Samacheer Kalvi Class 11 Accountancy Solutions Chapter 8 Bank Reconciliation Statement

I. Multiple Choice Questions

Choose the correct answer.

Question 1. A bank reconciliation statement is prepared by ____.
(a) Bank
(b) Business
(c) Debtor to the business
(d) Creditor to the business
Answer: (b) Business
In simple words: A business prepares a bank reconciliation statement to compare its cash records with the bank's statement. This helps find any differences between them.

🎯 Exam Tip: Remember that a Bank Reconciliation Statement (BRS) is an internal document prepared by the business, not the bank, to ensure accuracy in its cash records.

Question 2. A bank reconciliation statement is prepared with the help of ____.
(a) Bank statement
(b) Cash book
(c) Bank statement and bank column of the cash book
(d) Petty cash book
Answer: (c) Bank statement and bank column of the cash book
In simple words: To make a bank reconciliation statement, you need to look at both the bank's record (bank statement) and the part of the company's cash book that deals with bank transactions. This comparison helps in identifying any differences.

🎯 Exam Tip: The core idea of BRS is to match internal (cash book bank column) with external (bank statement) records. Understanding this pairing is key.

Question 3. Debit balance in the bank column of the cash book means ____.
(a) Credit balance as per bank statement
(b) Debit balance as per bank statement
(c) Overdraft as per cash book
(d) None of the options
Answer: (a) Credit balance as per bank statement
In simple words: When a business has a debit balance in its cash book's bank column, it means the business has money in the bank. For the bank, this shows up as a credit balance because the bank owes that money to the business.

🎯 Exam Tip: Always remember the mirror image concept: what is a debit for the business (asset) is a credit for the bank (liability), and vice-versa.

Question 4. A bank statement is a copy of ____.
(a) Bank
(b) Bank column of the cash book
(c) A customer's account in the bank's book
(d) Cheques issued by the business
Answer: (c) A customer's account in the bank's book
In simple words: A bank statement is essentially the bank's own record of how much money a customer has with them. It shows all the money the customer put in and took out.

🎯 Exam Tip: The bank statement reflects the bank's perspective on the customer's account, which is why it often differs from the customer's cash book balance.

Question 5. A bank reconciliation statement is prepared to know the causes for the difference between:
(a) The balance as per the cash column of the cash book and bank column of the cashbook
(b) The balance as per the cash column of the cash book and bank statement
(c) The balance as per the bank column of the cash book and the bank statement
(d) The balance as per petty cash book and the cash book
Answer: (c) The balance as per the bank column of the cash book and the bank statement
In simple words: The main reason to create a bank reconciliation statement is to figure out why the bank balance shown in a company's own records (cash book bank column) is different from the balance shown in the bank's records (bank statement).

🎯 Exam Tip: Focus on the "bank column of the cash book" as the primary internal record and the "bank statement" as the primary external record for BRS.

Question 6. When money is withdrawn from bank, the bank ____.
(a) Credits customer's account
(b) Debits customer's account
(c) Debits and credits customer's account
(d) None of these
Answer: (b) Debits customer's account
In simple words: When a customer takes money out of their bank account, the bank reduces the amount they owe to the customer. This reduction is recorded as a debit in the customer's bank account.

🎯 Exam Tip: For the bank, the customer's account is a liability. When the liability decreases (money is withdrawn), the bank debits the customer's account.

Question 7. Which of the following is not the salient feature of bank reconciliation reconciliation?
(a) Any undue delay in the clearance of cheques will be shown up by the reconciliation
(b) Reconciliation statement will discourage the accountant of the bank from embezzlement
(c) It helps in finding the actual position of the bank balance
(d) Reconciliation statement is prepared only at the end of the accounting period
Answer: (d) Reconciliation statement is prepared only at the end of the accounting period
In simple words: A bank reconciliation statement can be prepared at any time, like monthly or weekly, not just at the end of the accounting year. It is a useful tool to check balances often.

🎯 Exam Tip: Bank reconciliations are typically done monthly to ensure ongoing accuracy and detect errors or discrepancies promptly, not solely at year-end.

Question 8. Balance as per cash book is Rs. 2,000. Bank charge of Rs. 50 debited by the bank is not yet shown in the cash book. What is the bank statement balance now?
(a) 1,950 credit balance
(b) 1,950 debit balance
(c) 2,050 debit balance
(d) 2,050 credit balance
Answer: (a) 1,950 credit balance
In simple words: If your cash book shows Rs. 2,000, and the bank took out Rs. 50 for charges that you don't know about yet, the bank's record will show Rs. 1,950. Since it's money the bank owes you, it's a credit balance from the bank's point of view.

🎯 Exam Tip: When moving from a cash book balance to a bank statement balance, remember to deduct any bank charges that the business has not yet recorded.

Question 9. Balance as per bank statement is Rs. 1,000. Cheque deposited, but not yet credited by the bank is Rs. 2,000. What is the balance as per bank column of the cash book?
(a) 3,000 overdraft
(b) 3,000 favourable
(c) 1,000 overdraft
(d) 1,000 favourable
Answer: (b) 3,000 favourable
In simple words: If the bank statement shows Rs. 1,000 and you deposited a Rs. 2,000 cheque that the bank hasn't added yet, it means your cash book should show Rs. 3,000. This is a positive or "favourable" balance.

🎯 Exam Tip: To reconcile from a bank statement to the cash book when a cheque is deposited but not yet credited, add the amount of the uncredited cheque to the bank statement balance.

Question 10. Which of the following is an example of a timing difference?
(a) Cheque deposited but not yet credited
(b) Cheque issued but not yet presented for payment
(c) Amount directly paid into the bank
(d) Wrong debit in the cash book
Answer: (d) Wrong debit in the cash book
In simple words: A timing difference happens when something is recorded in one set of books (like the cash book) but not yet in the other (like the bank statement), or vice versa, because of a delay. A wrong debit in the cash book is an error, not a timing difference.

🎯 Exam Tip: Timing differences arise from the lag between when transactions are recorded by the business and when they appear on the bank statement. Errors, however, are mistakes in recording.

II. Very Short Answer Questions

Question 1. What is meant by bank overdraft?
Answer: A bank overdraft happens when a customer takes out more money than what is actually available in their bank account. This means the customer temporarily owes money to the bank. It is like a short-term loan that needs to be paid back. Banks usually allow this up to a certain limit. For example, if you have Rs. 100 in your account and withdraw Rs. 150, you now have an overdraft of Rs. 50.
In simple words: A bank overdraft is when you spend more money than you have in your bank account, so you owe the bank money.

🎯 Exam Tip: Explain that an overdraft means a negative balance, representing a liability for the customer and an asset for the bank.

Question 2. What is bank reconciliation statement?
Answer: A bank reconciliation statement is a document that compares the cash balance shown in a company's cash book (specifically the bank column) with the balance shown in the bank statement. It lists all the reasons for any differences between these two balances. This statement helps a business ensure its internal cash records match the bank's external records, identifying errors or delays. For example, cheques deposited but not yet cleared would be a reconciling item.
In simple words: A bank reconciliation statement checks why a company's bank balance doesn't match the bank's record, listing all the reasons for the difference.

🎯 Exam Tip: Emphasize that a BRS is prepared to identify and explain discrepancies, not just to show a final balance.

Question 3. State any two causes of disagreement between the balance as per bank column of cash book and bank statement.
Answer: Two common causes for disagreement between the cash book bank column balance and the bank statement balance are:
1. Cheques issued but not presented for payment: When a business writes a cheque, it immediately records the payment in its cash book. However, the bank will only deduct this amount from the business's account when the person receiving the cheque deposits it. There is a time gap during which the balances will differ.
2. Cheques paid into bank for collection but not yet collected: When a business deposits a cheque into its bank account, it immediately adds this amount to its cash book. But the bank takes some time to process and collect the money from the issuing bank. Until the bank collects the money, it will not show up in the bank statement, causing a difference.
There are also other causes such as bank charges not recorded by the business or direct deposits by customers not yet known to the business.
In simple words: The cash book and bank statement balances can be different because cheques you write haven't been cashed yet, or cheques you deposit haven't been cleared by the bank yet.

