UP Board Solutions Class 10 Commerce Chapter 3 Bank Reconciliation Statement

Bank Reconciliation Statement Objective Type Questions (1 Mark)

Question 1. When the balance as per cash book is the starting point, direct deposits by customers are:
(a) Added
(b) Subtracted
(c) Not required to be adjusted
(d) None of these
Answer: (a) Added
In simple words: When a customer directly deposits money into the bank, it increases the bank balance, so it is added to the cash book balance to reconcile with the passbook.

🎯 Exam Tip: Understand how each transaction affects both the cash book and passbook to correctly identify additions or subtractions for reconciliation.

Question 2. A Bank Reconciliation Statement is prepared with the help of:
(a) Bank Statement and Bank Column of the Cash Book
(b) Bank statement and Cash Column of the Cash Book
(c) Bank column of the Cash Book and Cash Column of the Cash Book
(d) None of the above.
Answer: (a) Bank Statement and Bank Column of the Cash Book
In simple words: A BRS compares the bank's record (Bank Statement/Passbook) with the business's record of bank transactions (Bank Column of the Cash Book) to find differences.

🎯 Exam Tip: Remember that only the bank-related entries in the cash book are relevant for a BRS, not the cash column.

Question 3. A debit balance in the depositer's cash book will be shown as:
(a) A debit balance in the Bank Statement
(b) A credit balance in the Bank Statement
(c) An overdrawn balance in the Bank Statement
(d) None of above
Answer: (b) A credit balance in the Bank Statement
In simple words: A debit balance in the cash book means the business has money in the bank; from the bank's perspective, this is a liability, shown as a credit balance in the bank statement.

🎯 Exam Tip: Always remember the fundamental rule of banking records: what is a debit for the customer's cash book is a credit for the bank statement, and vice-versa, assuming no reconciliation differences.

Question 4. A Bank Reconciliation statement is a -
(a) Part of Cash Book
(b) Part of Bank Account
(c) Part of Financial Statement
(d) None of these
Answer: (d) None of these
In simple words: A Bank Reconciliation Statement is a separate document prepared to explain differences between the cash book and bank statement, not a part of either or the financial statements themselves.

🎯 Exam Tip: A BRS is an internal control tool, not a primary accounting record or a mandatory financial statement.

Question 5. Bank - make payment on behalf of customers.
(a) can
(b) cannot
(c) not known
(d) all of these are incorrect
Answer: (a) can
In simple words: Banks can make payments for customers, such as standing orders or direct debits, as instructed.

🎯 Exam Tip: Recognizing bank services like making payments on behalf of customers is crucial for understanding items that cause differences between cash book and passbook balances.

Question 6. Bank reconciliation statement is prepared by:
(a) Trader
(b) Bank
(c) Debtor
(d) Creditor.
Answer: (a) Trader
In simple words: The business (trader or account holder) prepares the BRS to match their records (cash book) with the bank's records (passbook).

🎯 Exam Tip: Always associate the preparation of a Bank Reconciliation Statement with the business entity or account holder, not the bank itself.

Bank Reconciliation Statement Definite Answer Type Questions (1 Mark)

Question 1. Write the name of the statement prepared for reconciling the balances of cash book and passbook?
Answer: Bank Reconciliation Statement.
In simple words: The statement used to find and explain differences between a company's cash book balance and its bank statement balance is called a Bank Reconciliation Statement.

🎯 Exam Tip: Clearly state the full name "Bank Reconciliation Statement" to earn full marks, as it directly answers the question.

Question 2. Who is prepared a Bank Reconciliation statement?
Answer: Trader or the Bank Account Holder.
In simple words: The Bank Reconciliation Statement is prepared by the business or individual who holds the bank account, not by the bank itself.

🎯 Exam Tip: Remember that the BRS is an internal document for the business to verify its cash records against the bank's.

Question 3. Write the name of the book in which entry made by the bank.
Answer: Pass Book.
In simple words: The bank records all transactions related to a customer's account in a document provided to the customer, known as the Pass Book (or Bank Statement).

🎯 Exam Tip: Distinguish between the cash book (maintained by the business) and the pass book (maintained by the bank) for clarity in accounting.

Question 4. Which type of transactions are entered into cash book?
Answer: Cash transactions are entered into cash-book.
In simple words: The cash book records all transactions involving actual cash receipts and payments, including those made through the bank.

