BANK

RECONCILIATION
STATEMENT
Q1. Bank Reconciliation Statement is prepared so that the difference between
the undermentioned balances can be reconciled :

(a) Difference in the balance in the bank and the cash balance.

(b) Difference in the balances in the Pass Book in the beginning and at the ent

(c) Difference in the Pass Book and Cash Book balances.

(d) None of the above.

Q2. Pass Book of the account holder is a copy of

(a) the bank columns in the Cash Book of the account holder.

(b) the relevant account in the books of a bank.

(c) the cash columns in the Cash Book of a customer.

(d) None of the above

Q3. Bank Reconciliation Statement is prepared

(a) to know the payments made through cheques.

(b) to know the errors in the Pass Book.

(c) to compare the Cash Book with Pass Book and ascertain the differences,

(d) None of the above.

Q4. Bank Reconciliation Statement is

(a) a part of Double Entry System.

(b) no a part of Double Entry System.

(c) part of Bank Statement.

(d) None of these.

Q5. Balance shown in the Balance Sheet is of

(a) Cash Book.

(b) Pass Book.

(c) Adjusted Cash Book.

(d) None of these.

Q6. Debit balance in the Cash Book is equivalent to

(a) Overdraft as per Pass Book.

(b) Credit balance as per Pass Book

(c) verdraft as per Cash Book.

(d) None of these.

Q7. Bank Reconciliation Statement is prepared by matching

(a) entries in Pass Book with entries in bank columns of Cash Book.

(b) entries in Pass Book with entries in cash columns of Cash Book.

(c) entries in Pass Book with entries in bank columns and cash columns of Cash Book

(d) None of the above.

Q8. Bank Reconciliation Statement is prepared by

(a) Creditors.

(b) Debtors.

(c) Bank.

(d) Account holder.

Q9. Which of the following will not require adjustment in the Cash Book balance?

(a) Cheque issued but not presented for payment.

(b) Cheque deposited but not cleared.

(c) Cheque wrongly credited by bank.

(d) All of the above.

Q10. Bank Reconciliation Statement is prepared

(a) that the end of each week.

(b) at the end of each month.

(c) at the end of the accounting year.

(d) wherever a bank statement is received.

Q11. A business receives its bank statement showing the closing balance as
6,500 overdrawn It is found that there were unpresented cheques of ₹2,000
and uncredited deposits of ₹1,500. Overdraft as per Cash Book is

(a)₹5,000

(b) ₹8,000

(c)₹9,000

(d) ₹12,000,

Q12. Mohan's bank reconciliation statement shows cheques deposited but not
credited by bank of ₹3,800 and cheques issued but not presented by suppliers
of ₹3,500. His bank balance as per Cash Book is ₹25,000. Balance as per pass
book statement is

(a) 25,000.

(b) 24,700.

(c) 25,300

(d) 32,300.
Q13. If balance in the bank statement shows ₹ 3,000 (Dr.) and there are
deposits of ₹800 not yet credited and unpresented cheques totalling 500, the
balance in the Cash Book should be

(a) 3,300 (Cr.).

(b) 2,700 (Cr).

(c) 4,300 (Cr.).

(d) 1,700 (Dr.).

Q14. Cash Book shows ₹1,000 as overdrawn. When bank statement is received, it
was identified hat one of debtors has deposited ₹400 into the account and bank
charges of ₹20 had been debited to the account. Bank Statement balance is

(a) 1,420 (Dr.).

(b) 620 (Dr.).

(c)4,300 (Cr.).

(d) 1,700 (Dr.).

Q15. Cash book balance was ₹1,790 (Dr.). When compared with the bank
statement, it was identified that unpresented cheques were ₹ 1,040 and deposits
not credited were ₹820. Balance of the bank statement will
(a) 70 (Dr.)

(b) 1,570(Cr.)

(c) 2,010(Cr.)

(d) 3,650 (Cr.).

Q16. Bank statement is also called?

(a) Pass book

(b) Cash book

(c) Credit book

(d) Debit book

Q17. The balance on the debit side of the bank column of cash book indicates?

(a) The total amount has drawn from the bank

(b) Cash at bank

(c) The total amount overdraft in the bank

(d) None of above

Q18. Bank reconciliation is not a?

(a) Reconcile records

(b) Memorandum statement

(c) Ledger account

(d) Procedure to provide cash book adjustments

Q19. Uncollected checks are also known as?

(a) Outstanding checks

(b) Uncleared checks

(c) Outstation checks

(d) Both b & c

Q20. Favorable balance means?

(a) Credit balance in the cash book

(b) Credit balance in Bank statement

(c) Debit balance in cash book

(d) both b and c

ANSWERS :-

1.C 2.B 3.C 4.B 5.C

6.B 7.A 8.D 9.C 10.D
11.C 12.B 13.B 14.B 15.C
16.A 17.B 18.C 19.D 20.D
 Q1. Who prepares the Bank Reconciliation Statement?

