Bank Account Details In Cash Book and In Pass Book

Bank Transactions

By bank transactions we mean all those transactions relating to the business which are considered for the purpose of accounting which have their effect on "Bank a/c" or any other account by a different name that is used by the organisation to indicate the bank a/c.

Some bank transactions relating to the organisation M/s Manzil Enzymes.

Aug 1st : Paid Cash into bank (new account opened) 18,000.
5th : Issued a cheque (No. AS01) to Sam 5,400 in full settlement of 5,500 due.
8th : Received a cheque (No. MG41) for 12,000 towards sale proceeds and deposited the same into bank.
11th : Issued a cheque for 4,920 (No. AS02) to a supplier Jax & Co in full settlement of the amount due of 5,000.
13th : Withdrawn for Mr. Rao's personal use by cheque (No. AS03) 5,000
14th : Mr. Rao, issued a cheque (No. TR82) for 50,000 towards additional capital 50,000.
15th : Issued a cheque (No. AS04) for 24,000 towards purchase of Furniture.

Organisations Books

These transactions are recorded in the accounting books of the organisation

  • In a journal when the subsidiary book, Cash Book is not being maintained.

    Posting is done to the Bank a/c as well as the other account affected by the transaction.

  • In the bank column of Cash Book when the subsidiary book is being maintained.

Recording in M/s Manzil Enzymes Books

Assuming that the organisation maintains a Triple Column Cash Book (subsidiary book), the recordings of the transactions would be as follows.
Cash Book
DrCr
Date Particulars L/F D/A Cash Bank Date Particulars L/F D/R Cash Bank
01/08/
08/08/
14/08/
To Cash
To Sales
To Capital
C



18,000
12,000
50,000
01/08/
05/08/
11/08/
13/08/
15/08/
 
By Bank
By Sam
By Jax & Co
By Drawings
By Furniture
By Balance c/d
C

100
80
18,000

5,400
4,920
5,000
24,000
40,680
  Total       80,000   Total       80,000
16/8 To Balance b/d     40,680            

Debit/Credit

Bank account representing an organisation (bank), is a personal account. The principles of debit and credit for a personal account being
  • Debit the benefit receiver

    Bank a/c is debited whenever there is a transaction that results in the bank balance increasing like depositing cash, cheques issued by customers etc. In this case bank stands in the position of benefit receiver.

    Some instances of Bank a/c being debited

    1. Cash paid into the Bank
    2. Cheques received by the organisation towards the amounts it has to receive and deposited in the bank for collection. This is recorded on the date of deposit in the bank.
    3. Interest due and deposited by the bank to the organisation on the bank account balances.
    4. Direct payments by the customers into the bank account.
    5. Amounts collected by the bank on behalf of the customer like Dividends on shares, Interest on Investments, Rent on property etc. Some of these may be on a standing instruction.
    6. Amount receivable towards a bill receivable honoured on the due date, when it is collected by the bank.
    7. Amount receivable on discounting bills by the bank.

    Transactions 3, 4, 5, 6 will be recorded when the information relating to the same is received from the bank. 4 may also be recorded when the customer gives such information.

  • Credit the benefit giver

    It is credited whenever there is a transaction that results in the bank balance getting reduced like withdrawing cash, cheques issued to customers etc. In this case bank stands in the position of benefit giver.

    Some instances of Bank a/c being credited

    1. Cash withdrawn from the Bank
    2. Cheques issued by the organisation towards the amounts it has to pay. This will be recorded on the date of issue of the cheque.
    3. Interest and other charges collected by the bank towards the services it provides the organisation like collection of outstation cheques etc.
    4. Amounts paid by the bank on behalf of the customer (organisation) like rent, insurance premium, etc. Some of these may be on account of a standing instruction.
    5. Amount paid towards clearing a bill payable by a cheque or by the bank directly on instructions to the bank.
    6. Amount payable towards the dishonour of a bill discounted.
    7. Cheques dishonoured by the issuer.

    Transactions 3, 4, 5, 6, 7 will be recorded when the information relating to the same is received from the bank.

Standing Instruction

A standing instruction is one that is valid till the next instruction is given. We come across this term generally in banking where a standing instruction is an instruction that the customer gives to the bank, to do something on his/her/its behalf. The act that the bank does has its affect on the customers bank account. The standing instruction may be either for receipt or payment of amounts.