🎯 Exam Tip: Note that the cash book typically has both a cash column and a bank column, recording all cash and bank-related transactions respectively.

Bank Reconciliation Statement Very Short Answer Type Questions (2 Marks)

Question 1. What do you mean by Bank Reconciliation statement?
Answer: The statement which is prepared to find out the reasons for differences in the balances of Cash Book and that of the Pass Book is known as Bank Reconciliation Statement.
In simple words: A Bank Reconciliation Statement is a document created to identify and explain any discrepancies between a business's cash book balance and the bank's pass book balance.

🎯 Exam Tip: Emphasize "finding reasons for differences" as the core purpose of a BRS in your definition.

Question 2. What are the two methods of preparing the Bank Reconciliation Statement?
Answer: There are following two methods of reconciling the bank balances:
1. Bank Reconciliation Statement without preparation of Adjusted Cash Book.
2. Bank Reconciliation Statement After the preparation of the Adjusted Cash Book.
In simple words: There are two main ways to prepare a BRS: either directly comparing the cash book and pass book, or first adjusting the cash book for certain errors/omissions before preparing the reconciliation.

🎯 Exam Tip: Be precise in naming the methods, especially distinguishing between preparing the BRS "without" and "after" adjusting the cash book.

Question 3. Write two importances of Bank Reconciliation Statement.
Answer:
1. The reconciliation will bring out any errors that may have been committed either in the cash book or in the Pass Book.
2. It helps in finding out the actual position of the bank balance.
In simple words: A BRS helps detect errors in accounting records and provides a clear picture of the true bank balance at a specific date.

🎯 Exam Tip: Focus on error detection and accurate balance determination as key benefits, which are frequently evaluated in exams.

Bank Reconciliation Statement Short Answer Type Questions (4 Marks)

Question 1. Prepare a Bank Reconciliation Statement from the following particulars as on 31st March 2014: (i) Debit Balance as per Cash Book - Rs. 8,000 (ii) Cheques issued but not presented for payment - Rs. 1,880 (iii) Cheques deposited into the bank for collection but not yet collected by the bank - Rs. 2,000 (iv) Interest allowed by the bank - Rs. 80 (v) An insurance premium paid by the bank but no information is given to the customer - Rs. 800 (vi) Bank charges - Rs. 50
Solution:

🎯 Exam Tip: Clearly label additions and subtractions and ensure correct calculation to arrive at the reconciled balance, paying attention to whether you start with the cash book or pass book balance.

Question 2. Prepare a Bank Reconciliation Statement as on 31st December 2012 of Shyam Nandan, Kanpur from the following particular: (i) Debit balance as per Cash Book on 31st December 2012 was Rs. 5,000. (ii) A cheque of Rs. 1,000 was sent for collection but was not collected by the bank. (iii) A cheque of Rs. 500 was issued but it was not presented for payment. (iv) Rs. 125 credited in the Pass Book for interest was not entered into Cash Book. (v) Rs. 500 of Insurance Premium was directly paid by the bank.
Solution:

🎯 Exam Tip: Accurately identifying which items to add and which to subtract based on the starting balance (Cash Book or Pass Book) is critical for correct reconciliation.

Question 3. Explain any two reasons for the differences in the balances of the two books.
Answer: Following two reasons for the differences in the balance as shown by the cash book and pass book are:
(i) Cheques issued but not presented for payment:
As soon as any person is issued a cheque by the customer of the bank it is recorded on the credit side in the bank column of the cash book. The same cheque is presented by the person after a duration of time. Thus, if in between this duration the balances are reconciled there will be differences in the two balances.
(ii) Cheques deposited but not collected or credited by the Bank: As soon as the cheques are deposited in the bank, the customer debits the bank column of the cash book. This will lead to an increase in the balance in the Cash Book. The book will not increase the balance unless the amount is really received. The process of the collection takes some time and is during this duration the balances are compared there will be a difference in the two because of these cheques.
In simple words: Differences arise because of timing issues: cheques a business issues are immediately recorded in its cash book but only affect the bank statement when presented, and cheques deposited are immediately recorded in the cash book but only appear in the bank statement after the bank collects them.