🎯 Exam Tip: Clearly distinguish between transactions recorded by the business but not by the bank, and those recorded by the bank but not by the business.

Question 4. Give any two expenses which may be paid by the banker as per standing instruction.
Answer: Two expenses that a banker may pay on behalf of a customer, as per standing instructions, are:
1. Bank Charges: These are fees charged by the bank for various services like account maintenance, transaction processing, or cheque book issuance. The bank debits these charges directly from the customer's account without prior notification.
2. Interest: This could be interest on a loan, overdraft facility, or even a standing instruction to pay interest on a recurring basis to another party. The bank directly deducts these amounts based on the customer's instruction. Such direct payments simplify regular expenses for the customer.
In simple words: Banks can pay things like bank charges or interest on loans directly from your account if you tell them to.

🎯 Exam Tip: Standing instructions are pre-authorized payments, which cause a difference because the business usually learns about them after the bank has already processed the payment.

Question 5. Substitute the following statements with one word/phrase.
Answer:
1. A copy of customer's account issued by the bank - PASS BOOK
2. Debit balance as per bank statement – BANK OVERDRAFT
3. Statement showing the causes of disagreement between the balance as per cash book and balance as per bank statement – BANK RECONCILIATION STATEMENT
In simple words: These are short names for common banking terms: the bank's record is a pass book, owing money to the bank is an overdraft, and finding out why bank records don't match is a bank reconciliation statement.

🎯 Exam Tip: Know the precise definitions of key accounting terms; sometimes a single phrase is all an examiner is looking for.

Question 6. Do you agree on the following statements? Write "yes" if you agree, and write "no" if you Disagree
Answer:
1. Bank reconciliation statement is prepared by the banker. – No
2. Adjusting the cash book before preparing the bank reconciliation statement is compulsory. – No
3. Credit balance as per bank statement is an overdraft. – No
4. Bank charges debited by the bank increases the balance as per bank statement. – No
5. Bank reconciliation statement is prepared to identify the causes of differences between balance as per bank column of the cash book and balance as per cash column of the cash book. – Yes
In simple words: A bank reconciliation is done by the business, not the bank. Adjusting the cash book before reconciliation isn't a must. A bank credit balance is good, not an overdraft. Bank charges lower the balance. The statement finds differences between the cash book's bank part and the bank's own statement.

🎯 Exam Tip: For true/false questions, always identify the core concept being tested in each statement, such as who prepares the BRS or what a credit balance means from the bank's perspective.

III. Short Answer Questions

Question 1. Give any three reasons for preparing bank reconciliation statement.
Answer: Three reasons for preparing a bank reconciliation statement are:
1. To identify the reasons for the difference between the bank balance as per the cash book and the bank balance as per the bank statement: This is the primary purpose, as it helps explain why the two balances do not match on a specific date.
2. To identify any delay in the clearance of cheques: A BRS reveals if cheques issued by the business have not yet been presented to the bank, or if cheques deposited by the business have not yet been collected by the bank.
3. To ascertain the correct balance of the bank column of the cash book: By identifying errors or omissions, the BRS helps the business correct its cash book balance to reflect the true cash position in the bank. This also helps to ensure the company's financial records are accurate and complete.
4. To discourage the accountants of the business as well as bank from misusing funds: Regular reconciliation acts as an internal control, making it harder for unauthorized transactions or fraud to go unnoticed.
In simple words: A bank reconciliation statement helps us understand why our bank records don't match the bank's records, find out about slow cheque processing, and make sure our own cash book balance is correct.

🎯 Exam Tip: Focus on the dual benefits of BRS: explaining discrepancies (timing differences/errors) and acting as an internal control for accuracy and fraud detection.

Question 2. What is meant by the term “cheque not yet presented?"
Answer: The term “cheque not yet presented" refers to a situation where a business has issued a cheque to a supplier or another party, and has recorded this payment in its own cash book. However, the person who received the cheque has not yet deposited it into their bank account, or if they have, their bank has not yet processed it and sent it to the issuing bank for payment.
This means that while the business's cash book shows a reduced bank balance, the bank's statement still shows the original higher balance, as the money has not yet been withdrawn from the account. For example, if you write a cheque on January 10th, your cash book decreases, but the bank balance only decreases when the cheque is cashed, perhaps on January 20th.
In simple words: A "cheque not yet presented" means a cheque you wrote has been recorded in your books, but the person you gave it to hasn't cashed it at the bank yet.

🎯 Exam Tip: This is a common timing difference. It means the cash book balance is lower than the bank statement balance because the cash book has already recorded the payment.

Question 3. Explain why does money deposited into bank appear on the debit side of the cash book, but on the credit side of the bank statement?
Answer: Money deposited into the bank appears on the debit side of the cash book because, from the business's perspective, cash at the bank is an asset. When cash is deposited, the asset (bank balance) increases, and increases in assets are recorded as debits.
However, on the bank statement, the same deposit appears on the credit side. This is because, from the bank's perspective, the customer's account is a liability. The money deposited by the customer is money the bank owes to the customer. When the customer deposits money, the bank's liability to the customer increases, and increases in liabilities are recorded as credits.
Essentially, the cash book views the bank account as an asset, while the bank views the customer's account as a liability. This is why the same transaction is recorded on opposite sides. For example, a deposit of Rs. 500 would be debited in the cash book and credited on the bank statement.
In simple words: Your cash book shows deposits as a debit because it's money you own (an asset). The bank statement shows it as a credit because it's money the bank owes you (a liability).

🎯 Exam Tip: Understanding the "mirror image" concept - where a debit in one book is a credit in the other for the same transaction - is fundamental to bank reconciliation.

Question 4. What will be the effect of interest charged by the bank, if the balance is an overdraft?
Answer: If the balance is an overdraft, it means the business has used more money than it has in its account and owes money to the bank. When the bank charges interest on this overdraft, it increases the amount the business owes to the bank.
Here's the effect:
1. The bank will debit the customer's account in the bank statement, which further increases the overdraft amount.
2. The business will usually not know about this interest charge until it receives the bank statement.
3. As a result, the cash book of the business will show a lower overdraft (or higher favourable balance) compared to the bank statement, because it has not yet recorded the interest charge. This unrecorded interest means the cash book is understating the actual overdraft liability. Therefore, the business's books will need to be adjusted to reflect the increased liability.
In simple words: If you have an overdraft, and the bank charges interest, your debt to the bank goes up. Your own records will not show this until you see the bank statement.

🎯 Exam Tip: Overdraft interest increases the amount owed to the bank. When reconciling, this amount needs to be added to the overdraft balance as per the cash book, or deducted from a favourable cash book balance.

Question 5. State the timing differences in BRS with examples.
Answer: Timing differences in a Bank Reconciliation Statement (BRS) are differences that arise because transactions are recorded at different times by the business and the bank. They are not errors, but rather delays in recording. Here are some examples:
**Cheques issued but not presented for payment:**
When a business issues a cheque, it immediately credits its cash book (reduces its bank balance). However, the bank only debits the account when the cheque is actually presented for payment by the payee's bank.
*Example:* X & Co. issues a cheque for Rs. 10,000 on March 27, 2017. X & Co.'s cash book shows a reduction of Rs. 10,000. But if the cheque is presented to the bank on April 2, 2017, the bank statement as of March 31, 2017, will not show this deduction. This causes a Rs. 10,000 difference.
**Cheques deposited into bank but not yet credited:**
When a business deposits a cheque, it immediately debits its cash book (increases its bank balance). However, the bank credits the account only after the cheque is collected from the issuing bank, which takes some time.
*Example:* X & Co. deposits a cheque for Rs. 5,000 on March 25, 2016. X & Co. debits its cash book by Rs. 5,000. But the bank may credit X & Co.'s account only after a few days, say March 28, 2016, once the cheque is collected. The bank statement on March 25, 2016, would not show this deposit.
**Bank Charges and interest on loan/overdraft charged by the bank:**
The bank directly debits the customer's account for charges (e.g., account maintenance fees) or interest on overdrafts/loans. The business only becomes aware of these deductions when it receives the bank statement.
*Example:* The bank debits Rs. 300 for bank charges on March 27, 2017. The bank statement immediately shows this reduction. However, the business might not record this in its cash book until it gets the statement, causing a temporary difference. These expenses are part of the operational costs for running a bank account or managing credit.
In simple words: Timing differences happen when transactions are recorded at different times by the company and the bank. For example, when you write a cheque, your book shows it, but the bank doesn't until it's cashed. Or, when you deposit a cheque, your book shows it, but the bank takes a few days to add it. Also, bank fees are added by the bank before you know about them.