Bank Reconciliation Statement is prepared by the account holder.

Q2. What records are necessary for preparinga Bank Reconciliation Statement?

(i) Cash Book, (ii) Bank Pass Book or Bank Statement.

Q3. State any two reasons of difference between Cash Book and Bank Pass Book balances.

(i) Cheques deposited but not credited.

(ii) Cheques issued but not presented for payment.

Q4. What does Debit' balance as per the Cash Book mean?

Debit balance as per Cash Book means amount lying deposited in bank.

Q5. What does 'Credit' balance as per the Cash Book mean?

Credit balance as per Cash Book means amount overdrawn from the bank.

Q6. What does Debit' balance as per the Bank Pass Book mean?

Debit balance as per Pass Book means amount overdrawn from bank and thus, payable
to bank.

Q8. What does "Credit' balance as s per the Bank Pass Book mean?

Credit balance as per Pass Book means amount lying deposited in the bank.

Q9. Is bank reconciliation statement a part of Double Entry System?

No, bank reconciliation statement is not a part of the Double Entry System. It is a method
to reconcile the two balances.

Q10. Is it correct that bank reconciliation statement is prepared once,i.e., at the end
of the year ?

No, it is not correct. It can be prepared at any time of the year say every month or every
quarter or half yearly or yearly.
Q1. Why do we need reconciliation?

When two different statements are made, and the bank statement and cash book kept by the users
are compared, they frequently do not match. We need to keep track of or create reconciliation
statements for the same reason.

Q2. What do you understand by correct cash balances?

Receipts and payments in the books may have errors that must be corrected. To repair these
inaccuracies that occur during the recording of revenues and payments, a proper cash balance is
computed before the statement is reconciled.

Q3. What do you understand by bank overdraft?

The term "bank overdraft" refers to withdrawing funds from bank accounts in excess of their limits,
resulting in the available amount falling below zero. Interest will be applicable only for the amount
actually used from the overdraft account.

Q4. Explain what difference is caused by errors.

The following are two primary differences that are produced by bank reconciliation statement errors:

a. Errors made by the business when registering the transaction.

b. Errors committed by the bank during the transaction's recording.

Q5. State any six reasons when the cash book balance will be higher than the pass
book balance.

a. Cheque issued but not yet presented for payment in the bank.

b. Bank charges and commission charged by the bank.

c. Direct deposit by customer into the bank.

d. Direct payment made by the bank on behalf of customers.

e. Transaction wrongly debited in cash book.

f. Transaction wrongly credited in pass book.

Q6. How to deal with overdraft?

When an excess amount is removed from a bank account that exceeds its limit, it is referred to as a
bank overdraft. Because businesses occasionally require more funds, they obtain an overdraft
from the bank. The bank overdraft is treated as a negative amount on the bank reconciliation
statement in this case.

Q7. How will direct payment by a customer affect the Pass Book balance

A direct payment by a customer will :-

(i) increase the credit balance as per Pass Book; or
(ii) reduce the debit balance as per Pass Book.

Q8. State two transactions which may be recorded in Cash Book but not in Pass Book.

(i) Cheques issued but not presented in the bank for payment.
(ii) Cheques deposited into bank but not credited or collected.

Q9. State two transactions which may be recorded in Pass Book but not in Cash Book.

(i) Interest allowed or credited by bank.

(ii) Bank charges and commission charged by the bank.

Q10. State two errors committed in Cash Book which are considered while preparing Bank
Reconciliation Statement.

(i) Overcasting or undercasting of bank column of the Cash Book.

(ii) Wrong amount recorded in bank column of Cash Book.

Q11. Give four causes of difference in the Cash Book balance (bank column) and Pass book
balance.

(i) Cheques drawn but not cleared.

(ii) Interest on bank overdraft.

(iii) Cheques paid into the bank but not collected.

(iv) Interest on investment collected by the bank.

 Q1. What is a Bank Reconciliation Statement? Explain the purpose of preparing
such a statement.
Meaning of Bank Reconciliation Statement is a statement prepared by the account holder
on a particular date to reconcile the bank balance as per cash book with the balance as per
bank statement or bank pass book if the two balances differs showing entries causing
differences between the two balances.

Bank Reconciliation Statement is prepared for the following purposes:

1. It detects the errors that may have been committed either in the Cash Book or Bank
Statement or Bank Pass Book.

2. Undue delay in clearance of cheque deposited or issued is known from the

reconciliation.

3. Regular reconciliation discourages embezzlements. Reconciliation helps the

management to verify the accuracy of entries recorded in the Cash Book.

4. It shows actual bank balance.

Q2. Explain any two reasons on account of which the balance as shown by the Pass Book
does not agree with the balance as shown by the bank column of the Cash Book.

