NCERT Class XI Accountancy: Chapter 5 – Bank Reconciliation Statement
National Council of Educational Research and Training (NCERT) Book for Class XI
Chapter: Chapter 5 – Bank Reconciliation Statement
Class XI NCERT Accountancy Text Book Chapter 5 Bank Reconciliation Statement is given below.
In chapter 4, you have learnt thatthe business organisations keep a record of theircash and bank transactions in a cash book. Thecash book also serves the purpose of both the cashaccount and the bank account and shows thebalance of both at the end of the period.
Once the cash book has been balanced, it isusual to check its details with the records of thefirm’s bank transactions as recorded by the bank.To enable this check, the cashier needs to ensurethat the cash book is completely up to date and arecent bank statement (or a bank passbook) hasbeen obtained from the bank. A bank statementor a bank passbook is a copy of a bank account asshown by the bank records. This enable the bankcustomers to check their funds in the bankregularly and update their own records oftransactions that have occurred. An illustrativebank passbook of a current account is shown infigure 5.1.
The amount of balance shown in the passbookor the bank statement must tally with the balanceas shown in the cash book. But in practice, theseare usually found to be different. Hence, we haveto ascertain the causes for such difference. It willbe observed that a bank statement/passbookshows all deposits in the credit column andwithdrawals in the debit column. Thus, if depositsexceed withdrawals it shows a credit balance andif withdrawals exceed deposits it will show a debitbalance (overdraft).
5.1 Need for Reconciliation
It is generally experienced that when a comparison is made between the bankbalance as shown in the firm’s cash book, the two balances do not tally.Hence, we have to first ascertain the causes of difference thereof and thenreflect them in a statement called Bank Reconciliation Statement to reconcile(tally) the two balances.
In order to prepare a bank reconciliation statement we need to have abank balance as per the cash book and a bank statement as on a particularday along with details of both the books. If the two balances differ, the entriesin both the books are compared and the items on account of which thedifference has arisen are ascertained with the respective amounts involved sothat the bank reconciliation statement may be prepared. Its format shown infigure 5.5.
Reconciliation of the cash book and the bank passbook balances amountsto an explanation of differences between them. The differences between thecash book and the bank passbook is caused by:
- timing differences on recording of the transactions.
- errors made by the business or by the bank.
5.1.1 Timing Differences
When a business compares the balance of its cash book with the balanceshown by the bank passbook, there is often a difference, which is causedby the time gap in recording the transactions relating either to paymentsor receipts. The factors affecting time gap includes :
5.1.1(a) Cheques issued by the bank but not yet presented for payment
When cheques are issued by the firm to suppliers or creditors of the firm,these are immediately entered on the credit side of the cash book. However,the receiving party may not present the cheque to the bank for paymentimmediately. The bank will debit the firm’s account only when these chequesare actually paid by the bank. Hence, there is a time lag between the issue ofa cheque and its presentation to the bank which may cause the differencebetween the two balances.
5.1.1(b) Cheques paid into the bank but not yet collected
When firm receives cheques from its customers (debtors), they areimmediately recorded in the debit side of the cash book. This increasesthe bank balance as per the cash book. However, the bank credits thecustomer account only when the amount of cheques are actually realised.The clearing of cheques generally takes few days especially in case ofoutstation cheques or when the cheques are paid-in at a bank branchother than the one at which the account of the firm is maintained. Thisleads to a cause of difference between the bank balance shown by thecash book and the balance shown by the bank passbook.
5.1.1(c) Direct debits made by the bank on behalf of the customer
Sometimes, the bank deducts amount for various services from the accountwithout the firm’s knowledge. The firm comes to know about it only whenthe bank statement arrives. Examples of such deductions include: chequecollection charges, incidental charges, interest on overdraft, unpaid chequesdeducted by the bank – i.e. stopped or bounced, etc. As a result, the balanceas per passbook will be less than the balance as per cash book.
5.1.1(d) Amounts directly deposited in the bank account
There are instances when debtors(customers) directly deposits money intofirm’s bank account. But, the firm does not receive the intimation from anysource till it receives the bank statement. In this case, the bank records thereceipts in the firm’s account at the bank but the same is not recorded in thefirm’s cash book. As a result, the balance shown in the bank passbook will bemore than the balance shown in the firm’s cash book.
