"Premium on life policy of Sanjay paid by the bank on standing advice - Rs.1980"
What is a premium and where will it be recorded - in a pass book or a cash book and why?

Hi,

Sometimes the account holder instructs the bank to make payment of certain expenses on his/her behalf. Payment of premium on life policy of Sanjay by the bank is one such example. Thus, on making such payment bank will debit (reduce the balance) the holder's account for the amount of expense. So, it will be recorded in the Pass Book.

Now, when the cash book is prepared, and the account holder is not conveyed by the bank of any such payments made on his/her behalf, then the balance of Cash Book does not tally with that of the Pass Book. Here comes the need of adjusting such transactions while preparing the bank reconciliation statement. 

When Balance as per Cash Book is Given (Favourable): Deduct
When Balance as per Pass Book is Given (Favourable): Add

 

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