Question 1

Cheques issued for Rs.50,000 out of which only Rs.40,000 were presented for payment. Due to this difference of timing, which of the following would result it into?

Accepted Answer

Pass Book Balance will show more balance of Rs.10,000 than Cash Book balance.

Question 2

As on 30 June, 2020, Balance as per Cash Book of Rambo Traders was Rs.3,45,000 whereas his bank statement was showing balance of Rs.3,10,000 as on that date. Which of the following can be the reason for this difference?

Accepted Answer

C heques deposited of Rs.35,000 in to bank, not yet credited by Bank.

Question 3

Statement I – Bank Reconciliation Statement can be made with either Cash Book Balance or Pass Book Balance. Statement II – Bank Reconciliation Statement can be made with adjusted Cash Book Balance. Choose the correct option

Accepted Answer

Both the statements are true.

Question 4

When adjusted Cash book is prepared before Bank Reconciliation Statement, which of the following transaction will not find place in Adjusted Cash book?

Accepted Answer

Cheques deposited but not yet cleared.

Question 5

Goods Purchased for cash is recorded in the

Accepted Answer

Cash Book

Question 6

Furniture Purchased on credit will be recorded

Accepted Answer

Journal Proper

Question 7

Contra entry will be recorded in case of

Accepted Answer

Cash withdrawn from bank for office use

Question 8

Petty cash book is required to record

Accepted Answer

Only Expenses of small value paid in cash

Question 9

Which of the statement is true:

Accepted Answer

Sales book records credit Sales

Question 10

State the need for the preparation of bank reconciliation statement?

Accepted Answer

The bank reconciliation statement is prepared to reconcile the difference between the balance as per the cash book and the balance as per the bank passbook. It helps to identify errors or omissions in the cash book or bank passbook, detect frauds, and ascertain the true cash balance. — Since the bank column of the cash book and the bank passbook may not always show the same balance due to timing differences, errors, or omissions, preparing a bank reconciliation statement helps to find out the reasons for the difference and correct the cash book accordingly.

Question 11

What is a bank overdraft?

Accepted Answer

A bank overdraft is a facility provided by the bank to allow the account holder to withdraw more money than the balance available in the account, up to an agreed limit. It results in a negative balance in the bank account. — When the withdrawals exceed the balance in the bank account, the bank allows the customer to overdraw the account, which is called bank overdraft. It is a short-term borrowing facility.

Question 12

Briefly explain the statement 'wrongly debited by the bank' with the help of an example.

Accepted Answer

The statement 'wrongly debited by the bank' means that the bank has deducted an amount from the customer's account by mistake. For example, if the bank debits Rs. 500 instead of Rs. 50 for a cheque payment, the bank has wrongly debited the account by Rs. 450. — Such errors cause the balance as per bank passbook to be less than the balance as per cash book. The bank reconciliation statement will add back the wrongly debited amount to reconcile the balances.

Question 13

State the causes of difference occurred due to time lag.

Accepted Answer

Differences due to time lag arise because some transactions are recorded in the cash book but not yet reflected in the bank passbook or vice versa. Causes include:
- Cheques issued but not yet presented for payment.
- Cheques deposited but not yet cleared by the bank.
- Bank charges or interest not yet recorded in the cash book.
- Direct deposits or withdrawals by the bank not yet recorded in the cash book. — Since there is a delay between recording transactions in the cash book and their reflection in the bank passbook, these timing differences cause discrepancies in balances.

Question 14

Briefly explain the term 'favourable balance as per cash book'.

Accepted Answer

A 'favourable balance as per cash book' means that the cash book shows a debit balance in the bank column, indicating that the business has money deposited in the bank (i.e., the bank owes money to the business). — It is the amount available with the bank on behalf of the business. This is also called a debit balance in the bank account.

Question 15

Enumerate the steps to ascertain the correct cash book balance.

Accepted Answer

Steps to ascertain the correct cash book balance:
1. Compare the balance as per cash book with the balance as per bank passbook.
2. Identify the reasons for differences such as outstanding cheques, deposits in transit, bank charges, direct payments, errors in cash book or bank passbook.
3. Prepare a bank reconciliation statement starting with the balance as per bank passbook and adjust for outstanding cheques and deposits in transit.
4. Adjust the cash book for any errors or omissions found.
5. Ascertain the correct cash book balance after all adjustments. — These steps help to reconcile the differences and ensure the cash book reflects the true bank balance.

Bank Reconciliation Statement

Bank Reconciliation Statement — Study Notes

Bank Reconciliation Statement

5.1 Need for Reconciliation

5.1.1 Timing Differences

Practice Questions — Bank Reconciliation Statement

All 7 Chapters in Financial Accounting-I