5.1.1(e) Interest and dividends collected by the bank
When the bank collects interest and dividend on behalf of the customer, thenthese are immediately credited to the customers account. But the firm will knowabout these transactions and record the same in the cash book only when itreceives a bank statement. Till then the balances as per the cash book andpassbook will differ.
5.1.1(f) Direct payments made by the bank on behalf of the customers
Sometimes the customers give standing instructions to the bank to makesome payment regularly on stated days to the third parties. For example,telephone bills, insurance premium, rent, taxes, etc. are directly paid by thebank on behalf of the customer and debited to the account. As a result, thebalance as per the bank passbook would be less than the one shown in thecash book.
5.1.1(g) Cheques deposited/bills discounted dishonoured
If a cheque deposited by the firm is dishonoured or a bill of exchange drawnby the business firm is discounted with the bank is dishonoured on the dateof maturity, the same is debited to customer’s account by the bank. As thisinformation is not available to the firm immediately, there will be no entry inthe firm’s cash book regarding the above items. This will be known to the firmwhen it receives a statement from the bank. As a result, the balance as perthe passbook would be less than the cash book balance.
5.1.2 Differences Caused by Errors
Sometimes the difference between the two balances may be accounted for byan error on the part of the bank or an error in the cash book of the business.This causes difference between the bank balance shown by the cash bookand the balance shown by the bank statement.
5.1.2(a) Errors committed in recording transaction by the firm
Omission or wrong recording of transactions relating to cheques issued, chequesdeposited and wrong totalling, etc. committed by the firm while recording entriesin the cash book cause difference between cash book and passbook balance.
5.1.2(b) Errors committed in recording transactions by the bank
Omission or wrong recording of transactions relating to cheques depositedand wrong totalling, etc. committed by the bank while posting entries in thepassbook also cause differences between passbook and cash book balance.
5.2 Preparation of Bank Reconciliation Statement
After identifying the causes of difference, the reconciliation may be done inthe following two ways:
(a) Preparation of bank reconciliation statement without adjusting cash bookbalance.
(b) Preparation of bank reconciliation statement after adjusting cash bookbalance.
It may be noted that in practice, the bank reconciliation statement isprepared after adjusting the cash book balance, about which you will studylater in the chapter.
5.2.1 Preparation of Bank Reconciliation Statement without adjusting CashBook Balance
To prepare bank reconciliation statement, under this approach, the balanceas per cash book or as per passbook is the starting item. The debit balance asper the cash book means the balance of deposits held at the bank. Such abalance will be a credit balance as per the passbook. Such a balance existswhen the deposits made by the firm are more than its withdrawals. It indicatesthe favourable balance as per cash book or favourable balance as per thepassbook. On the other hand, the credit balance as per the cash book indicatesbank overdraft. In other words, the excess amount withdrawn over the amountdeposited in the bank. It is also known as unfavourable balance as per cashbook or unfavourable balance as per passbook.
We may have four different situations while preparing the bankreconciliation statement. These are :
1. When debit balance (favourable balance) as per cash book is given andthe balance as per passbook is to be ascertained.
2. When credit balance (favourable balance) as per passbook is given andthe balance as per cash book is to be ascertained.
3. When credit balance as per cash book (unfavourable balance/overdraftbalance) is given and the balance as per passbook is to ascertained.
4. When debit balance as per passbook (unfavourable balance/overdraftbalance) is given and the cash book balance as per is to ascertained.
5.2.1(a) Dealing with favourable balances
The following steps may be initiated to prepare the bank reconciliationstatement:
(i) The date on which the statement is prepared is written at the top, aspart of the heading.
(ii) The first item in the statement is generally the balance as shown by thecash book. Alternatively, the starting point can also be the balance asper passbook.
(iii) The cheques deposited but not yet collected are deducted.
(iv) All the cheques issued but not yet presented for payment, amountsdirectly deposited in the bank account are added.
(v) All the items of charges such as interest on overdraft, payment by bankon standing instructions and debited by the bank in the passbook butnot entered in cash book, bills and cheques dishonoured etc. arededucted.
(vi) All the credits given by the bank such as interest on dividends collected,
etc. and direct deposits in the bank are added.
(vii) Adjustment for errors are made according to the principles of rectificationof errors. (The rectification of errors has been discussed in detail inchapter 6.)
