Test: Bank Reconciliation Statement - 1 - Commerce MCQ

• Definition: When a check is not paid by the bank, it is known as being "dishonored."


• Reasons for Dishonor: There are several reasons why a check may be dishonored, such as insufficient funds in the account, a mismatch in the signature, post-dated checks, or a stop payment request.


• Consequences: Dishonored checks can lead to penalties, fees, and damage to the issuer's credibility.


• Legal Implications: Writing a check that is dishonored can also lead to legal consequences, such as civil or criminal charges for check fraud.


• Resolution: If a check is dishonored, the issuer is usually notified by the bank, and they may have the opportunity to cover the funds and reissue the check.

• Starting Point: Balance as per Pass Book


• Uncollected Cheques: Cheques issued by the company but not yet presented to the bank for payment


• Treatment in BRS: Uncollected cheques are added in the Bank Reconciliation Statement (BRS) to adjust the balance as per the company's records to the actual bank balance

Now, let's perform the calculation step-by-step:

• Starting overdraft: Rs. 1,500
• Add cheques not presented: Rs. 275
• Subtract cheque not cleared: Rs. 400

Thus, the balance as per the Cash Book after adjustment is an overdraft of Rs. 1,625.

The correct option is: Rs. 1,625

• Initial credit balance: The credit balance of Rs. 2,000 in the bank column of the cash book is carried forward as a debit balance, which means it is treated as an overdrawn amount.


• Starting point: When the overdraft as per the passbook is taken as the starting point, it means we are considering the overdrawn amount as the initial balance.


• Adjustment: Since the credit balance of Rs. 2,000 is carried forward as a debit balance, it means that Rs. 2,000 is already deducted from the balance. Therefore, when considering the overdrawn amount as the starting point, an additional deduction of Rs. 2,000 needs to be made.


• Final adjustment: The total deduction to be made will be Rs. 2,000 (initial deduction) + Rs. 2,000 (additional deduction) = Rs. 4,000.

• Definition: Favourable balance as per Cash Book means the balance that shows more cash in hand or at bank in the Cash Book compared to the Pass Book.


• Reasoning: This situation occurs when there are outstanding deposits or un-presented cheques that have not yet been recorded in the Pass Book.


• Identification: To identify a favourable balance as per Cash Book, you need to look for a debit balance in the bank column of the Cash Book.


• Characteristics: The bank column of the Cash Book records all cash transactions related to the bank account, including deposits and withdrawals.


• Outcome: A favourable balance in the Cash Book indicates that there are more funds available in the bank account than what is shown in the Pass Book, leading to a temporary surplus of cash.

• Starting Point: When the favorable balance as per the cash book is the starting point, we consider it as the correct balance to begin with.


• Wrong Debit by Bank: If the bank makes a wrong debit to the firm, it means they have deducted more money from the firm's account than they should have.


• Subtracted: In this case, we need to subtract the wrong debit amount from the favorable balance in the cash book to correct the balance.


• Final Balance: By subtracting the wrong debit amount, we will arrive at the correct balance in the cash book, ensuring that the firm's financial records are accurate.

• Cheques issued by the trader = Rs. 7,800


• Cheques presented into bank = Rs. 6,500


• Amount not presented into bank = Rs. 7,800 - Rs. 6,500 = Rs. 1,300

• When cheques worth Rs. 6,500 are presented into the bank, they will be deducted from the Cash Book


• However, the cheques worth Rs. 1,300 that were not presented into the bank need to be added back to the Cash Book


• Therefore, on reconciling the Cash Book with the Pass Book, the amount to be added will be Rs. 1,300

• The correct answer is A: Rs. 1,300

Answer is C -bank overdraft 7074 because in the balance sheet the balance shown by cash book is to be shown even if it does not matchwith passbook because all the items of balance sheet must match with business' s documents/vouchers/subsidiary books etc. As about difference between passbook and cash book the BRS may be given below the balance sheet.

Deductions to get balance as per cash book

• Interest given by bank: Interest given by the bank is added to the pass book balance but needs to be deducted from the cash book balance to reconcile the two.

 

Correct Answer :- b

Explanation : Balance as per Cash Book = 1500

Cheque deposited = 400

Cheque issues were = 100 + 125 + 50

= 275

Balance as per Pass book = 1500 + 400 - 275

= 1625

• Definition: A Bank Reconciliation Statement is a statement prepared by the customer to reconcile the balance in the bank statement with the balance in the company's own records.



