Short Answer
In accounting, the pass book balance is considered more reliable than the cash book balance. This is because the pass book is maintained by the bank, which is an independent and trusted institution.
The bank records all transactions accurately and regularly. Therefore, its records are less likely to have errors compared to the cash book, which is maintained by the business.
Detailed Explanation:
More reliable balance
Pass book as reliable balance
The pass book balance is generally considered more reliable in accounting. This is because it is maintained by the bank, which is an external and independent party. Banks follow strict rules and systems to record transactions, which makes their records more accurate and trustworthy.
The bank records all transactions such as deposits, withdrawals, bank charges, interest, and direct payments. These entries are made carefully and regularly updated. Since banks use proper systems and checks, the chances of mistakes are very low.
Another reason why the pass book is more reliable is that it includes transactions that the business may not immediately record. For example, bank charges or direct deposits are first recorded by the bank. The business comes to know about these transactions later. Therefore, the pass book reflects a more complete and updated picture of the bank account.
Limitations of cash book
The cash book is maintained by the business itself. Although it is an important record, it may sometimes contain errors. Mistakes such as wrong entries, missing transactions, or double recording can occur while maintaining the cash book.
Also, the cash book depends on the information available to the business. If the business is not aware of certain bank transactions, it may not record them immediately. This can make the cash book less reliable until it is updated.
Human errors are more likely in the cash book because it is handled by individuals within the business. Even small mistakes can affect the accuracy of the balance.
Importance of reconciliation
Role of BRS
Even though the pass book is considered more reliable, it is important to match it with the cash book regularly. This is done by preparing a Bank Reconciliation Statement (BRS). BRS helps in identifying differences between the two balances and ensures that both records are correct.
Ensuring correct balance
Through reconciliation, errors in the cash book can be corrected, and missing entries can be recorded. It also helps in verifying whether the bank has recorded all transactions correctly.
Regular comparison of both balances helps in maintaining accurate and complete financial records.
Conclusion
The pass book balance is considered more reliable because it is maintained by the bank and includes all transactions accurately. However, both cash book and pass book are important, and they should be regularly reconciled to ensure correct and reliable accounting records.