Account M.C.Q (1 Marks)

A bank reconciliation statement is prepared to reconcile the differences between the balances as per cash book (bank column) and pass book (bank statement).

It is prepared by taking the balance of the cash book without adjusting it as adjusting it will make both the balances match.

In such a case bank reconciliation statement will not be required.

If an entry is recorded in either the cash book or the pass book first and not updated in either of them on a later date, it may lead to a difference between them both.

Also, if there is no consistency or an erroneous recording of transactions in recording entries in either of the books, it may lead to a difference between the two.

A debit position as per bank pass book means credit position as per cash book and vice versa.

Explanation:
Many times the balance as per the bank pass book and the balance as per the cash book do not match. The differences between the cash book and the bank passbook is caused by:

1. Timing differences on recording of the transaction: When a business compare the balances of its cash book with the balance shown by the bank passbook, there is often a difference, which is caused by the time gap in recording the transactions relating either to payments or receipts. The factors affecting time gap includes cheques issued by the bank but bot presented for payment, cheques paid into the bank but not yet collected, direct debits made by the bank on behalf of the customer, amounts directly deposited in the bank account etc.
2. Errors made by the business or by the bank: These are the errors which are not caused on account of any timing difference. Overcasting or under casting of bank passbook is not a factor termed as timing difference.

Explanation:
In case of deposits in transit the entry for would have been entered in the cash book due to which the cash book balance would be higher than the pass book balance.
So, while reconciling the ending cash balance as per the bank statement to the correct adjusted cash balance, deposits in transit should be added to the balance as per the bank statement.

Explanation:
When a business compares the balance of its cash book with the balance shown by the bank passbook, there is often a difference, which is caused by the time gap in recording the transactions relating either to payments or receipts.
Cheque issued by the bank but not yet presented for payment is one reason for bank pass book showing higher balance than cash book. When cheques are issued by the firm to suppliers or creditors of the firm, these are immediately entered on the credit side of the cash book.
However, the receiving party may not present the cheque o the bank for payment immediately. The bank will debit the firm's account only when these cheques are actually paid by the bank.
Hence, there is a time lag between the issue of a cheque and its presentation to the bank which may cause the difference between the two balances.

Explanation:
Bank reconciliation statement is a report which compares the bank balance as per company's accounting records with the balance stated in the bank statement.
It is normal for a company's bank balance as per the accounting records to differ from the balance as per bank statement due to timing differences.
Certain transactions are recorded by the entity that are updated in the bank's system after a certain time lag.
Bank reconciliation statement is a part of cash book. The cash book and pass book/bank statement are prepared separately.
The businessman prepares the cash book and the pass book is prepared by the bank.

Explanation:
Pass book is an important extract of customer's account maintained by the bank which is Account number specific and includes all the transactions made during the period.
Pass book shows the details of the transactions and the net balance as on date.

Explanation:
Sometimes the difference between the two balances may be accounted for by an error on the part of the bank or an error in the cash book of the business. This causes difference between the bank balance shown by the cash book and the balance shown by the bank statement.
There are two types of differences by error:

1. Errors committed in recording transactions by the firm: Omission or wrong recording of transactions relating to cheques issued, cheques deposited and wrong totaling etc. committed by the firm while recording entries in the cash book cause difference between cash book and pass book balance.
2. Errors committed in recording transactions by the bank: Omission or wrong recording of transactions relating to cheques deposited and wrong totaling etc. committed by the bank while posting entries in the pass book also cause differences between pass book and cash book balance.

Therefore, of the given options above, only wrong totaling of bank column of cash book is considered as an error which will form a part of Bank Reconciliation Statement. Conceptual errors of treating sale of asset as sale of goods is not considered for reconciliation.

Explanation:
Bank reconciliation statement is prepared to reconcile the balances as per cash book (bank balance) and pass book (bank statement) by identifying the causes of differences between the two. So, in other words, any undue delay in the clearance of the cheque will be shown.
If any fraud is happening, it will show up when the balances would not match. And, it will also help us arrive at the actual position of the bank balance.

A statement prepared by a customer.

Explanation:
In case of outstanding cheques the entry would have been entered in the cash book and so the cash book balance would be lower than the pass book balance.
Therefore, while preparing a bank reconciliation statement when the cash book balance is the starting point, outstanding cheques should be added.

Explanation:
Since, a wrong deposit of Rs. 112 is shown in the paasbook because of which the bank balance as per the paasbook increased, therefore, such amount shall also be added to bank balance as per cashbook in the bank reconciliation statement to reconcile both the balances.

Explanation:
Bank does not send any statement like a 'reconciliation statement' but only provides a 'bank statement'/ 'bank pass book' which gives us the details of transactions undertaken.
during the period. In fact, bank reconciliation statement is prepared by the business, only to verify the balance as per bank column of cash book and bank statement.
It is an important statement for the business.