🎯 Exam Tip: Clearly define each timing difference and provide a concise example to illustrate how it impacts the cash book and bank statement differently.

IV. Exercises

Question 1. From the following particulars prepare a bank reconciliation statement of Jayakumar as on 31st December, 2016.
a) Balance as per cash book Rs. 7,130
b) Cheque deposited but not cleared Rs. 1,000
c) A customer has deposited Rs. 800 into the bank directly
Answer:

🎯 Exam Tip: When reconciling from a cash book balance, remember to add items that increase the bank balance (like direct deposits) and deduct items that decrease it (like uncredited cheques).

Question 2. From the following particulars of Kamakshi traders, prepare a bank reconciliation statement as on 31st March, 2018.
a) Debit balance as per cash book Rs. 10,500
b) Cheque deposited into bank amounting to 5,500 credited by bank, but entered twice in the cash book
c) Cheques issued and presented for payment amounting to Rs. 7,000 omitted in the cash book
d) Cheque book charges debited by the bank Rs. 200 not recorded in the cash book.
e) Cash of Rs. 1,000 deposited by a customer of the business in cash deposit machine not recorded in the cash book.
Answer:
Bank reconciliation statement of Kamakshi traders as on 31st March, 2018.

🎯 Exam Tip: Pay close attention to errors like "entered twice" or "omitted," as these require careful adjustment in the reconciliation process. Also, remember that a negative balance in the "Amount" column often indicates an overdraft.

Question 3. From the following information, prepare bank reconciliation statement to find out the bank statement balance as on 31st December, 2017.
Answer:
Bank reconciliation statement as on 31st December, 2017.

🎯 Exam Tip: Carefully identify whether each item increases or decreases the balance from the starting point (cash book in this case) to reach the target balance (bank statement).

Question 4. On 31st March, 2017, Anand's cash book showed a balance of Rs. 1,12,500. Prepare bank reconciliation statement,
a) He had issued cheques amounting to Rs. 23,000 on 28.3.2017, of which cheques amounting to Rs. 9,000 have so far been presented for payment.
b) A cheque for Rs. 6,300 deposited into bank on 27.3.2017, but the bank credited the same only on 5th April 2017.
c) He had also received a cheque for Rs. 12,000 which, although entered by him in the cash book, was not deposited in the bank.
d) Wrong credit given by the bank on 30th March 2017 for Rs. 2,000.
e) On 30th March 2017, a bill already discounted with the bank for Rs. 3,000 was dishonoured, but no entry was made in the cash book.
f) Interest on debentures of Rs. 700 was received by the bank directly.
g) Cash sales of Rs. 4,000 wrongly entered in the bank column of the cash book.
Answer:
Bank reconciliation statement of Mr. Anand as on 31st March, 2017

🎯 Exam Tip: When a cheque is issued for Rs. 23,000 but only Rs. 9,000 is presented, the unpresented amount (Rs. 23,000 - Rs. 9,000 = Rs. 14,000) is the figure to use for reconciliation. This is a common calculation error.

Question 5. From the following particulars of Siva and Company, prepare a bank reconciliation statement as on 31st December, 2017.
a) Credit balance as per cash book Rs. 12,000
b) A cheque of Rs. 1,200 Issued and presented for payment to the bank, wrongly credited in the cash book
c) Debit side of bank statement was under cast by 100
Answer:
Bank reconciliation statement as on 31st December, 2017.

🎯 Exam Tip: An error where a cheque was wrongly credited instead of debited in the cash book needs to be corrected by deducting twice the amount (once to reverse the wrong credit, once to apply the correct debit).

Question 6. From the following particulars of Raheem traders, prepare a bank reconciliation statement as on 31st March, 2018.
a) Overdraft as per cash book Rs. 2,500
b) Debit side of cash book was under cash by 700
c) Amount received by bank through RTGS amounting to Rs. 2,00,000, omitted in the cash book.
d) Two cheques issued for Rs. 1,800 and Rs. 2,000 on 29th March 2018. Only the second cheque is presented for payment.
e) Insurance premium on car for Rs. 1,000 paid by the bank as per standing instruction not recorded in the cash book
Answer:
Bank reconciliation statement as on 31st March, 2018.

🎯 Exam Tip: When starting with an overdraft balance from the cash book, remember that items which *increase* the bank balance (like bank receipts unknown to the firm) should be *deducted* from the overdraft, and items which *decrease* the bank balance (like bank payments unknown to the firm) should be *added* to the overdraft.

Question 7. From the following data, ascertain the cash book balance as on 31st Dec. 2017.
(i) Bank overdraft as per cash book Rs 20,000
(ii) Cheques deposited but not yet credited Rs 4,000
(iii) Cheque issued but not yet presented for payment Rs 1,000
(iv) Rent collected by the bank as per standing instruction Rs 500
(v) Interest on overdraft debited by bank Rs 2,000
(vi) Amount wrongly debited by bank Rs 300
(vii) Cheque issued on 30th December 2017 dishonoured by the bank Rs 5,000
(viii) A customer's cheque deposited in the bank dishonoured by bank not recorded in t book he cash Rs 2,000
Answer:

In simple words: We start with the bank overdraft balance from the cash book. Then, we add items that reduce the bank balance or were not yet recorded in the cash book. Finally, we subtract items that increase the bank balance or were already accounted for, to arrive at the bank statement overdraft.

🎯 Exam Tip: Remember that an overdraft balance means the bank account has a negative balance, so "adding" items often means increasing the overdraft, and "subtracting" means reducing it.

Question 8. Prepare bank reconciliation statement from the following data.

Answer:
Particulars:
Credit balance as per cash book Rs 5,000
Cheques issued, but not yet presented for payment Rs 3,000
Cheques deposited but not yet credited Rs 4,000
Interest on overdraft charged by the bank, not yet entered in the cash book Rs 120
Dividend collected by the bank not shown in the cash book Rs 760
Interest charged by bank recorded twice in the cash book Rs 300
Bills of exchange discounted with the bank, dishonoured Rs 520
Bank charges debited by the bank on dishonour of the bill Rs 55

In simple words: We start with the credit balance from the cash book. We add items that increase the bank balance or were not yet recorded, and subtract items that decrease it or were recorded incorrectly, to find the overdraft as per the bank statement. This helps match what the business thinks it has to what the bank says.

🎯 Exam Tip: When starting with a cash book credit balance, remember it implies an overdraft. Carefully identify transactions that would increase or decrease this overdraft to match the bank statement.

Question 9. From the following particulars of Veera traders, prepare a bank reconciliation statement as on 31st December, 2017.
(a) Credit balance as per bank statement Rs 6,000
(b) Amount received by bank through NEFT for Rs 3,500, entered twice in the cash book.
(c) Cheque dishonoured amounting to Rs 2,500, not entered in cash book.
Answer:

In simple words: We start with the bank statement's credit balance. We add items that were recorded extra in the cash book or not recorded at all, to find the actual cash book balance. This helps make sure both records agree.

🎯 Exam Tip: When reconciling from a bank statement credit balance, remember that this is a favorable balance. Adjustments for items entered twice or dishonored cheques require careful consideration of their impact on the cash book.