The two Reasons of difference between balances as per Cash Book and Bank Statement or Bank Pass
Book are given below:

Balances as per Cash Book and Bank Statement or Bank Pass Book may differ under some situations
shown as follows:

Difference due to Timing:

(a) Cheques issued or Drawn but not yet presented for payment: Cheques issued or drawn but not yet
presented for payment is recorded immediately in Cash Book at the time of issue but bank records it
when it is presented for payment. Thus, there is a gap of few days between entry in the Cash Book and
in the Bank Statement or Bank Pass Book. If Bank Reconciliation Statement is prepared on a date
between the date of issue of cheque and its presentation to the bank for payment, the difference will
arise and balance as per Cash Book will be less by the amount of issued cheques than that of Pass Book
Balance.

(b) Cheques Deposited or paid into the Bank but yet cleared: Cheques deposited or paid into the bank
are recorded in the receipts or debit side of the Cash Book on the date of deposit. But bank credits the
accountholder's account when it has received the payment from the other bank or when cheques have
been cleared. Hence, there is gap of few days between the deposit of cheques and credit given by the
bank. If Bank Reconciliation Statement is prepared in between the two dates, differences will exist. The
Cash Book balance will be more than the Pass Book balance.
Q3. How we can deal with favourable balance?

The steps below will assist you in dealing with a favourable balance:

i. The first item on the statement is the balance in the cash book, which can also be the balance in
the passbook.

ii. The top of the statement has Date written on it.

iii. Amounts directly deposited in a bank account and cheques issued but not present for payment
are added.

iv. All bank credits, such as dividends and interest, as well as direct bank deposits, are included.

v. Adjustments for errors are made using the rectification of errors principle.

vi. At this point, the net amount reported in the statement should match the balance in the
passbook.

Q4. When the timing difference is created?

When a cash book and a bank passbook are compared, a temporal gap occurs, which is
referred to as a timing difference.

The temporal gap is caused by the following factors:

a. Cheques that have been paid into the bank but not yet collected cause a time lapse.

b. A cheque has been issued by the bank, but it has yet to be presented in order to receive
payment

c. Amounts deposited straight into a bank account without using a debit card. Being noted in
the company's cash book

d. A direct debit (deduction) is made on your behalf by the bank and the customer, which the
vast majority of customers are completely unaware of. As a result, a time gap has developed.

Q5. How is a Bank Reconciliation Statement prepared?

Bank Reconciliation Statement is prepared in the following manner:

1.) Date: The date on which Bank Reconciliation Statement is prepared.

2.) Balance: It should be kept mind from where to start the Bank Reconciliation Statement.

3.) Preparing Bank Reconciliation Statement: After deciding which entries are to be added to
the balance of the concerned book and which entries are to be subtracted. Bank
Reconciliation Statement is prepared in a statement form.

4.) Starting With: Bank Reconciliation Statement is prepared by starting with either Cash
Book balance or Pass Book balance. Thereafter, entries that cause the difference are
determined. Starting balance is then adjusted by noting how the balance would have changed
if same entries were recorded in the two books.

Q6. Explain the process of preparing Bank Reconciliation Statement with Adjusted
Cash Balance.

At the end of the financial year, the cash book must be adjusted for the entries that should be
incorporated but have not been incorporated, before preparing the Bank Reconciliation
Statement.

Following procedure is to be followed for ascertaining the adjusted Cash Balance:

Step 1- Draw up Cash Book having only bank column. If favorable balance as per Cash book is
given, write it on debit side and if unfavorable balance is given write down the balance on the
credit side of the Cash Book.

Step 2- Pass entries in the Cash book in respect of following items:

(a) Amount recorded in the pass book but not yet recorded in the Cash book.

(b) Rectifying entries in respect of errors committed in the cash book.

Step 3- The adjusted balance of the cash book is taken as starting point. The bank reconciliation
statement with amended and adjusted Cash book is prepared.

Q7. Explain points regarding need and importance of preparing a Bank Reconciliation
Statement.
Need and Importance of Bank Reconciliation Statement:-

(1) A bank reconciliation statement locates the error or omissions that may have been
committed either on the part of the bank. The error so detected can be rectified accordingly.

(2) By Preparing a bank reconciliation statement, the customer becomes sure of the
correctness of the bank balance shown by the cash book. It helps him in making further
transactions with the bank.

(3) A reconciliation statement facilitates the preparation of a revised cash book.

(4) Periodic preparation of this statement reduce the chances of embezzlement by the staff of
this firm or even that of the bank. For example, if a cashier makes an entry in the cash book
but does not deposited the cash and cheques into the bank, it will be disclosed by preparing a
bank reconciliation statement.

(5) A reconciliation statement helps in revealing the unnecessary delay in the collection of
cheque by the bank.