Explanation:
Interest charged by bank would lead to decrease in the bank balance but, it would not be entered in the cash book until and unless the account holder views it in his pass book.
So when the balance as per cash book is the starting, interest charged by bank is subtracted in the bank reconciliation statement to reach the pass book balance.

Explanation:
When direct payments by bank are done, it leads to decrease in the pass book balance but these entries would not be entered in the bank column of the cash book and the later would show a higher balance.
So, when the balance as per pass book is the starting point, direct payments by bank are to be added in the bank reconciliation statement to reach the bank balance as per cash book.

Explanation:
A issued total cheque of Rs. 10,000 in March 2014 but CHeques amounting to Rs. 7000 only presented by the 31 March 2014.
As cheque for 3000 was not presented, therefore, only 3000 will be added to the cash book at the time of bank reconciliation.

₹ 2,010 (Cr.)

Explanation:
Suppose the pass book balance is Rs.50000 and the balance in the cash book is Rs.48000 the only different entry being the bank interest of Rs.2000 which is credited in the passbook.
Now this entry was not included while preparing the cash book and so during reconciliation if pass book balance is the starting point then this amount of bank interest would have to be deducted so as to reach the cash book balance, because the pass book balance is higher in this case and it is due to the bank interest received.

Explanation:
A pass book will usually have a credit balance showing the amount of positive closing balance in the account. When the closing balance of the account is negative, it is referred to as overdraft.
It is a situation where debit transactions in the account are more than the available balance and hence the closing balance seen is the debit balance and not a credit balance.

Explanation:
The pass book is a copy of the account statement as maintained by the bank. So if the pass book reflects a credit balance it means that the account is in the nature of a creditor/ payable for the bank and it would be the opposite for the account holder.
So from the account holder's point of view he would be having a positive/ favourable/bank balance in his account in both the above situations whereas for the bank it would be the opposite.

Explanation:
The cash book is an account statement as maintained by the account holder. So if the cash book reflects a credit balance it means that the account is in the nature of a creditor/ payable for the account holder and it would be the opposite for the bank.
The pass book is a copy of the account statement as maintained by the bank. So if the pass book reflects a debit balance it means that the account is in the nature of a debtor/ receivable for the bank and it would be the opposite for the account holder.
So if there is unfavourable balance as per cash book it means that the cash book is showing a credit balance which is also known as bank overdraft.

Explanation:
If balance as per pass book is the starting point then, to reach balance as per cash book interest given by bank would have to be deducted, as this entry has been recorded in the pass book but not in the cash book and the later would show a lower balance.
In case of interest charged by bank and cheque deposited but not cleared the amount would have to be added to the passbook, whereas in case of payments made by bank under standing instructions the entry would be recorded in both the pass book and cash book as it is pre determined and so no adjustment would be required in this case.

Explanation:
Collection charges are directly charged by the bank for providing specified services and this amount is charged completely on the discretion of the bank.
This amount can be recorded in the books of accounts only when we have the bank statement and not before that.
In case of date of declaration of dividend and the date of actual receipt of it there would a difference so we need the bank statement for the actual date of receipt.
Pre-scheduled payments are the expense bills to be paid or subscription to be paid on timely intervals. They are scheduled as per the account holders and are therefore executed by the bank automatically. To record such transactions bank statement/ pass book is necessary.

₹ 24,700

Explanation:
The differences between the cash book and the bank pass book are caused by:

1. Timing differences in recording of the transactions
2. Errors made by the business or by the bank

When a business compares the balance of its cash book with the balance shown by the bank passbook, there is often a difference, which is caused by the time gap in recording the transactions relating either to payments or receipts.
There are various factors affecting time gap. One of them is, cheques issued by the bank but not yet presented for payment. When cheques are issued by the firm to suppliers or creditors of the firm, these are immediately entered on the credit side of the cash book. However, the receiving party may not present the cheque to the bank for payment immediately.
The bank will debit the firm's account only when these cheques are actually paid by the bank. Hence, there is a time lag between the issue of a cheque and its presentation to the bank which may cause the difference between the two balances.

Customers of the bank.

Explanation:
Bank charges are charged by the bank for providing its various services.
It is generally first recorded in the pass book (bank statement) and then taken into account in the cash book by the accountant.
While preparing the bank reconciliation statement taking cash book as the base, such bank charges will be deducted in the cash book because it has not been recorded in the cash book yet. To reach to the balance as per pass book (bank statement) correctly, we will have to take into consideration all such causes of differences which have not been taken into account in the cash book.

Explanation:
The credit note or note collected by the bank for the depositor implies that the balance in the passbook is being increased for reasons other than deposits.
So, the proper treatment on the bank reconciliation of a note collected by the bank for the depositor is to show it as an addition per book balance of cash.