Question 10. Prepare bank reconciliation statement from the following data and find out the balance as per cash book as on 31st March, 2018.
(i) Bank balance as per bank statement Rs 15,000
(ii) Cheques issued but not yet presented for payment Rs 2,500
(iii) Bank charges not recorded in the cash book Rs 250
(iv) Interest charged by bank not recorded in the cash book Rs 500
(v) Bank paid insurance premium as per standing instruction but not recorded in the cash book Rs 300
(vi) Cheques deposited but not yet credited Rs 900
Answer:

In simple words: We start with the bank balance from the bank statement. Then, we add items that were not yet recorded in the cash book, and subtract cheques that have been issued but not yet presented, to find the balance as per the cash book. This helps bring the two records into agreement.

🎯 Exam Tip: When reconciling from the bank statement to the cash book, remember to add items that decrease the cash book balance but are not yet in the bank statement, and subtract items that increase the cash book balance but are not yet in the bank statement.

Question 11. Ascertain the cash book balance from the following particulars as on 31st December, 2017.

(i) Credit balance as per bank statement Rs 2,500
(ii) Bank charges of Rs 60 have not been entered in the cash book
(iii) Cheque deposited on 28th December 2017 for Rs 1,000 was not yet credited by the bank
(iv) Cheque issued on 24th December 2017 for Rs 700, not yet presented for payment
(v) A dividend of Rs 400 collected by the bank directly but not entered in the cash book
(vi) A cheque of Rs 600 had been dishonoured, but no entry was made in the cash book
(vii) Interest on term loan Rs 1,200 debited by bank but not accounted in cash book
(viii) No entry had been made in the cash book for a trade subscription of Rs 500 paid vide banker's order on 23rd December 2014
Answer:

In simple words: We start with the bank statement's credit balance. We add items like bank charges or dishonoured cheques that reduce the cash book balance but are not yet recorded. We subtract items like issued cheques or collected dividends that increase the cash book balance but are not yet recorded by the bank, to find the final cash book balance. This helps make sure both records match.

🎯 Exam Tip: When preparing a BRS from the bank statement to the cash book, treat each unrecorded or incorrectly recorded item from the cash book's perspective to arrive at its correct balance.

Question 12. Prepare a bank reconciliation statement from the following data.

(a) Balance as per bank statement Rs 5,000
(b) Cheques amounting to Rs 800 had been recorded in the cash book as having been deposited into the bank on 25th January 2018, but were entered in the bank statement on 2nd February 2018.
(c) Amount received by bank through NEFT amounting to Rs 3,000, omitted in the cash book.
(d) Two cheques issued for Rs 3,000 and Rs 2,000 on 29th March 2018. Only the first cheque is presented for payment.
(e) Insurance premium on motor vehicles for Rs 1,000 paid by the bank as per standing instruction not recorded in the cash book.
(f) Credit side of cash book was undercast by Rs 700
(g) Subsidy received directly by the bank from the state government amounting to Rs 10,000, not entered in cash book.
Answer:

In simple words: We start with the bank statement balance. We add items that were deposited but not yet cleared, payments made by the bank, and cash book errors. We then subtract items like payments made by the bank, issued cheques not yet presented, or direct receipts, to find the cash book balance. This helps explain why the bank and cash book balances are different.

🎯 Exam Tip: When working with an undercast credit side in the cash book (Q12f), remember this means the cash book balance is overstated. Therefore, to reconcile with the bank statement, this amount needs to be added when starting from the bank statement, to reduce the overall difference.

Question 13. From the following particulars of Simon traders, prepare a bank reconciliation statement as on 31st March, 2018.
(a) Debit balance as per bank statement Rs 2,500
(b) Cheques deposited amounting to Rs 10,000, not yet credited by bank.
(c) Payment through net banking for Rs 2,000, omitted in the cash book.
Answer:

In simple words: We start with the bank statement's debit balance. Then, we subtract cheques that were deposited but not yet recorded, and also payments made online but missed in the cash book. This helps us find the cash book balance, which in this case shows an overdraft.

🎯 Exam Tip: A debit balance as per the bank statement means an overdraft. Therefore, "Less" items will increase the overdraft or reduce a positive balance, depending on the starting point and specific transaction.

Question 14. From the following particulars, ascertain the cash book balance as on 31st December, 2016.

(i) Overdraft balance as per bank statement Rs 1,26,640
(ii) Interest on overdraft entered in the bank statement, but not yet recorded in cash book Rs 3,200
(iii) Bank charges entered in bank statement, but not found in cash book Rs 600
(iv) Cheques issued, but not yet presented for payment Rs 23,360
(v) Cheques deposited into the bank but not yet credited Rs 43,400
(vi) Interest on investment collected by the bank Rs 24,000
Answer:

In simple words: We start with the overdraft from the bank statement. We add issued cheques not yet presented and interest collected by the bank, as these reduce the overdraft from the cash book's perspective. Then we subtract interest and bank charges not in the cash book, and cheques deposited but not credited, to find the overdraft balance as per the cash book. This helps identify and correct differences.

🎯 Exam Tip: Remember that when starting with an overdraft balance, items that increase your cash at the bank (like issued cheques not yet presented) will reduce the overdraft, while items that decrease your cash (like bank charges) will increase it from the bank's perspective.

Question 15. From the following particulars of John traders, prepare a bank reconciliation statement as on 31st March, 2018.

(a) Bank overdraft as per bank statement Rs 4,000
(b) Cheques amounting to Rs 2,000 had been recorded in the cash book as having been deposited into the bank on 26th March 2018, but were entered in the bank statement on 4th April 2018.
(c) Amount received by bank through cash deposit machine amounting to Rs 5,000, omitted in the cash book.
(d) Amount of Rs 3,000 wrongly debited to John traders account by the bank, for which no details are available.
(e) Bills for collection credited by the bank till 29th March 2017 amounting to Rs 4,000, but no advice received by John traders.
(f) Electricity charges made through net banking for Rs 900 was wrongly entered in d of bank column.
Answer:

In simple words: Starting with the bank overdraft, we add items that reduce the cash book balance (like direct deposits not yet recorded) and subtract items that increase the cash book balance (like cheques deposited but not yet cleared). This helps explain why the bank and cash book balances don't match.

🎯 Exam Tip: When reconciling from an overdraft per bank statement, remember that a direct deposit into a Cash Deposit Machine (CDM) by a customer (Q15c) will increase the bank balance (reducing the overdraft) but if not recorded in the cash book, it means the cash book shows a larger overdraft. Therefore, to reconcile to the cash book, it should be added.

Question 16. Prepare bank reconciliation statement from the following data.

Particulars:
Bank overdraft as per bank statement Rs 6,500
Cheques issued, but not yet presented for payment Rs 8,750
Cheques deposited but not yet credited by the bank Rs 500
Business customer directly deposited into cash deposit machine Rs 3,500
Bank charges not entered in the cash book Rs 200
Bank paid rent as per standing instruction Rs 1,980
Answer:

In simple words: We start with the bank overdraft balance from the bank statement. We add issued cheques not yet presented and direct customer deposits. Then we subtract cheques deposited but not yet cleared, bank charges, and rent paid by the bank, to arrive at the overdraft balance as per the cash book. This reconciles the two records.

🎯 Exam Tip: When a customer directly deposits into a Cash Deposit Machine (CDM), the bank statement balance will reflect this immediately, but the cash book will not until it's recorded. Therefore, to reconcile from the bank statement, this amount needs to be added.

Question 17. Prepare bank reconciliation statement as on 31st March, 2017 from the following extracts of cash book and bank statement.
Cash book (Bank column only)

Bank statement

In simple words: To prepare the bank reconciliation statement, you will compare the entries in the bank column of the cash book with those in the bank statement. You need to identify any transactions that appear in one record but not the other, or any differences in amounts, to find the reconciled balance.

🎯 Exam Tip: When given both a cash book and a bank statement, carefully tick off matching entries. The unticked entries in each record represent the differences that need to be included in the bank reconciliation statement.