🎯 Exam Tip: When explaining differences, focus on the timing gap between recording a transaction in the cash book and its reflection in the bank statement.

Bank Reconciliation Statement Long Answer Type Questions (8 Marks)

Question 1. What is the Bank Reconciliation Statement? Explain its utility and describe the method of preparing it. Or When and why is the Bank Reconciliation Statement prepared? Prepare a Bank Reconciliation Statement with the imaginary figures. Or Why, when and by whom is Bank Reconciliation Statement prepared? Give a proforma of Bank Reconciliation Statement. Or What do you mean by the Bank Reconciliation Statement? Why is it necessary to prepare this statement by the businessmen? Or What are the main objectives of preparing a Bank Reconciliation Statement? Or What is the Bank Reconciliation Statement? Why is it prepared? What are various reasons for differences in the balances of Cash Book and Pass Book at any particular date? Describe.
Answer: Bank Reconciliation Statement: Bank balance as shown by the cash book must tally with the balance shown by the passbook. It is quite often seen that the balances as revealed by the cash book and the passbook do not tally. These differences may arise due to numerous reasons. In order to tally the balances of bank column of cash book and the passbook, a statement is prepared which is known as the 'Bank Reconciliation Statement'. Thus, Bank Reconciliation Statement may be defined as “The statement which is prepared to find the reasons of differences in the balances of Cash Book and that of the Pass Book is known as Bank Reconciliation Statement".

Importance of Bank Reconciliation Statement: The various reasons for the preparation of Bank Reconciliation statement are as follows:
1. Cheques Issued but not Presented for Payment: As soon as any person is issued a cheque by the customer of the bank it is recorded on the credit side in the bank column of the cash book. The same cheque is presented by the person after a duration of time. Thus, if in between this duration the balances are reconciled there will be a difference in the two balances.

2. Cheques Deposited but not Collected or Credited by the Bank: As soon as the cheques are deposited in the bank, the customer debits the bank column of the cash book. This will lead to an increase in the balance in the cash book. The bank will not increase the balance unless the amount is really received. The process of collection of cheques takes some time. If during this duration the balances are compared there will be a difference in the two because of these cheques.

3. Bank Charges: The bank provides many services to its customers. It provides services like collection of dividends, collection of interest, etc. The bank charges some extra amount for these services. Thus bank balance is reduced as this is debited from the customers account without giving an intimation. This reduces the bank balance and no entry is made in the cash book.

4. Direct Deposits by Customers: There may be some customers who may deposit the money directly into the bank. Thus, the bank balance is increased while the balance in the cash book is not adjusted, accordingly this causing a difference in the balance.

5. A collection made by the Bank on Behalf of Customer: The bank may collect dividend on shares, on government securities etc. on behalf of the customer. The bank credits the amount to the passbook. This increases its balance. While the balance of the cash book is undercast. Thus, the two balances will differ from each other.

6. Dishonour of Bill Discounted with the Bank: The customer gets the bill discounted from the bank before the due date but if on the due date it was dishonoured the bank will debit the amount and the passbook balance will be reduced whereas the cash book will remain unchanged. This will also lead to the difference in the balances.

7. Interest Charged and Allowed by the Bank: When there is overdraft, the bank may charge interest on overdraft. The bank, will record it on the debit side of the passbook. There will be no entry in the cash book to this effect unless some information is received by the bank, thus leading to a difference in the balances. The bank allows some interest on the amount deposited by the customer on a specific date but the customer is informed at a later date. The customer will not pass any entry to this effect in the bank column of the cash book. Hence, there will be a difference between the two balances.

The procedure of Preparing a Bank Reconciliation Statement: In order to prepare a Bank Reconciliation Statement, the following steps should be undertaken:
1. Selection of date: Select the date on which the reconciliation statement is to be prepared. It is advisable for the students that the last date of the month should be taken into consideration so that balances as revealed by the Cash Book and the Pass Book may be easily taken out.

2. Scrutinising of entries: The entries on the debit and the credit sides in the Bank column of the Cash Book are checked with the respective credit and debit sides in the statement relating to the period in question.

3. Grouping of items: The items which are left unticked should be grouped according to their respective headings.

4. Placing of items: The remaining unticked items should be grouped under two main headings 'Add' and 'Less'. This grouping of items is of course based on a decision whether the student wants to start the reconciliation statement with the Cash Book Balance or the Pass Book Balance.