• Purpose: The main purpose of preparing a Bank Reconciliation Statement is to ensure that the company's records match the bank's records and to identify any discrepancies or errors that need to be corrected.



• Preparation: The Bank Reconciliation Statement is typically prepared by comparing the transactions recorded in the company's cash book with the transactions recorded in the bank statement. Any differences in the balances are then identified and adjusted accordingly.



• Components: The Bank Reconciliation Statement includes items such as outstanding checks, deposits in transit, bank errors, and any other discrepancies between the company's records and the bank statement.



• Importance: Reconciling the bank account regularly through a Bank Reconciliation Statement helps to ensure the accuracy of the company's financial records, detect errors or fraud, and maintain control over cash flow.

Overdraft as per the cash book means that the amount is overdrawn. A cheque of Rs 500 is deposited into the bank but not recorded in the cash book means that the balance of cash book shows a higher overdraft balance because if the entry of Rs 500 was made then the overdraft balance will get reduced by Rs 500.

Unfavorable or negative balance means credit balance in cash book. This means that we have taken a loan from the bank i.e. we owe money to the bank. In such a case, the bank expects money from us and we become an asset for the bank. Assets have debit balance. So, the bank shows debit balance in our pass book, which is a copy of customer's account in the books of bank. So, an unfavorable balance in cash book represents debit balance in pass book.

When overdraft as per pass book is the starting point, those items will be added which makes cash book balance smaller than the pass book balance.

2000+150+50+50-100 = 2150

Bank reconciliation statements ensure payments have been processed and cash collections have been deposited into the bank. The reconciliation statement helps identify differences between the bank balance and book balance, in order to process necessary adjustments or corrections.

• Cash embezzlement by cashier: Bank reconciliation only compares the transactions recorded in the company's books with those in the bank statement. It does not detect fraudulent activities like cash embezzlement by the cashier.


• Cheques deposited but not credited by bank: This type of error can be detected during bank reconciliation as it involves comparing the deposits made by the company with the deposits recorded by the bank.


• Casting mistakes in bank column of cash book: Casting mistakes in the bank column of the cash book can be identified during bank reconciliation as the totals are compared with the bank statement.


• Interest or commission charged by the bank not accounted in cash book: Such errors can be detected during bank reconciliation as they involve comparing the bank charges on the statement with the company's records.

Calculation of Balance as per Pass Book

- Credit balance as per Cash Book: Rs. 10,000
- Bank charged interest: Rs. 150
- Cheques issued but not presented for payment: Rs. 2,500

Calculation:
- Opening balance (Credit balance as per Cash Book): Rs. 10,000
- Add: Bank charged interest: Rs. 150
- Less: Cheques issued but not presented for payment: Rs. 2,500

Balance as per Pass Book:
10,000 + 150 - 2,500
= Rs. 7,650

Therefore, the correct answer is A: Rs. 7,650.

• Amount deposited by our customer directly in our account: This is taken into account when calculating the adjusted cash balance as it represents an inflow of cash into the business.


• Errors in the cash Book: Any errors in the cash book need to be identified and corrected before arriving at the adjusted cash balance.


• Errors in the pass book: This is not taken into account when calculating the adjusted cash balance as it refers to discrepancies in the bank statement and not the company's cash records.


• All of these: This option includes all factors that are taken into account when calculating the adjusted cash balance, except for errors in the pass book.

Therefore, the correct answer is option C, errors in the pass book, as they are not considered when determining the adjusted cash balance.

Given:

• Credit balance as per pass book: Rs. 65,600
• Cheques issued but not presented for payment: Rs. 75,800
• Cheques deposited by one of the customers but wrongly credited to Mr. X's account: Rs. 20,600

Steps to adjust the balance:

1. Cheques issued but not presented for payment (Rs. 75,800):

   • These cheques have been recorded in the cash book (reducing the balance) but not yet in the pass book. To reconcile, we need to subtract this amount from the pass book balance.

2. Wrong credit to Mr. X's account (Rs. 20,600):

   • This amount is in the pass book but should not be. To reconcile, we need to subtract this amount from the pass book balance.