Question 18. A trader received his bank statement on 31st December, 2017 which showed an overdraft balance of Rs 12,000. On the same day, his cash book showed a debit balance of Rs 2,000. Analyse the following transactions. Choose the possible causes and prepare a bank reconciliation statement to show the causes of differences.
(a) Cheque deposited for Rs 2,000 on 21st December, 2017. Bank credited the same on 26th December, 2017.
(b) Cheque issued for payment on 26th December, 2017 amounting to Rs 2,500, not yet presented until 31st, December, 2017.
(c) Bank charges amounting to Rs 200 not yet entered in the cash book.
(d) Online payment for Rs 1,500 entered twice in the cash book.
(e) Cheque deposited amounting to Rs 1,000, but omitted in the cash book. The same cheque was dishonoured by bank, but not yet entered in cash book.
(f) Cheque deposited, not yet credited by bank amounting to Rs 17,800
Answer:

In simple words: We start with the overdraft balance from the bank statement. We add cheques issued but not yet presented and online payments incorrectly double-entered in the cash book. Then, we subtract bank charges and cheques deposited but not yet credited by the bank, to arrive at the overdraft as per the cash book. This helps identify all the reasons for the difference.

🎯 Exam Tip: Note that for Q18(a), the cheque deposited was credited by the bank on 26th Dec, so it's not an uncredited cheque as of 31st Dec. The discrepancy for Q18(e) regarding the dishonoured cheque and omission should be carefully handled by treating the omission first as a deposit, then the dishonour as a separate item, but the provided solution directly accounts for the net effect or skips some details. Stick to the given solution structure and simplify the narration.

11th Accountancy Guide Bank Reconciliation Statement Additional Important Questions And Answers

I. Choose The Correct Answer.

Question 1. A Bank Reconciliation Statement is prepared with the help of _______.
(a) Bank statement and bank column of the cash book
(b) Journal
(c) Ledger
(d) None of the options
Answer: (a) Bank statement and bank column of the cash book
In simple words: A bank reconciliation statement is made by comparing the bank's own record (bank statement) with the business's record of bank transactions (bank column of the cash book) to find differences.

🎯 Exam Tip: The core purpose of a Bank Reconciliation Statement (BRS) is to match internal (cash book) and external (bank statement) records of cash, making these two key documents essential.

Question 3. Uncollected cheques are also known as _______.
(a) Outstanding cheques
(b) Uncleared cheques
(c) Outstation cheques
(d) Both (a) and (c)
Answer: (d) Both (a) and (c)
In simple words: Cheques that have been deposited by a business but have not yet been processed and cleared by the bank are called 'uncollected cheques'. They can also be known as outstanding cheques or outstation cheques.

🎯 Exam Tip: Remember that "uncollected cheques" specifically refer to cheques deposited but not yet credited by the bank. They are also known as "outstanding cheques" or "cheques sent for collection but not yet collected".

Question 4. When cheque is not paid by the bank it is called as _______.
(a) Honoured
(b) Endorsed
(c) Dishonoured
(d) None of the options
Answer: (c) Dishonoured
In simple words: When a bank refuses to pay money for a cheque because of problems like insufficient funds or a wrong signature, that cheque is "dishonoured."

🎯 Exam Tip: A cheque is "honoured" when the bank successfully pays it, and "dishonoured" when it refuses to pay. Understanding these terms is crucial for bank reconciliation.

Question 5. A bank reconciliation statement is prepared by _______.
(a) Banker
(b) Accountant of the business
(c) Auditors
(d) None of the options
Answer: (b) Accountant of the business
In simple words: The accountant of the business makes the bank reconciliation statement. This helps the business check its own cash records against the bank's records to find any differences.

🎯 Exam Tip: A BRS is an internal control tool prepared by the business's accountant, not by the bank or external auditors, to ensure accuracy of cash records.

Question 6. The cheque which is deposited into bank but not cleared at the end of a particular year is called _______.
(a) Uncredited cheque
(b) Unpresented cheque
(c) Omitted cheque
(d) Dishonoured cheque
Answer: (b) Unpresented cheque
In simple words: When a business puts a cheque into the bank, but the bank has not yet finished processing it by the end of the year, it's called an unpresented cheque. This means the bank has not yet taken the money from the other person's account.

🎯 Exam Tip: Differentiate carefully between "unpresented cheques" (issued by business, not yet paid by bank) and "uncredited cheques" (deposited by business, not yet cleared/added to bank balance).

Question 7. In cash book bank charges recorded in the _______.
(a) Credit side
(b) Debit Side
(c) Both (a) and (b)
(d) None of the options
Answer: (a) Credit side
In simple words: When the bank takes money for charges, it reduces the business's bank balance. In the cash book, this reduction is recorded on the credit side.

🎯 Exam Tip: Remember the golden rule for cash book: all receipts (money coming in) are debited, and all payments (money going out) are credited. Bank charges are payments.

Question 8. An amount of Rs 2,000 is debited twice in the bank statement. What will be reflected when overdraft as per the cash book is the starting point _______.
(a) Rs 2000 will be deducted
(b) Rs 2000 will be added
(c) Rs 4000 will be deducted
(d) Rs 4000 will be deducted
Answer: (d) Rs 4000 will be deducted
In simple words: If Rs 2,000 is debited twice in the bank statement, it means the bank balance is Rs 4,000 lower than it should be. When starting from an overdraft in the cash book, to adjust for this error and match the bank statement, you would deduct Rs 4,000. This is because debits increase an overdraft.

🎯 Exam Tip: When an amount is debited twice in the bank statement, it overstates the bank's reduction of funds. If you're starting from a cash book overdraft, deducting this error amount (double debit) will correctly align with the bank's overstated debit.

Question 9. If any amount is directly deposited into the bank then _______.
(a) Cash book will show less balance & bank book will show more
(b) Cash book will show more balance & bank book will show less
(c) Cash book will show double balance
(d) Bank book will show double
Answer: (a) Cash book will show less balance & bank book will show more
In simple words: If someone deposits money straight into the bank, the bank's record (bank book/statement) will instantly show more money. But the business's own cash book will only show this money later when it is told about the deposit. So, the cash book balance will seem lower for a while.

🎯 Exam Tip: Direct deposits are a common cause of differences in a BRS. They increase the bank balance but the cash book only updates once the business becomes aware of the deposit.

Question 10. Which of the following error results in unadjusted cash book balance?
(a) Outstanding cheques
(b) Unpresented Cheques
(c) deposit in Transit
(d) Omission of Bank charges
Answer: (d) Omission of Bank charges
In simple words: An unadjusted cash book balance happens when something changes the bank balance, but the business hasn't recorded it in its own cash book yet. If the bank charges are forgotten, the cash book won't match the bank.

🎯 Exam Tip: Omissions of bank charges, interest, or direct deposits by customers are often cash book errors requiring adjustment, as the bank records these immediately.

Question 11. Credit balance in the bank column of the cash book means _______.
(a) Credit balance as per bank statement
(b) Debit balance as per bank statement
(c) Overdraft as per cash book
(d) None of the options
Answer: (b) Debit balance as per bank statement
In simple words: In accounting, a credit balance in the cash book's bank column means the business owes money to the bank, which is an overdraft. From the bank's side, an overdraft is a debit balance. So, a cash book credit balance means a debit balance in the bank statement.

🎯 Exam Tip: Always remember the inverse relationship: a credit balance in the cash book (firm's perspective) usually corresponds to a debit balance in the bank statement (bank's perspective) for an overdraft situation.

Question 12. When balance as per Cash Book is the starting point, to ascertain balance as per Bank is _______.
(a) Subtracted
(b) added
(c) not adjusted
(d) None of the options
Answer: (b) added
In simple words: When you start with the cash book balance, to find the bank balance, you usually add things that the bank has recorded but your cash book has not yet, like direct deposits from customers.

🎯 Exam Tip: When using the cash book as the starting point, add items that have increased the bank balance but are not yet recorded in the cash book (e.g., direct deposits) and subtract items that have decreased the bank balance but are not yet recorded (e.g., bank charges).

