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When balance as per Cash Book is the starting point, interest charged by Bank is:
- a)added in the bank reconciliation statement
- b)subtracted in the bank reconciliation statement
- c)not required to be adjusted in the bank reconciliation statement
- d)neither of the above.
Correct answer is option 'B'. Can you explain this answer?
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When balance as per Cash Book is the starting point, interest charged ...
Explanation:
In the bank reconciliation statement, the purpose is to identify the differences between the cash balance as per the company's cash book and the balance as per the bank statement. These differences can arise due to various reasons, such as timing differences in recording transactions, bank charges, bank errors, and interest earned or charged by the bank.
When the balance as per the cash book is the starting point, it means that the company's cash book balance does not include any interest charged by the bank. Therefore, the interest charged by the bank needs to be adjusted in the bank reconciliation statement.
Interest charged by the bank is subtracted in the bank reconciliation statement for the following reasons:
1. Timing Difference: The interest charged by the bank is usually recorded by the bank before it is recorded by the company in its cash book. As a result, the bank statement will show a lower balance compared to the company's cash book. To reconcile this difference, the interest charged by the bank needs to be subtracted from the cash book balance.
2. Adjusting the Cash Book Balance: The interest charged by the bank is an expense for the company. By subtracting it in the bank reconciliation statement, the cash book balance is adjusted to reflect this expense. This ensures that the adjusted cash book balance matches the balance as per the bank statement.
3. No Cash Outflow: The interest charged by the bank does not involve any cash outflow from the company. It is a charge levied by the bank for the use of their services. Therefore, it should not be treated as a deduction from the company's cash balance.
In conclusion, when the balance as per the cash book is the starting point in the bank reconciliation statement, the interest charged by the bank is subtracted. This adjustment ensures that the cash book balance is adjusted for the interest charged by the bank, resulting in a reconciled balance that matches the balance as per the bank statement.
In the bank reconciliation statement, the purpose is to identify the differences between the cash balance as per the company's cash book and the balance as per the bank statement. These differences can arise due to various reasons, such as timing differences in recording transactions, bank charges, bank errors, and interest earned or charged by the bank.
When the balance as per the cash book is the starting point, it means that the company's cash book balance does not include any interest charged by the bank. Therefore, the interest charged by the bank needs to be adjusted in the bank reconciliation statement.
Interest charged by the bank is subtracted in the bank reconciliation statement for the following reasons:
1. Timing Difference: The interest charged by the bank is usually recorded by the bank before it is recorded by the company in its cash book. As a result, the bank statement will show a lower balance compared to the company's cash book. To reconcile this difference, the interest charged by the bank needs to be subtracted from the cash book balance.
2. Adjusting the Cash Book Balance: The interest charged by the bank is an expense for the company. By subtracting it in the bank reconciliation statement, the cash book balance is adjusted to reflect this expense. This ensures that the adjusted cash book balance matches the balance as per the bank statement.
3. No Cash Outflow: The interest charged by the bank does not involve any cash outflow from the company. It is a charge levied by the bank for the use of their services. Therefore, it should not be treated as a deduction from the company's cash balance.
In conclusion, when the balance as per the cash book is the starting point in the bank reconciliation statement, the interest charged by the bank is subtracted. This adjustment ensures that the cash book balance is adjusted for the interest charged by the bank, resulting in a reconciled balance that matches the balance as per the bank statement.
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When balance as per Cash Book is the starting point, interest charged ...
Because bank is charging interest
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When balance as per Cash Book is the starting point, interest charged by Bank is:a)added in the bank reconciliation statementb)subtracted in the bank reconciliation statementc)not required to be adjusted in the bank reconciliation statementd)neither of the above.Correct answer is option 'B'. Can you explain this answer?
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