5. Copying of Statement: The Bank Reconciliation Statement should be copied into the Cash Book at the end of the month or it should be kept safely in a separate record.

Rules to be followed for Bank Reconciliation Statement: If the balance of Cash Book is given in the question and the Pass Book balance is to be scrutinised then the following items will be added:
- Cheques issued but not presented in the bank for payment till the end of the month.
- Amounts credited by the bank without giving intimation to the customer by the end of the month.

The following items will be subtracted from the given balance:
- Amounts debited by the bank in the account of the customer without giving any information to him by the end of the month.
- Amounts of credit which have been anticipated to be credited but no credit was provided by the bank till the end of the month.

If overdraft (balance) is given then (-) sign will be asserted before balancing figures and calculation will be done accordingly. If the balance of Pass Book is given in the problem and balance of Cash Book is asked, then Add:
- Amounts debited by the bank in the account of the customer without intimating the customer till the end of the month.
- Amounts of credit which were expected to be credited but no credit could be given.

Less:
- Cheques issued but not presented in the bank for payment till the end of the period in question.
- Amounts credited by the bank without giving intimation to the customer till the end of the month.

Specimen of Bank Reconciliation Statement

🎯 Exam Tip: For long answer questions, define BRS, explain its importance/utility, detail common reasons for differences, and outline the preparation procedure including a proforma, to cover all aspects comprehensively.

Question 2. What are the reasons for differences in the balance as per Cash Book and as per Bank Pass Book? Or What is a Bank Reconciliation Statement? Discuss the reason liable for the difference between the balance of Cash Book and Bank Pass Book? Or What is the Bank Reconciliation Statement? What are the reasons for the difference in the balance of Bank Column of Cash Book and the balance of Pass Book? Give eight reasons for the difference in their balance. Or What is the importance of Bank Reconciliation Statement? Explain the causes of differences in the Cash Book and Pass Book Balance. Or What do you understand by the Bank Reconciliation Statement? What are the reasons for the difference in balance between Cash Book and Pass Book? What are the objectives of preparing Bank Reconciliation Statement?
Answer: Meaning and Importance of Bank Reconciliation Statement: Bank Reconciliation Statement: Bank balance as shown by the cash book must tally with the balance shown by the passbook. It is quite often seen that the balances as revealed by the cash book and the passbook do not tally. These differences may arise due to numerous reasons. In order to tally the balances of bank column of cash book and the passbook, a statement is prepared which is known as the 'Bank Reconciliation Statement'. Thus, Bank Reconciliation Statement may be defined as “The statement which is prepared to find out the reasons of differences in the balances of Cash Book and that of the Pass Book is known as Bank Reconciliation Statement".

Importance of Bank Reconciliation Statement: The various reasons for the preparation of Bank Reconciliation statement are as follows:
1. Cheques Issued but not Presented for Payment: As soon as any person is issued a cheque by the customer of the bank it is recorded on the credit side in the bank column of the cash book. The same cheque is presented by the person after a duration of time. Thus, if in between this duration the balances are reconciled there will be a difference in the two balances.

2. Cheques Deposited but not Collected or Credited by the Bank: As soon as the cheques are deposited in the bank, the customer debits the bank column of the cash book. This will lead to an increase in the balance in the cash book. The bank will not increase the balance unless the amount is really received. The process of collection of cheques takes some time. If during this duration the balances are compared there will be a difference in the two because of these cheques.

3. Bank Charges: The bank provides many services to its customers. It provides services like collection of dividends, collection of interest, etc. The bank charges some extra amount for these services. Thus bank balance is reduced as this is debited from the customers account without giving any intimation. This reduces the bank balance and no entry is made in the cash book.

4. Direct Deposits by Customers: There may be some customers who may deposit the money directly into the bank. Thus, the bank balance is increased while the balance in the cash book is not adjusted, accordingly this causing a difference in the balance.

5. A collection made by the Bank on Behalf of Customer: The bank may collect dividend on shares, on government securities etc. on behalf of the customer. The bank credits the amount to the passbook. This increases its balance. While the balance of the cash book is undercast. Thus, the two balances will differ from each other.