Question 13. When balance as per Cash Book is the starting point, to ascertain the balance as per bank statement interest charged by Bank is:
(a) Added
(b) subtracted
(c) not adjusted
(d) None of the options
Answer: (b) subtracted
In simple words: When you start with the cash book balance to find the bank statement balance, any interest charged by the bank needs to be subtracted because it reduces your bank balance but hasn't been recorded in your cash book yet.

🎯 Exam Tip: Remember that bank charges and interest debited by the bank reduce your bank balance, so when starting from the cash book, these items are subtracted to reconcile.

Question 14. When the balance as per Cash Book is the starting point to ascertain balance as per bank statement, direct deposits by customers are:
(a) Added
(b) subtracted
(c) not adjusted
(d) None of the options
Answer: (a) Added
In simple words: If a customer directly puts money into your bank account, your bank balance goes up. When starting from the cash book, you need to add this amount to match the bank statement.

🎯 Exam Tip: Direct deposits increase your bank balance without immediate notification to the business, making them an adding item in reconciliation when starting from the cash book.

Question 15. When the balance as per Cash Book is the starting point to ascertain balance as per bank statement, direct payments by bank are:
(a) Added
(b) subtracted
(c) not adjusted
(d) None of the options
Answer: (b) subtracted
In simple words: When the bank pays money directly on your behalf (like a bill), your bank balance decreases. If you are starting from the cash book, you must subtract this amount to match the bank's record.

🎯 Exam Tip: Direct payments made by the bank reduce the bank balance but are not immediately known by the business, hence they are subtracted when reconciling from the cash book balance.

Question 16. ______ is not possible to have unfavourable cash balance in the cash book.
(a) Bank statement
(b) Bank overdraft
(c) Cash overdraft
(d) Cash book
Answer: (b) Bank overdraft
In simple words: Having a "cash overdraft" is not a usual accounting term. However, a "bank overdraft" means you've spent more money than you have in your bank account, creating a negative balance. It's the bank's way of extending credit.

🎯 Exam Tip: An "unfavourable cash balance" in a strict sense usually refers to an overdraft. Bank overdraft allows a negative balance in the bank account, unlike a typical cash book which cannot physically show negative cash.

Question 17. Bank overdraft is available only to the ________ holders.
(a) Saving Account
(b) Fixed Account
(c) Joint Account
(d) Current Account
Answer: (d) Current Account
In simple words: Businesses usually get a bank overdraft facility with their current accounts, not savings or fixed accounts. This helps them manage short-term cash needs.

🎯 Exam Tip: Bank overdraft facilities are primarily offered to businesses and individuals with current accounts, as these accounts are designed for frequent transactions and credit needs.

Question 18. ______ is simply a copy of the customer's account in the books of a bank.
(a) Cash book
(b) Bank statement
(c) Pass book
(d) None of the options
Answer: (b) Bank statement
In simple words: A bank statement is like a report from the bank that shows all the money that went into and out of your account. It's the bank's record of your transactions.

🎯 Exam Tip: The bank statement (or pass book) is the external record of transactions, directly reflecting the bank's perspective on the customer's account activity.

Question 19. A bank statement is a copy of ______ .
(a) the cash column of a customer's cash book
(b) the bank column of a customer's cash book
(c) the customer's account in the bank's ledger
(d) none of these
Answer: (c) the customer's account in the bank's ledger
In simple words: A bank statement shows exactly what the bank has recorded for your account. It's essentially a printout of your specific account from their main accounting records.

🎯 Exam Tip: The bank statement is a direct mirror of the customer's ledger account as maintained by the bank, detailing all transactions from the bank's perspective.

Question 20. Debit balance in the Cash Book means ______.
(a) overdraft as per bank statement
(b) credit balance as per bank statement
(c) overdraft as per Cash Book
(d) none of these
Answer: (b) credit balance as per bank statement
In simple words: When your cash book shows a debit balance, it means you have money in the bank. From the bank's side, this is shown as a credit balance because the money you have is a liability for the bank.

🎯 Exam Tip: Always remember the opposing nature of bank balances: a debit in the cash book (asset for business) is a credit in the bank statement (liability for bank), and vice versa for overdrafts.

II. Additional Questions & Answers

Question 1. Differences between bank column of cash book and bank statement.
Answer:
Here are the differences between the bank column of the cash book and the bank statement:
Bank column of cash book:
- Cash deposits are entered on the debit side.
- Cash withdrawals are entered on the credit side.
- Cheque deposits are debited on the day of deposit.
- Cheques issued are credited on the day of issue of cheque.
- Collections and payments, as per the business's standing instructions, are entered only after checking with the bank statement.
- It is balanced at the end of a specific period.
Bank statement:
- It is prepared by the bank (banker).
- Cash deposits are entered in the credit column.
- Cash withdrawals are entered in the debit column.
- Cheque deposits are credited only when the cheque is actually cleared.
- Cheques issued by customers are debited by the bank on the date payment is made.
- Collections and payments, as per standing instructions, are entered in the banker's book on the date they are realized or paid.
- It is balanced after each transaction.
In simple words: The cash book is your company's record of bank money, while the bank statement is the bank's record of your money. They often have different entries and timing, leading to differences. For example, your cash book debits deposits, but the bank statement credits them.

🎯 Exam Tip: For clear answers, organize differences using bullet points under distinct headings for the cash book and bank statement, highlighting timing and perspective variations.

Question 2. What are the items recorded on the debit side of the bank column of the cash book?
Answer:
The items recorded on the debit side of the bank column of the cash book are:
1. Cheques deposited but not yet credited by the bank.
2. Credits recorded only in the pass book (bank statement), which include:
- Interest credited by the bank.
- Dividends and other income collected directly by the bank.
In simple words: The debit side of your cash book shows money coming into the bank account. This includes cheques you deposited and other income the bank collected for you that you didn't know about yet.

🎯 Exam Tip: Focus on items that increase the bank balance from the business's perspective, whether known or yet to be recorded, to accurately identify debit side entries.

Question 3. What are the items recorded on the credit side of the bank column of the cash Book?
Answer:
The items recorded on the credit side of the bank column of the cash book are:
1. Cheques issued but not yet presented for payment.
2. Cheques that were dishonoured but not yet entered in the cash book.
3. Debits recorded only in the bank statement, which include:
- Interest debited by the bank.
- Insurance premium, loan instalment, and other payments made as per standing instructions.
- Direct payments made by the banker.
4. Any errors in the cash book or bank statement that result in a decrease in the bank balance.
In simple words: The credit side of your cash book shows money going out or balances that are less than what you expected. This includes cheques you wrote that haven't been paid yet, bounced cheques, and direct payments or charges made by the bank.

🎯 Exam Tip: To identify credit side entries, think of transactions that reduce the bank balance from the business's perspective, especially those the business hasn't yet accounted for.

Question 4. What is meant by the term "Cheques deposited into bank but not yet credited?"
Answer:
The term "Cheques deposited into bank but not yet credited" refers to cheques that a business deposits into its bank account. The business immediately records this in its cash book by debiting the bank column. However, the bank does not credit this amount to the business's account in its bank statement on the same day. This happens because the bank needs time to process and collect the funds from the issuing bank. The amount will only appear as a credit in the bank statement once the collection process is complete.
For example, if X & Co. receives a cheque for Rs. 5,000 on March 25, 2016, from ABC Limited and debits its cash book on the same day. However, the bank will only credit X & Co.'s account after collecting the cheque from ABC Limited's bank. This creates a time gap between when the cheque is deposited by the customer and when it is collected by the bank.
In simple words: It means you put a cheque into your bank account and wrote it down in your books, but the bank hasn't finished processing it or added the money to your account yet. So, your book shows more money than the bank's record for a little while.

🎯 Exam Tip: Emphasize that "not yet credited" is a timing difference, where the business has recorded the deposit, but the bank has not yet completed the collection process.