(viii) Now the net balance shown by the statement should be same as shownby the passbook.
It may be noted that treatment of all items shall be the reverse of the aboveif we adjust passbook balance as the starting point.(see illustration 3)
The following solved illustrations will help you understand dealing withfavourable balance as per cash book and passbook.
From the following particulars of Mr. Vinod, prepare bank reconciliation statement as onMarch 31, 2005.
1. Bank balance as per cash book Rs. 50,000.
2. Cheques issued but not presented for payment Rs. 6,000.
3. The bank had directly collected dividend of Rs. 8,000 and credited to bank accountbut was not entered in the cash book.
4. Bank charges of Rs. 400 were not entered in the cash book.
5. A cheques for Rs. 6,000 was deposited but not collected by the bank.Solution
From the following particulars of Anil & Co. prepare a bank reconciliation statement ason August 31, 2005.
1. Balance as per the cash book Rs. 54,000.
2. Rs. 100 bank incidental charges debited to Anil & Co. account, which is not recordedin cash book.
3. Cheques for Rs. 5,400 is deposited in the bank but not yet collected by the bank.
4. A cheque for Rs. 20,000 is issued by Anil & Co. not presented for payment.
The bank passbook of M/s. Boss & Co. showed a balance of Rs. 45,000 on May 31, 2005.
1. Cheques issued before May 31,2005, amounting to Rs. 25,940 had not beenpresented for encashment.
2. Two cheques of Rs. 3,900 and Rs. 2,350 were deposited into the bank on May 31but the bank gave credit for the same in June.
3. There was also a debit in the passbook of Rs. 2,500 in respect of a chequedishonoured on 31.5.2005. Prepare a bank reconciliation statement as onMay 31, 2005.
5.2.1(b) Dealing with overdrafts
So far we have dealt with bank reconciliation statement where bank balanceshas been positive – i.e., there has been money in the bank account. However,businesses sometimes have overdrafts at the bank. Overdrafts are where thebank account becomes negative and the businesses in effect have borrowedfrom the bank. This is shown in the cash book as a credit balance. In thebank statement, where the balance is followed by Dr. (or sometimes OD) meansthat there is an overdraft and called debit balance as per passbook.An overdraft is treated as negative figure on a bank reconciliation statement.The following solved illustration will help you understand the preparation ofbank reconciliation statement when there is an overdraft.
On March 31, 2005, Rakesh had on overdraft of Rs. 8,000 as shown by his cash book.Cheques amounting to Rs. 2,000 had been paid in by him but were not collected by thebank. He issued cheques of Rs. 800 which were not presented to the bank for payment.There was a debit in his passbook of Rs. 60 for interest and Rs. 100 for bank charges.Prepare bank reconciliation statement.
On March 31, 2005 the bank column of the cash book of Agrawal Traders showed a creditbalance of Rs. 1,18,100 (Overdraft). On examining of the cash book and the bank statement,it was found that :
1. Cheques received and recorded in the cash book but not sent to the bank of collectionRs. 12,400.
2. Payment received from a customer directly by the bank Rs. 27,300 but no entrywas made in the cash book.
3. Cheques issued for Rs. 1,75,200 not presented for payment.
Interest of Rs. 8,800 charged by the bank was not entered in the cash book. Preparebank reconciliation statement.
From the following particulars of Asha & Co. prepare a bank reconciliation statement onDecember 31, 2005.
Overdraft as per passbook :20,000
Interest on overdraft :2,000
Insurance Premium paid by the bank: 200
Cheque issued but not presented for payment :6,500
Cheque deposited but not yet cleared :6,000
Wrongly debited by the bank: 500
From the following particulars, prepare a bank reconciliation statement as onMarch 31, 2001.
(a) Debit balance as per cash book is Rs. 10,000.
(b) A cheque for Rs. 1,000 deposited but not recorded in the cash book.
(c) A cash deposit of Rs. 200 was recorded in the cash book if there is not bank,column therein.
(d) A cheque issued for Rs. 250 was recorded as Rs. 205 in the cash column.
(e) The debit balance of Rs. 1,500 as on the previous day was brought forward as acredit balance.
(f) The payment side of the cash book was under cast by Rs. 100.