The bank may be instructed to make payments on behalf of the customer periodically like say payment for insurance premium, interest on loans, taxes etc. The bank may also be authorised to receive amounts on behalf of the customer like instructing the bank to credit the interest on fixed deposits in its bank account, collect interest on securities periodically etc.

The bank may charge for providing these services. What is important is that the instruction given by the customer to the bank is valid (it stands) till the customer gives another instruction to the contrary.

Bank Books - Organisation's transactions

An organisations bank transactions also affect the bank. They also form accounting transactions for the bank. However, their effect and influence on their accounts is not the same as the effect on the organisation.

Bank has its own books of accounts. The bank would maintain the business organisations account in its book. M/s Manzil Enzymes in the above case. For the bank, the Organisation a/c i.e. M/s Manzil Enzymes a/c is a personal account. It basically deals with two types of transactions, receiving money into the organisations account or paying from the organsation a/c.

Pass Book (copy of customer account in Bank books)

We assume that the cheques received by the organisation have been deposited into the bank account and the cheques issued to outsiders have been presented for payment to the bank.
M/S Manzil Enzymes
 
Date Particulars Cheque No Withdrawal
[Debit]
Deposit
[Credit]
Balance Initial
01/08/
05/08/
10/08/
12/08/
13/08/
17/08/
18/08/
18/08/
By Cash (Deposit)
To Cheque (Sam)
By Cheque (Collection)
To Cheque (Jax & Co)
By Cheque (Self)
By Cheque (Pine Wood Traders)
To Cheque (Collection)
By Collection Charges
 

AS01
MG41
AS02
AS03
AS04
TR82

5,400

4,920
5,000
24,000

120
18,000

12,000



50,000
18,000
12,600
24,600
19,680
14,680
−9,320
40,680
40,560

Debit/Credit

In the accounting books of the bank, the organisation account, is a personal account. The principles of debit and credit for a personal account being
  • Debit the benefit receiver

    Organisation a/c is debited whenever there is a transaction that results in the balance in its account decreases like when withdrawing cash, cheques issued to customers etc. In this case the organisation stands in the position of benefit receiver.

    Some instances of Organisation a/c being debited

    1. Cash withdrawn from the Bank
    2. Cheques issued by the organisation towards the amounts it has to pay. This will be recorded by the bank on the date on which the customer has presented it for payment (across the counter if it is a bearer cheque or through a banker if it is an account payee cheque) and payment has been made.
    3. Interest and other charges collected by the bank towards the services it provides the organisation like collection of outstation cheques etc.
    4. Amounts paid by the bank on behalf of the customer (organisation) like rent, insurance premium, etc. Some of these may be on account of a standing instruction.
    5. Amount paid towards clearing a bill payable by a cheque or by the bank directly on instructions to the bank.
    6. Amount payable towards the dishonour of a bill discounted.
    7. Cheques dishonoured by the issuer. This has no influence on the bank pass book (customers account with the bank) since it has not been recorded when the cheque is deposited for collection.

    Transactions 3, 4, 5, 6, will be recorded on the date of transaction and will be intimated to the customer.

  • Credit the benefit giver

    It is credited whenever there is a transaction that results in the balance in the organisation account increases like depositing cash, cheques issued by customers deposited in the bank etc. In this case the organisation stands in the position of benefit giver.

    Some instances of Organisation a/c being credited

    1. Cash paid into the Bank
    2. Cheques received by the organisation towards the amounts it has to receive and deposited in the bank for collection. This is recorded by the bank on the date of collection of the cheque. If the cheque is not collected, no amount is credited to the customers account.
    3. Interest due and deposited by the bank to the organisation on the bank account balances.
    4. Direct payments by the customers into the bank account.
    5. Amounts collected by the bank on behalf of the customer like Dividends on shares, Interest on Investments, Rent on property etc. Some of these may be on a standing instruction.
    6. Amount receivable towards a bill receivable honoured on the due date, when it is collected by the bank.
    7. Amount receivable on discounting bills by the bank.

    Transactions 3, 4, 5, 6 will be recorded on the date of the transaction i.e. on collection and will be intimated by the bank to the customer.