Explanation:
Bank charges are those service charges which charged by the bank to the account holder for providing the banking services.
The amount of such charges is directly debited to the bank account as per the calculation policy of the bank.
Since the amount cannot be ascertained by the account holder, it is not recorded in the records maintained by them.
Hence, in the reconciliation statement such amount is subtracted to get the closing balance as per bank pass book.

Adjusted Cash Book.

Explanation:
Numerous accounts are maintained with the bank viz., current account, savings account,recurring account, etc.
A pass book with the customer is an extract from the ledger maintained by the bank comprising of all the transactions undertaken by the customers during a given period.

Explanation:
When a cheque in favour of the account holder is credited in his bank account, it would increase his bank balance. Here a cheque of Mr. X of Rs. 5000 was wrongly credited by bank in Mrs. X a/c as Rs.550. So now the pass book balance of Mr. X would be short by Rs.5000 and the pass book balance of Mrs. X would be more by Rs.550.

Explanation:
Favourable balance as per cash book means normal balance of cash book which is debit balance.

The pass book is just a copy of the account statement as maintained by the bank.

So if the pass book reflects a debit balance it means that the account is in the nature of a debtor/ receivable for the bank and it would be the opposite for the account holder.

From his point of view he would be having a negative balance in his account and hence a liability/ payable.

The cash book is a account statement as maintained by the account holder. So if the cash book reflects a debit balance it means that the account is in the nature of a debtor/ receivable for the account holder.
The debit side of the cash book indicates receipts whereas the debit side indicates payments/withdrawals.
A favourable balance in this case would be where the receipts are more than the payments so as to say when the cash book shows a debit balance.

Direct deposits by customers in the bank account leads to increase in the bank balance as per pass book but this entry would be entered in the cash book only after it is updated in the pass book and so the pass book balance would be higher.
Therefore, when debit balance as per cash book is the starting point, direct deposits by customers are added to reach the pass book balance.

he cash book also serves the purpose of both the cash account and the bank account and shows the balance of both at the end of the period.
Once the cash book has been balanced, it is usual to check its details with the records of the firm's bank transactions as recorded by the bank.

To enable this check, the cashier needs to ensure that the cash book is completely up to date and a recent bank statement (or a bank passbook) has been obtained from the bank. A bank statement or a bank passbook is a copy of a bank account as shown by the bank record.

This enables the bank customers to check their funds in the bank regularly and update their own record of transactions that have occurred.

Overdraft = ₹ 3,000

Bank reconciliation statement is generally prepared by the customer of the bank or the bookkeeper of a company with the purpose to compare the bank's records with the company's records.

Cheque wrongly credited by bank.

Error of Omission does not affect Trial Balance.
If amount is posted correctly into wrong account but on the correct side, still it won't affect the Trial Balance since Trial balance is a list of closing balances of all accounts.
But in case of wrong balancing of accounts Trial Balance will not agree because if credit and debit side of an account does not tally, it means some error has taken place.
A wrong amount will not affect Trial Balance since it is made on both the debit and credit side on correct side and in correct account.

To compare the Cash Book with Pass Book and ascertain the differences.

Bank statement provides balance as on date. But to determine the exact balance available with the business, it is required for business to prepare bank reconciliation statement while making adjustments in the bank column of cash book.

A bank reconciliation statement is a vital statement for the business.
It is prepared to reconcile the balance as per the bank pass book and the bank column of cash book.
The balance as per bank column of cash book of the business does not contain all the entries and hence with the help of bank statement provided by the bank, all the errors are rectified. This gives a true picture of the balance available with the business.

Every bank maintains the individual ledger for each of the account of the customer. To give a documentary evidence to the customer, a book is provided to the customer which is called a Bank pass book.
Its is an abstract of bank account of a customer maintained in the bank's ledger.

Either Cash Book or Pass Book.

The amount of balance shown in the passbook or the bank statement must tally with the balances shown in the cash book. But in practice, these are usually found to be different. Hence, we have to ascertain the causes for such difference.
It will be observed that a bank statement/ passbook shows all deposits in the credit column and withdrawals in the debit column. Thus, if deposits exceed withdrawals it shows a credit balance and if withdrawals exceed deposits it will show a debit balance (overdraft).
The debit balance as per the cash book means the balance of deposits held at the bank. Such a balance will be a credit balance as per the passbook. Such a balance exists when the deposits made by the firm are more than its withdrawals.
It indicates the favorable balance as per cash book or favorable balance as per the passbook. Hence, credit balance in the pass book means bank balance.

The bank is a keeper of our money and safeguards it also paying an interest.

If any money is taken from the bank it is called 'withdrawal', which is the right of the account holder, to withdraw as per his wish within the limits as prescribed by the respective banks.

The bank account maintained by the account holder in his books of accounts is usually an asset for him as balance shown in the bank account would be a receivable for him from the bank and hence usually shows a debit balance.

But whenever a reverse situation happens, such that the bank account becomes a liability for him and he has to pay the bank then, his bank account would reflect a credit balance which in other words would become a bank overdraft.