(g) A cash discount allowed of Rs. 112 was recorded as Rs. 121 in the bank column.
(h) A cheque of Rs. 500 received from a debtor was recorded in the cash book but notdeposited in the bank for collection.
(i) One outgoing cheque of Rs. 300 was recorded twice in the cash book.
From the following particulars, prepare the bank reconciliation statement of Shri Krishanas on March 31, 2005.
(a) Balance as per passbook is Rs. 10,000.
(b) Bank collected a cheque of Rs. 500 on behalf of Shri Krishan but wrongly creditedit to Shri Krishan’s account.
(c) Bank recorded a cash book deposit of Rs. 1,589 as Rs. 1,598.
(d) Withdrawal column of the passbook under cast by Rs. 100.
(e) The credit balance of Rs. 1,500 as on the pass-book was recorded in the debitbalance.
(f) The payment of a cheque of Rs. 350 was recorded twice in the passbook.
(g) The pass-book showed a credit balance. For a cheque of Rs. 100 deposited by ShriKishan.
5.2.2 Preparation of Bank Reconciliation Statement with Adjusted Cash Book
When we look at the various items that normally cause the difference betweenthe passbook balance and the cash book balance, we find a number of items,which appear only in the passbook. Why not first record such items in thecash book to work out the adjusted balance (also known as amended balance)of the cash book and then prepare the bank reconciliation statement. Thisshall reduce the number of items responsible for the difference and have thecorrect figure of balance at bank in the balance sheet. In fact, this is exactlywhat is done in practice whereby only those items which cause the differenceon account of the time gap in recording appear in bank reconciliation statement.These are as (i) cheques issued but not yet presented, (ii) cheques depositedbut not yet collected, and (iii) due to an error in the passbook. The step wisepreparation of bank reconciliation statement is shown in figure 5.4.
The following is the summary of a cash book for December, 2004.
All receipts are banked and payments are made by cheques. On investigation thefollowing are observed:
1. Bank charges of Rs. 1,224 entered in the bank statement have not been entered incash book.
2. Cheques drawn amounting to Rs. 2,403 have not been presented to the bank forpayment.
3. Cheques received totalling Rs. 6,858 have been entered in the cash book and depositedin the bank, but have not been credited by the bank until January, 2005.
4. A cheque for Rs. 198 has been entered as a receipt in the cash book instead of aspayment.
5. A cheque for Rs. 225 has been debited by the bank in error.
6. A cheque received for Rs. 720 has been returned by the bank and marked “Nofunds available”, no adjustment had been made in the cash book.
7. All dividends receivable are credited directly to the bank account. During December,an amount of Rs. 558 was credited by the bank and no entry is made in the cash book.
8. A cheque drawn for Rs. 54 has been incorrectly entered in the cash book as Rs.594.
9. The balance brought forward should have been Rs. 639.
10. The bank statement as on December, 31, 2004 showed an overdraft of Rs. 10,458.
(a) You are required to prepare an amended cash book and
(b) Prepare a bank reconciliation statement as on Dec. 31, 2004.
The bank overdraft of Smith Ltd., on December 31, 2004 as per cash book is Rs.18,000From the following information, asscertain the adjusted cash balance and prepare bankreconciliation statement
(i) Unpresented cheques: 6,000
(ii) Uncleared cheques :3,400
(iii) Bank interest debited in the passbook only: 1,000
(iv) Bills collected and credited in the passbook only: 1,600
(v) Cheque of Arun traders dishonoured :1,000
(vi) Cheque issued to Kapoor & Co. not yet entered in the of cash book. : 600
Fig. 5.4 : Showing the step wise preparation of bank reconcilation statement
A Small Project — An Activity of Preparation of Bank Reconcilation Statement
Kamlesh works as a cashier for Aqua Products Co. His responsibilities includemaintainance of the firm’s. The firm’s cash book for July 2005 which Kamleshhas just finished entering and balancing for the month is shown in exhibit 1.Help Kamlesh to prepare the bank reconciliation statement.
Note : the cash column is omitted). A copy of firm’s bank statement dated July 31, 2005 isalso illustrated in exhibiy 2. The numerical difference between the two is Rs. 261.30.(Bank statement Rs. 903.00 – Cash book Rs. 641.70).
Step 1 : Tick off the items in both cash book and bank statement (as shown in Exhibit 2).
