (an insurance premium, a loan EMI). These lower the passbook.
• Items credited by the bank first: a customer paying straight into your account, interest allowed, dividends collected. These raise the passbook.

The other cause is errors: by the firm in the cash book (writing ₹10,000 as ₹1,00,000, adding up a side wrongly), or by the bank in the passbook. A time gap disappears on its own if you wait; an error must be found and corrected.

To check that every difference has a reason, the account holder (not the bank) prepares a Bank Reconciliation Statement (BRS). It is not part of the books; it is a check, made whenever the two balances disagree.