6. Dishonour of Bill Discounted with the Bank: The customer gets the bill discounted from the bank before the due date but if on the due date it was dishonoured the bank will debit the amount and the passbook balance will be reduced whereas the cash book will remain unchanged. This will also lead to the difference in the balances.

7. Interest Charged and Allowed by the Bank: When there is overdraft, the bank may charge interest on overdraft. The bank, will record it on the debit side of the passbook. There will be no entry in the cash book to this effect unless some information is received by the bank, thus leading to a difference in the balances. The bank allows some interest on the amount deposited by the customer on a specific date but the customer is informed at a later date. The customer will not pass any entry to this effect in the bank column of the cash book. Hence, there will be a difference between the two balances.

Reasons Liable for the Difference between the balance of Cash Book and Bank Pass Book. The reasons liable for the difference may be summarised as below:
1. Cheques Issued but not Presented for Payment: As soon as any person is issued a cheque by the customer of the bank, it is recorded on the credit side in the bank column of the cash book. The same cheque is presented by the person after a duration of time. Thus, if in between this duration the balances are reconciled, there will be differences in the two balances.

2. Cheques Deposited but not Collected or Credited by the Bank: As soon as the cheques are deposited in the bank, the customer debits the bank column of the cash book. This will lead to an increase in the balance in the cash book. The bank will not increase the balance unless the amount is really received. The process of collection of cheques takes some time and if during this duration the balances are compared, there will be differences in the two because of these cheques.

3. Bank Charges: The bank provides many services like collection of dividends, collection of interest, etc. The bank charges some extra amount for these services. Thus, the bank balance is reduced as this is debited from the customer's account without giving any intimation. This reduces the bank balance and no entry is made in the cash book.

4. Direct Deposits by Customers: There may be some customers who may deposit the money directly into the bank. Thus, the bank balance is increased while the balance in the cash book is not adjusted accordingly, causing a difference in the balances.

5. Collection by the Bank on behalf of Customer: The bank may collect dividend on shares, on government securities etc. on behalf of the customer. The bank credits the amount to the passbook, and this increases its balance. While the balance of the cash book is undercast. Thus, the two balances will differ from each other.

6. Dishonour of Bill Discounted with the Bank: The customer gets bill discounted from the bank before the due date but if on the due date it was dishonoured the bank will debit the amount and the passbook balance will be reduced whereas the cash book will remain unchanged. This will also lead to the difference in the balances.

7. Interest Charged and Allowed by the Bank: When there is overdraft, the bank may charge interest on overdraft. The bank will record it on the debit side of the passbook. There will be no entry in the cash book to this effect unless some information is received by the customer leading to a difference in the balances. Similarly, the bank allows some interest on the amount deposited by the customer on a specific date but the customer is informed at a later date. The customer will not pass any entry to this effect in the bank column of the cash book. Hence, there will be a difference between the two balances.
In simple words: A Bank Reconciliation Statement is crucial for businesses to identify and explain discrepancies between their cash book and the bank statement, which arise due to timing differences in recording transactions, bank charges, direct deposits, or errors, ensuring the accurate reporting of the company's cash position.

🎯 Exam Tip: When answering questions about reasons for differences, classify them into timing differences (cheques issued/deposited but not cleared), transactions recorded by the bank but not by the firm (bank charges, interest, direct deposits), and errors, providing specific examples for each category.

Question 3. Prepare Bank Reconciliation Statement on 30th June 2011 as per the following information:
1. The credit balance of pass-book on 30th June 2011 was Rs. 15,037.
2. A cheque of Rs. 2,000 was sent for collection which was dishonoured.
3. Cheques of Rs. 5,350 were issued for payment, but cheques worth Rs. 1,035 were presented for payment on 5th July 2011.
4. Bank charges of Rs. 75 were debited in pass-book.
5. Bank charged Rs. 609 as interest on overdraft.
6. Bank paid Rs. 1,055 towards insurance as per standing instructions but Was not entered in the cash book.
7. A cheque of Rs. 2,000 was sent for collection but was not entered in cash book by mistake.
8. The bank credited Rs. 424 in the account related to fixed deposits as per standing instructions.
9. The bank credited Rs. 993 instead of Rs. 399 in the trader's account by mistake which was rectified on 17th July 2011.
10. Cheques of Rs. 3,250 were deposited for collection, but bank collected Rs. 2,735 only.
Solution:

🎯 Exam Tip: When starting with the passbook balance, reverse the usual cash book adjustments: add items that decreased the passbook but not the cash book, and subtract items that increased the passbook but not the cash book.