Step 2 : Updating the cash book from the bank statement.
The unticked items on the bank statement indicate items that have not yet been enteredin Aqua Products Co.’s cash book. These are :
(i) Receipt on July 31 by Ruchita Limited amounting to Rs. 179.75
(ii) Bank charges debited by bank on July 31 amounting to Rs. 12.95
These items needs to be entered in the cash book to up date it (refer exhibit 3 – Thenew entries are shown in darker type).
Step 3 : Balance the cash book bank columns to produce an updated balance.
As shown in exhibit 3, the balance of the bank column stands at Rs. 808.50. But thena difference is Rs. 94.50 (i.e. Rs. 903.00 – 808.50) still exists.
Step 4 : Identify the remaining unticked items from the cash book.These are Rs.
1. Receipts on July 31 from Sarin Bros: 63.00
2. Payments made on July 02 to Verma & Co. (Cheque No. 004457):130.00
3. Payments made on July 08 to Mehta Ltd.(Cheque No. 004453): 27.50
These above three items will appear in next month’s bank statement as these are due totime gap. These are the items which will appear in the bank reconciliation statement.
Test your Understanding – III
State whether each of the following statements is True or False
1. Passbook is the statement of account of the customer maintained by the bank.
2. A business firm periodically prepares a bank reconciliation statement to reconcilethe bank balance as per the cash book with the passbook as these two showdifferent balances for various reasons.
3. Cheques issued but not presented for payment will reduce the balance as perthe passbook.
4. Cheques deposited but not collected will result in increasing the balance of thecash book when compared to passbook.
5. Overdraft as per the passbook is less than the overdraft as per cash book whenthere are cheques deposited but not collected by the banker.
6. The debit balance of the bank account as per the cash book should be equal tothe credit balance of the account of the business in the books of the bank.
7. Favourable bank balance as per the cash book will be less than the bank passbookbalance when there are unpresented cheques for payment.
8. Direct collections received by the bank on behalf of the customers would increasethe balance as per the bank passbook when compared to the balance as per thecash book.
9. When payments made by the bank as per the standing instructions of thecustomer, the balance in the passbook will be more when compared to the cashbook.
Key Terms Introduced in the Chapter
1. Bank Reconciliation Statement
2. Cash book and Passbook
Summary with Reference to Learning Objectives
1. Bank Reconciliation Statement : A statement prepared to reconcile the bankbalance as per cash book with the balance as per passbook or bank statement,by showing the items of difference between the two accounts.
2. Causes of difference :
– timing of recoding the transaction.
– error made by business or by the bank.
3. Correct cash balance: It may happens that some of the receipts or paymentsare missing from either of the books and errors, if any, need to be rectified.
This arise the need to look at the entries/errors recorded in both statementsand other information available and compute the correct cash balance beforereconciling the statements.
Questions for Practice
1. State the need for the preparation of bank reconciliation statement?
2. What is a bank overdraft?
3. Briefly explain the statement ‘wrongly debited by the bank’ with the help ofan example.
4. State the causes of difference occurred due to time lag.
5. Briefly explain the term ‘favourable balance as per cash book’
6. Enumerate the steps to ascertain the correct cash book balance.
1. What is a bank reconciliation statement. Why is it prepared?
2. Explain the reasons where the balance shown by the bank passbook doesnot agree with the balance as shown by the bank column of the cash book.
3. Explain the process of preparing bank reconciliation statement withamended cash balance.
Favourable balance of cash book and passbook –
1. From the following particulars, prepare a, bank reconciliation statementas at March 31, 2005.
(i) Balance as per cash book Rs. 3,200
(ii) Cheque issued but not presented for payment Rs. 1,800
(iii) Cheque deposited but not collected upto March 31, 2005 Rs. 2000
(iv) Bank charges debited by bank Rs. 150
(Ans: Balance as per passbook Rs. 2,800)
2. On March 31 2005 the cash book showed a balance of Rs. 3,700 as cash atbank, but the bank passbook made up to same date showed that chequesfor Rs. 700, Rs. 300 and Rs. 180 respectively had not presented for payment,
Also, cheque amounting to Rs. 1,200 deposited into the account had notbeen credited. Prepare a bank reconciliation statement.
(Ans : Balance as per passbook Rs. 3,680).