(6) It also help in keeping a track of cheque which have been sent to the bank for collection.

Q8. What are the types of Differences Caused by the Time Gap?

The time gap in recording transactions causes the following differences:

1) If the cheques are issued and not presented in the bank for effecting payment.

2) If the cheques are deposited or paid into the bank for assortment but not credited by the
bank till the date.

3) If the cheques are dishonoured by the bank after deposition of the same.

4) Amount of interest granted by the bank authorities.

5) If the bank charges interest on an overdraft, commission etc.

6) If the customers deposit directly to the bank.

7) The amount collected by the bank in the shape of interest, dividend etc.

Q9. What is the significance of Bank Reconciliation Statement ?

Significance of Bank Reconciliation statement:-

(i) The errors and miscalculations either by the firm or by the bank are identified by the
statement.

(ii) It gives satisfaction to the customers.

(iii)Minimizes the probability of fraud by the employee of the firm or bank.

(iv) The cheques deposited for collection can be tracked by this.

Q1. Vinni has joined as an intern in Elegance Ltd a FMCG company. She has joined under the
accounting department. Her supervisor Ms. Mini works as an accountant in Elegance Ltd. On day 1 of
her internship, Vinni is taught how to prepare a bank reconciliation statement. Vinni is completely
new to the topic and wasn't aware about the need and procedure for preparation of bank
reconciliation statement. Later, Ms Mini explained her the need and procedure for preparation of
bank reconciliation statement and asked her to prepare the bank reconciliation statement for
Elegance Ltd for the month of March, 2021.

Question. Using which of the following statements wouldMsMini have explained the need of bank
reconciliation statement to Vinni?

(a) To match the balances as it is generally experienced that when a comparison is made between the
bank balance as shown in the firm's cash book and the bank statement, the two balances do not tally.

(b) To find out the cash balance.

(c) To understand liquidity position of the firm.

(d) None of the above

Answer. A

Question. Using which of the following statements would Ms Mini have explained the importance of
bank reconciliation statement to Vinni?

(a) It helps to assure the customer about the correctness of the bank balance shown by the pass

book.

(b) It helps the management to keep a track of cheques, which have been sent to the bank for collection.

(c) Embezzlements are avoided by regular periodic reconciliation.

(d) All of the above

Answer. D

Question. How would have Ms Mini classified the reasons for differences between cash book and bank
book balances?

(a) Timing differences in recording of the transactions.

(b) Errors made by the business or by the bank.

(c) Both (a) and (b)

(d) Neither (a) nor (b)

Answer. C
Question. What documents of Elegance Ltd does Vinni require for preparation of
bank reconciliation statement?

(a) Cash book of Elegance Ltd

(b) Pass book of Elegance Ltd

(c) Both (a) and (b)

(d) Neither (a) nor (b)

Answer. C

Question. 'Debit balance as per pass book and credit balance as per cash book is a
favourable balance'. You are required to answer on Vinni's behalf whether the above
statement is

(a) True

(b) False

(c) Can't say

(d) Partially true

Answer. B
Q2. On 31st December, 2021, the cash book of Mittal Bros showed a credit balance of Rs 6,920.
There is a stark difference in the balance as per pass book. A careful scrutiny points out that
there was a debit by bank for Rs 200 on account of interest on overdraft and Rs 50 on account of
charges for collecting bills. Cheques drawn but not encashed before 31st December, 2021 were
for Rs 4,000. The bank has collected interest and has credited Rs 600 in pass book. A bill
receivable for Rs 700 previously discounted with the bank had been dishonoured and debited in
the pass book. Cheques paid into bank but not collected and credited before 31st December, 2021
amounted to Rs 6,000.

Question. Credit balance in cash book reflects

(a) overdraft

(b) favourable balance

(c) nil balance

(d) None of these

Answer. A

Question. Credit balance of bank account as per cash book essentially means

(a) bank account becomes negative and the businesses in effect have borrowed from the bank.

(b) there is high positive balance in bank account.

(c) business has paid all its bank loans.

(d) None of the above

Answer. A

Question. While preparing the bank reconciliation statement, bills receivable for Rs 700 previously
discounted with the bank now dishonoured, will

(a) increase the credit balance of cash book.

(b) decrease the credit balance of cash book.

(c) will not affect the credit balance of cash book.

(d) None of the above

Answer. A
Question. While preparing the bank reconciliation statement, cheques drawn but not
encashed before 31st December, 2021 for Rs 4,000 will be

(a) added to credit balance of cash book.

(b) deducted from credit balance of cash book.

(c) ignored.

(d) None of the above

Answer. A

Question. What will be the balance as per pass book on 31st December, 2021?

a) Rs 6,920

(b) Rs 9,270

(c) Rs 4,570

(d) Rs 13,870

Answer. B