Question 4. Prepare a Bank Reconciliation Statement from the following particulars:
1. On 31st December 2011, there was an overdraft balance of Rs. 13,880 as per Pass Book.
2. Bank charged interest of Rs. 240 on overdraft for 6 months on 31st December 2011. This was not recorded in the Cash Book.
3. Bank expenses of Rs. 60 are not recorded in the Cash Book.
4. A cheque amounting to Rs. 2,300 was issued but not presented for payment.
5. Rs. 4,340 cheque was sent to the bank but was not collected and deposited.
6. A bill of Rs. 1,000 which was discounted with Bank in November 2011 was dishonoured on 31st December 2011.
Solution:

🎯 Exam Tip: When dealing with an overdraft balance, remember that additions and subtractions are often reversed compared to a normal positive balance. Be careful with how each transaction impacts the overdraft amount.

Question 5. From the following particulars, prepare Bank Reconciliation Statement as on 31st December 2009: On 31st December 2009, the passbook of Gaurav Khemka shows the credit balance Rs. 8,000. On comparing a cash book with a passbook, the following differences are found:
(i) Cheques sent to the bank for collection but not yet collected Rs. 1,000.
(ii) Cheques of Rs. 11,000 issued but out of them only cheques of Rs. 9,000 were presented for payment
(iii) Direct deposited by the customer in his bank account Rs. 4,000.
(iv) An insurance premium paid by bank Rs. 500.
(v) Rs. 100 has been credited by the bank.
Solution:

🎯 Exam Tip: When reconciling from the passbook to the cash book, mentally reverse the typical cash book reconciliation logic. Add items that decreased the cash book but not the passbook, and subtract items that increased the cash book but not the passbook.

Question 6. From the following particulars prepare a Bank Reconciliation Statement as on 31st March 2007. The credit balance as per bank Pass Book on this date was Rs. 20,500:
(i) Out of total cheques of Rs. 2,000 issued during the month, cheques of Rs. 500 were presented for payment in May 2007, while a cheque of Rs. 100 was lost in transit.
(ii) In accordance with standing instruction of account holder, Bank paid LIC premium of Rs. 600 for which no entry was made in the Cash Book.
(iii) A customer directly deposited Rs. 2,000 in the bank for which no entry was recorded in Cash Book.
(iv) Bank charges of Rs. 50 debited into Pass Book were not recorded in Cash Book.
Solution:

🎯 Exam Tip: Pay close attention to the date of presentation for cheques. Only cheques not presented *by the reconciliation date* should be included in the BRS.

Question 7. Prepare a Bank Reconciliation Statement as on 31st December 2008 on the basis of the following information:
(i) Bank Account balance as per Cash Book was Rs. 18,000 on 31st December 2008.
(ii) The cheque for Rs. 2,500 was sent to the bank for collection but was not collected.
(iii) Cheques for Rs. 4,000 and 3,000 were issued to creditors but the only cheque for Rs. 4,000 was presented for payment.
(iv) Following transactions were entered into Pass Book but Cash Book was left unrecorded:
(a) Bank Charges Rs. 50.
(b) Rs. 200 were paid for Insurance premium.
(c) Rs. 5,000 were deposited in the Bank Account directly by a customer.
Solution:

🎯 Exam Tip: Clearly identify and categorize each item as either an "Add" or "Less" transaction based on its effect on the passbook balance, assuming you start with the cash book balance.

Question 8. From the following information, prepare a Bank Reconciliation Statement as on 31st December 2010:
(i) Balance as per Cash Book Rs. 8,000.
(ii) Cheques of Rs. 11,000 sent to the bank for the collection were not collected.
(iii) Cheques of Rs. 12,000 were issued but only cheques of Rs. 10,000 were presented for payment.
(iv) Rs. 4,000 was directly deposited into a bank by a customer.
(v) Rs. 500 was credited by the bank for interest.
(vi) Insurance premium was paid by the bank Rs. 1,500.
Solution:

🎯 Exam Tip: When calculating unpresented cheques, subtract the amount presented from the total issued, focusing on the unpresented portion for reconciliation.