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Which of the followings may be deducted when starting point is overdraft as per cash book?
- a)Cheques issued but not presented
- b)Dividends etc. collected by the bank
- c)Direct Deposits made into bank etc.
- d)All of these
Correct answer is option 'D'. Can you explain this answer?
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Which of the followings may be deducted when starting point is overdra...
Deductions in Overdraft as per Cash Book
When the starting point in the cash book is an overdraft, there are certain items that may be deducted. Let's explore each option mentioned and understand why they are deducted.
a) Cheques issued but not presented:
- When a company issues a cheque, it is recorded in the cash book as an outflow of cash. However, if the cheque has not been presented to the bank for payment by the end of the accounting period, it is considered outstanding.
- Outstanding cheques are deducted from the bank balance in the cash book because the bank has not yet reduced the company's account balance to honor those cheques.
- The deduction of outstanding cheques is necessary to reflect the actual bank balance available to the company.
b) Dividends etc. collected by the bank:
- Sometimes, companies authorize the bank to collect dividends, rent, or other payments on their behalf. When the bank collects these amounts, it directly credits the company's account.
- Since the bank has already collected these amounts, they should not be deducted from the bank balance in the cash book. Therefore, they are excluded from the starting point when calculating the overdraft.
c) Direct Deposits made into bank etc.:
- Direct deposits refer to payments made directly into the company's bank account, such as customer payments or loans received.
- These deposits increase the company's bank balance, and therefore, they should not be deducted from the starting point in the cash book.
d) All of these:
- Option 'D' states that all the mentioned items may be deducted when starting point is an overdraft.
- This option is correct because outstanding cheques, dividends collected by the bank, and direct deposits made into the bank are the typical deductions made when calculating the actual bank balance from an overdraft starting point.
In conclusion, when the starting point in the cash book is an overdraft, outstanding cheques are deducted to reflect the actual bank balance. However, dividends collected by the bank and direct deposits made into the bank should not be deducted as they increase the bank balance. Therefore, option 'D' - All of these is the correct answer.
When the starting point in the cash book is an overdraft, there are certain items that may be deducted. Let's explore each option mentioned and understand why they are deducted.
a) Cheques issued but not presented:
- When a company issues a cheque, it is recorded in the cash book as an outflow of cash. However, if the cheque has not been presented to the bank for payment by the end of the accounting period, it is considered outstanding.
- Outstanding cheques are deducted from the bank balance in the cash book because the bank has not yet reduced the company's account balance to honor those cheques.
- The deduction of outstanding cheques is necessary to reflect the actual bank balance available to the company.
b) Dividends etc. collected by the bank:
- Sometimes, companies authorize the bank to collect dividends, rent, or other payments on their behalf. When the bank collects these amounts, it directly credits the company's account.
- Since the bank has already collected these amounts, they should not be deducted from the bank balance in the cash book. Therefore, they are excluded from the starting point when calculating the overdraft.
c) Direct Deposits made into bank etc.:
- Direct deposits refer to payments made directly into the company's bank account, such as customer payments or loans received.
- These deposits increase the company's bank balance, and therefore, they should not be deducted from the starting point in the cash book.
d) All of these:
- Option 'D' states that all the mentioned items may be deducted when starting point is an overdraft.
- This option is correct because outstanding cheques, dividends collected by the bank, and direct deposits made into the bank are the typical deductions made when calculating the actual bank balance from an overdraft starting point.
In conclusion, when the starting point in the cash book is an overdraft, outstanding cheques are deducted to reflect the actual bank balance. However, dividends collected by the bank and direct deposits made into the bank should not be deducted as they increase the bank balance. Therefore, option 'D' - All of these is the correct answer.
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Which of the followings may be deducted when starting point is overdraft as per cash book?a) Cheques issued but not presented b) Dividends etc. collected by the bank c) Direct Deposits made into bank etc. d) All of these Correct answer is option 'D'. Can you explain this answer?
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