Question 5. What will be the effect of Interest and dividends collected by the bank?
Answer:
When the bank collects interest and dividends on behalf of its customer, it will record these transactions in the bank statement immediately. The bank's record will show an increase in the customer's balance. However, the business will only update its cash book with these entries once it receives the bank statement. Until then, the cash book will show a lower balance compared to the bank statement, creating a difference that needs reconciliation. This is a common way banks help manage investments for their clients.
In simple words: If the bank collects interest or dividends for you, your bank account goes up right away. But you won't know about it until you get your bank statement, so your own record (cash book) will look like you have less money than you actually do in the bank.

🎯 Exam Tip: Highlight that direct collections by the bank increase the bank balance but are timing differences because the business is unaware until the bank statement is reviewed.

Question 6. What will be the effect of Dishonour of cheques and bills?
Answer:
When a business receives a cheque or bill and records it as money received in its cash book, it expects the bank to collect the funds. However, if the cheque or bill is dishonoured (meaning the payment fails), the bank cannot collect the amount. The bank will then debit the business's account in the bank statement to reverse the initial credit (or to charge for the dishonour). Since the business may not be immediately aware of the dishonour, its cash book will still show the amount as received, leading to a difference between the cash book balance and the bank statement balance. The bank might also charge a fee for the dishonoured item.
In simple words: When a cheque or bill bounces, the bank takes that money out of your account, but you might not know this immediately. So, your books still show that you have that money, making your balance different from the bank's.

🎯 Exam Tip: Emphasize that dishonoured cheques or bills reduce the bank balance, creating a difference because the business might not have recorded the reversal or bank charges in its cash book yet.

Question 7. What will be the effect of Amount paid by parties directly into the bank?
Answer:
When customers or debtors directly deposit money into a business's bank account, the bank will immediately credit the business's account in its records. This increases the bank balance. However, the business will only become aware of this deposit and record it in its cash book when it receives the bank statement or bank notification. Until then, the cash book will show a lower balance than the bank statement. This direct deposit can happen through various methods like cash payments at the branch, NEFT, RTGS, debit/credit card swipes, or cash deposit machines.
In simple words: If someone pays you by putting money directly into your bank account, the bank's record goes up right away. But your own records won't show it until you get your bank statement, so your cash book balance will be lower than the bank's.

🎯 Exam Tip: Acknowledge that direct deposits by parties are adding items in a reconciliation (when starting from the cash book) because they increase the bank balance without the business's immediate knowledge.

Question 8. What will be the effect of Amount paid directly by the bank to others?
Answer:
Sometimes, a business instructs its bank to make direct payments on its behalf, such as for insurance premiums, loan instalments, or other recurring expenses. When the bank makes these payments, it immediately debits the business's account in the bank statement, reducing the bank balance. The business, however, will only record these payments in its cash book once it receives the bank statement. Consequently, until the cash book is updated, it will show a higher balance than the bank statement. This service helps customers manage regular payments efficiently.
In simple words: When the bank pays a bill for you (because you told them to), the money leaves your bank account immediately. But your own records won't show this payment until you check your bank statement, making your cash book balance higher than what the bank shows.

🎯 Exam Tip: Recognize that direct payments by the bank reduce the bank balance, creating a timing difference because the business is typically informed only upon receiving the bank statement.

Question 9. What will be the effect of Bills collected by the bank on behalf of its customers?
Answer:
When a business sells goods, it may send the related bills (documents) to the bank for collection. Once the bank successfully collects the amount from the buyer, it credits the business's account, increasing the bank balance. However, the business will only record this collection in its cash book after receiving notification from the bank or checking the bank statement. Until then, the bank statement will show a higher balance than the cash book. This service streamlines the collection process for businesses.
In simple words: If the bank collects money from a bill for you, your bank account balance goes up right away. But you will only update your own record (cash book) when the bank tells you or when you see your bank statement. So, for a while, the bank balance will be higher than your cash book.

🎯 Exam Tip: Focus on the fact that bank collections increase the bank balance, but this is a timing difference until the business updates its cash book, requiring reconciliation.

Question 10. Explain the differences arising due to errors in recording the entries.
Answer:
Differences between the bank balance in the cash book and the bank statement can arise due to errors made by either the business or the bank. These errors lead to discrepancies that require reconciliation.
Errors committed by the business in the cash book:
Sometimes, a business might make mistakes when recording transactions in its cash book. For example, it might:
- Forget to record a cheque that was deposited or issued (omission).
- Record a transaction with the wrong amount or on the wrong side (wrong recording).
- Make a mistake in calculating the balance (wrong balancing).
Such errors will cause the cash book balance to differ from the actual bank balance.
Errors committed by the bank:
Similarly, the bank can also make errors in its ledger (banker's book). For instance, the bank might:
- Forget to record a cheque that was deposited (omission).
- Record a transaction in the wrong customer's account or with an incorrect amount (wrong recording).
- Make a mistake in calculating the balance.
These errors by the bank will also cause a difference between the bank statement balance and the business's cash book balance. This is why it's important to check your statements carefully.
In simple words: Sometimes the cash book and bank statement don't match because of mistakes. These mistakes can be made by your business when writing in the cash book, like forgetting an entry or writing the wrong number. Or, the bank itself might make a mistake in its records. Both types of errors cause the balances to be different.

🎯 Exam Tip: Clearly distinguish between errors made by the business and errors made by the bank, as both types of errors impact the reconciliation process and must be identified to achieve agreement.

Question 11. What is the need for bank reconciliation statement?
Answer:
A bank reconciliation statement is needed for several important reasons:
1. To identify the exact reasons for any differences between the bank balance shown in the cash book and the balance shown in the bank statement.
2. To spot any delays in the clearance of cheques, whether issued by the business or deposited by it.
3. To confirm and ascertain the accurate balance of the bank column in the cash book.
4. To help prevent misuse of funds by both the business's accountants and the bank's staff by ensuring all transactions are accounted for.
In simple words: We need a bank reconciliation statement to find out why the money shown in our company's records doesn't match the bank's records. It helps us fix mistakes, see if cheques are delayed, confirm the right cash balance, and make sure no one is misusing money.

🎯 Exam Tip: Focus on the core purposes: identifying discrepancies, ensuring accuracy, detecting delays, and maintaining financial control and integrity.

Additional Sums:

Question 1. From the following particulars prepare a bank reconciliation statement of Mr. Bala as on 31.03.2013.
(a) Balance as per cash book Rs. 15,000
(b) Cheques deposited but not cleared Rs. 1,000
(c) Cheques issued but not yet present for payments Rs. 1,500
(d) Interest allowed by bank Rs. 200
Answer:

🎯 Exam Tip: Always clearly label "Add" and "Less" sections and ensure that each adjustment is correctly applied to the starting balance to arrive at the reconciled figure.

Question 2. Prepare bank Reconciliation statement to find out balance as per bank statement on 31st March 2018,
1. Cheques deposited but not yet collected by the bank Rs. 1,000
2. Cheques issued but not yet presented for payment Rs. 2,000
3. Bank Interest Charged Rs. 200
4. Rent paid by bank as per standing Instruction Rs. 400
5. Cash book balances Rs. 600
Answer:

🎯 Exam Tip: When starting with the cash book balance, remember to add items that reduce the bank balance (like cheques issued) and subtract items that increase the bank balance (like cheques deposited) to reach the bank statement balance.

Question 3. Form the following particulars of Ashok and company; prepare a bank reconciliation statement as on 31st March 2018.
(a) Credit balance as per cash book Rs. 10,000
(b) Cheques issued but not yet presented for payment Rs. 10,000
(c) Cheques Deposited but not credited Rs. 9,000
(d) Rent collected by the bank as per standing Instruction Rs. 500
Answer:

🎯 Exam Tip: When starting with a credit balance (overdraft) as per cash book, be careful with the "Add" and "Less" items, as their treatment reverses compared to a debit balance.