Calculations:

A negative balance indicates an overdraft in the cash book.

Therefore, the balance as per the cash book is:

2. Rs. 30,800 overdraft

Explanation:

• Bank balance shown in Trial Balance: The bank balance shown in the trial balance is the amount that is recorded as per the bank column of the cash book.


• Balance as per pass book: This refers to the balance shown in the bank statement or passbook provided by the bank to the account holder.


• Balance as per bank column of cash book: This is the balance recorded in the bank column of the cash book maintained by the business to track all banking transactions.


• Balance as per purchase book: This is not relevant in this context as we are looking at the bank balance shown in the trial balance.


• Both (a) and (b): This option could be valid if the bank balance shown in the trial balance is reconciled with both the passbook balance and the bank column of the cash book.

Based on the information provided, the correct answer is option b, which is the balance as per the bank column of the cash book. This balance is crucial for the business to ensure accurate financial reporting and management of funds.

Explanation:

• Starting Point: The balance as per the Pass Book is considered the starting point for reconciling the Cash Book with the Pass Book.


• Treatment of Undercasting: When there is undercasting on the receipt side of the Cash Book, it means that some of the receipts are not recorded properly or are recorded at a lower amount.


• Deducted: In this case, the undercast amount should be deducted from the balance as per the Pass Book. This adjustment will help bring the balance in the Cash Book in line with the Pass Book.


• No Treatment: Ignoring the undercast amount will result in discrepancies between the Cash Book and the Pass Book balances.


• Correct Answer: Therefore, the correct treatment for undercasting on the receipt side of the Cash Book is to deduct the undercast amount from the balance as per the Pass Book.

• Cash Book vs. Pass Book: The first step in preparing a Bank Reconciliation Statement is to compare the balance as per the cash column of the Cash Book with the balance as per the Pass Book. Discrepancies can arise due to outstanding checks, deposits in transit, bank charges, or errors in recording transactions.



• Bank Column vs. Pass Book: Next, the balance as per the bank column of the Cash Book is compared with the balance as per the Pass Book. Discrepancies in this comparison can be caused by interest earned, bank fees, bank errors, or unrecorded transactions.



• Bank Column vs. Cash Column: Finally, the balance as per the bank column of the Cash Book is compared with the balance as per the cash column of the Cash Book. This step helps to identify any errors in recording transactions or miscalculations that may have occurred.

• By reconciling these different balances, discrepancies between the Cash Book and the Pass Book can be identified and resolved. This process ensures the accuracy of financial records and helps to maintain the integrity of the company's accounts.

• When money is withdrawn from a bank, the bank:




• Debits Customer's A/c: This means that the customer's account is reduced by the amount withdrawn.

Therefore, the correct answer is option B: Debits Customer's A/c.

• Balance as per Cash Book: Rs. 10,000


• Cheques issued but not presented: Rs. 2,000

• Balance as per Cash Book: Rs. 10,000


• Cheques issued but not presented: Rs. 2,000


• Total: Rs. 12,000

Therefore, the balance as per Pass Book would be Rs. 12,000.

Explanation:

• Credit balance in the cash book: Overdraft as per Cash book refers to the credit balance in the bank column of the cash book, indicating that the company has spent more money than it currently has in its bank account.


• Credit balance in the bank column of the cash book: This balance represents the amount by which the company has overdrawn from its bank account.


• Decrease in Liability: An overdraft does not result in a decrease in liability. Instead, it shows a negative balance in the bank account, which is a liability to the company.

Therefore, the correct answer is B: Credit balance in the bank column of the cash book.

• A: Cash column of cash book and bank statement


• B: Bank column of cash book and bank statement


• C: Bank and cash column of the cash book


• D: Bank statement

• When preparing a Bank Reconciliation statement, it is essential to have access to both the cash book and the bank statement.


• Comparing the cash column of the cash book with the bank statement helps in identifying any discrepancies in the cash balance.


• Similarly, comparing the bank column of the cash book with the bank statement helps in reconciling any differences in the bank balance.


• Having access to both the cash and bank columns of the cash book ensures that all transactions are accurately recorded and reconciled with the bank statement.


• Lastly, having the bank statement itself is crucial as it provides the official record of transactions made by the bank, which is necessary for reconciliation purposes.