Question 4. From the following information, Prepare bank Reconciliation statement of Mr. Mohan as on 31st Dec. 2017 to find out the balance as per bank statement.
(i) Overdraft as per cash book - Rs. 20,000
(ii) Cheques deposited but not yet credited - Rs. 10,000
(iii) Amount wrongly deposited by bank - Rs. 600
(iv) Interest on overdraft debited by bank - Rs. 2,000
(v) Cheque issued but not yet present for payment - Rs. 2,000
(vi) Payment received from the customer directly by the bank - Rs. 1,000
Answer:

🎯 Exam Tip: Handling overdrafts as a starting point requires careful attention to the direction of adjustments. An increase in an overdraft is often treated differently than an increase in a positive balance.

Question 5. Prepare bank Reconciliation statement as on 31st December 2017. From the following information.
(a) Balance as per bank statement (pass book) is Rs. 50,000
(b) Cheques deposited into bank amount into Rs. 7,000 were not yet collected.
(c) Bank charges of Rs. 600 have not been entered in the cash book.
(d) Cheques issued amount to Rs. 18,000 have not been presented by for payment.
Answer:

🎯 Exam Tip: When starting from the bank statement balance, items that have increased the cash book but not the bank statement are added, and vice-versa for subtraction.

Question 6. From the following information, prepare bank Reconciliation statement as of Mr. Pugazh as on 31st Dec. 2017.
(i) Overdraft balance as per bank statement Rs. 12,000
(ii) Cheques deposited on 28th December 2017 but not yet credited Rs. 4,000
(iii) Cheques issued for 20000 on 20th December 2017 but not yet presented for payment 6000.
(iv) Interest on debentures directly in cash book Rs. 8,000
(v) Insurance premium on building directly paid by the bank 2000
(vi) Amount wrongly credit by bank Rs. 1,000
Answer:

🎯 Exam Tip: Remember that a credit balance in the bank statement indicates a positive balance from the business's perspective, but an overdraft is a negative balance. Be careful when applying adjustments based on the nature of the balance.

Question 7. From the following data, as certain the cash book balance as on 31st Dec. 2017.
1) Overdraft balance as per bank statement Rs. 13,000
2) Cheques deposited into the bank but not yet credited Rs. 21,000
3) Wrongly credit by the bank Rs. 1,000
4) Cheques issued, but not yet presented for payment 6,000
5) Bank charges debited by bank 360
6) Insurance Premium on building directly paid by bank 200
Answer:

🎯 Exam Tip: When reconciling from an overdraft per bank statement, remember that items which increase your bank balance (like outstanding cheques) reduce the overdraft, while items that decrease your bank balance (like cheques deposited not yet cleared) increase the overdraft.

Question 8. Prepare bank Reconciliation statement as on 31st Dec. 2017, From the following balance of cash book, and bank statement.
Cash book (Bank column)

🎯 Exam Tip: When given both cash book and bank statement extracts, carefully compare each entry to identify all differences (timing or errors) before constructing the reconciliation statement.

Question 9. A comparison of pass book and cash book revealed the following particulars. Prepare a bank reconciliation statement as on 31st March 2017.
Bank Balance as per Pass Book Rs.92,500.
1. Cheques deposited but not yet cleared by 31st March 2017.
2. Cheques issued by A but not presented for payment before 31st March 2017.
3. Insurance Premium paid by the bank on behalf of A but not recorded in the cash book.
4. Bank commission not yet recorded in the cash book.
5. Interest on bonds collected by the bank on behalf of A but not recorded in the cash book Rs.5,000.
Answer:

🎯 Exam Tip: Remember to clearly distinguish between items that increase or decrease the balance as per the starting point (cash book or pass book) in a bank reconciliation statement.

Question 10. The bank overdraft of Rajini on 31.12.2017 as per cash book is Rs.90,000. From the following particulars, prepare bank reconciliation statement:
(i) Cheque not presented Rs.30,000
(ii) Cheque not cleared Rs.17,000
(iii) Bank interest debited in the pass book only Rs.5,000
(iv) Bills collected and credited in the pass book only Rs.8,000
(v) Cheque of Firthos dishonoured Rs.5,000
(vi) Cheques issued to Shankar entered in the cash column of the cash book Rs.3,000
Answer:

🎯 Exam Tip: When starting with a cash book overdraft, items that increase the cash book balance (like direct deposits by customers) are added, and items that decrease it (like bank charges) are subtracted, but the effect on the overdraft needs to be carefully considered.

Question 11. Prepare a bank reconciliation statement from the following data as on 31.12.2017.
(a) Balance as per cash book Rs.1,25,500
(b) Cheques issued but not presented for payment Rs.9,000
(c) Cheques deposited in bank but not collected Rs.12,000
(d) Bank paid insurance premium Rs.5,000
(e) Direct deposit by a customer Rs.8,000
(f) Interest on investment collected by bank Rs.2,000
(g) Bank charges Rs.1,000
Answer:

🎯 Exam Tip: Always identify the starting balance (cash book or pass book) and then apply the adjustments to reach the other balance, making sure to consider how each transaction affects each record.

Question 12. The pass book of X with his bank shows a debit balance of Rs.500 on 31.10.2017. On comparison of the pass book with the cash book, it is observed that: Prepare the Bank Reconciliation Statement as at 31.10.2017.
(i) Cheques issued by X in October 2017 amounted to Rs.4,535, of which cheques amounting to Rs.3,535 were paid by the bank by 31st October 2017.
(ii) X deposited cheques amounting to Rs.5,000 on 31st October 2017. These cheques were realised by the bank on 1st November, 2017.
(iii) Y, a customer of X, had directly deposited a sum of Rs.3,000 on 24th October 2017 to the credit of X account with the bank. X recorded this receipt on 4th November, 2017.
(iv) The bank had debited X's account with Rs.1,520 on 31.1.2017 on account of a dishonoured bill. No entry for the same has been made in the account books.
(v) On 31.10.2017 X's account was credited with Rs.130 being dividend collected by the bank. On the same day, his account was debited with Rs.10 being bank charges. This entry was recorded by X only on 5th November, 2017.
Answer:

🎯 Exam Tip: Pay close attention to the starting point (cash book or pass book, and whether it's a debit or credit balance) as it dictates whether an item is added or subtracted during reconciliation.

Question 13. From the following particulars, ascertain the bank balance as would appear in the pass book as on 31st December, 2016.
(i) The bank overdraft (Credit balance) as per cash book on 31st December 2016 was Rs.60,000.
(ii) Interest on overdraft, six months ending 31st December, amounting to Rs.2,000 is debited in the pass book.
(iii) Bank charges for the above period also debited in the pass book which amounted to Rs.500.
(iv) Cheques issued but not presented for payment before 31st December amounted to Rs.15,000.
(v) Cheques paid into the bank, but not cleared and credited before 31st December were Rs.25,000.
(vi) Interest on government securities collected by the bank and credited in the pass book amounted to Rs.18,000.
Answer:

🎯 Exam Tip: When reconciling from an overdraft, consider that an 'Add' item to the overdraft will increase it, while a 'Less' item will reduce it, effectively moving towards a more favorable balance.

Question 14. From the following information available from the books and records of X & Co., prepare a Bank Reconciliation Statement:

🎯 Exam Tip: When given a table with multiple account numbers or columns, always ensure you are using the correct data relevant to the specific reconciliation asked in the question (e.g., Bank A/c No. I Dr).

Question 15. From the following particulars, ascertain the bank balance that would appear in the cash book of Son 31.12.2016.
(i) The bank overdraft as per pass book on 31.12.2016 was Rs.6,340.
(ii) Interest on overdraft for the year ending 31.12.2016 amounting to Rs.160 is debited in the pass book.
(iii) Bank charges for the above period also debited in the pass book which amounted to Rs.130.
(iv) Cheques issued but not cashed prior to 31.12.2016 amounted to Rs.1,168.
(v) Cheques paid into bank but not cleared before 31.12.2016 were Rs.2,170.
(vi) Interest on investments collected by the bankers and credited in the pass book, Rs.1,200.
Answer:

🎯 Exam Tip: When reconciling from a pass book overdraft to find the cash book balance, remember that items which increase the pass book overdraft (like bank charges) will decrease the cash book overdraft, and vice-versa.