3. The cash book shows a bank balance of Rs. 7,800. On comparing the cashbook with passbook the following discrepancies were noted :
(a) Cheque deposited in bank but not credited Rs. 3,000
(b) Cheque issued but not yet present for payment Rs. 1,500
(c) Insurance premium paid by the bank Rs. 2,000
(d) Bank interest credit by the bank Rs. 400
(e) Bank charges Rs. 100
(d) Directly deposited by a customer Rs. 4,000
(Ans: Balance as per passbook Rs. 8,600).
4. Bank balance of Rs. 40,000 showed by the cash book of Atul on December31, 2005. It was found that three cheques of Rs. 2,000, Rs. 5,000 andRs. 8,000 deposited during the month of December were not credited inthe passbook till January 02, 2005. Two cheques of Rs. 7,000 and Rs.8,000 issued on December 28, were not presented for payment till January03, 2005. In addition to it bank had credited Atul for Rs. 325 as interestand had debited him with Rs. 50 as bank charges for which there were nocorresponding entries in the cash book.Prepare a bank reconciliation statement as on December 31, 2004.
(Ans: Balance as per passbook Rs. 40,245).
5. On comparing the cash book with passbook of Naman it is found that onMarch 31, 2005, bank balance of Rs. 40,960 showed by the cash bookdiffers from the bank balance with regard to the following :
(a) Bank charges Rs 100 on March 31, 2005, are not entered in the cashbook.
(b) On March 21, 2005, a debtor paid Rs. 2,000 into the company’s bankin settlement of his account, but no entry was made in the cash bookof the company in respect of this.
(c) Cheques totaling Rs. 12,980 were issued by the company and dulyrecorded in the cash book before March 31, 2005, but had not beenpresented at the bank for payment until after that date.
(d) A bill for Rs. 6,900 discounted with the bank is entered in the cashbook with recording the discount charge of Rs. 800.
(e) Rs. 3,520 is entered in the cash book as paid into bank on March 31st,2005, but not credited by the bank until the following day.
(f) No entry has been made in the cash book to record the dishon or onMarch 15, 2005 of a cheque for Rs. 650 received from Bhanu.Prepare a reconciliation statement as on March 31, 2005.
(Ans: Balance as per passbook Rs. 50,870).
6. Prepare bank reconciliation statement as on December 31, 2004. On thisday the passbook of Mr. Himanshu showed a balance of Rs. 7,000.
(a) Cheques of Rs. 1,000 directly deposited by a customer.
(b) The bank has credited Mr. Himanshu for Rs. 700 as interest.
(c) Cheques for Rs. 3000 were issued during the month of December butof these cheques for Rs. 1,000 were not presented during the month ofDecember.
(Ans: Balance as per cash book Rs. 3,300).
7. From the following particulars prepare a bank reconciliation statementshowing the balance as per cash book on December 31, 2005.
(a) Two cheques of Rs. 2,000 and Rs. 5,000 were paid into bank in October,2005 but were not credited by the bank in the month of December.
(b) A cheque of Rs. 800 which was received from a customer was enteredin the bank column of the cash book in December 2004 but was omittedto be banked in December, 2004.
(c) Cheques for Rs. 10,000 were issued into bank in January 2005 butnot credited by the bank on December 31, 2005.
(d) Interest on investment Rs. 1,000 collected by bank appeared in thepassbook.Balance as per Passbook was Rs. 50,000
(Ans: Balance as per cash book Rs. 47,800)
8. Balance as per passbook of Mr. Kumar is 3,000.
(a) Cheque paid into bank but not yet clearedRam Kumar Rs. 1,000Kishore Kumar Rs. 500
(b) Bank Charges Rs. 300
(c) Cheque issued but not presentedHameed Rs. 2,000Kapoor Rs. 500
(d) Interest entered in the passbook but not entered in the cash book Rs. 100Prepare a bank reconciliation statement.
(Ans: Balance as per cash book Rs. 2,200).
9. The passbook of Mr. Mohit current account showed a credit Balance ofRs. 20,000 on dated December 31, 2005. Prepare a Bank ReconciliationStatement with the following information.
(i) A cheque of Rs. 400 drawn on his saving account has been shown oncurrent account.
(ii) He issued two cheques of Rs. 300 and Rs. 500 on of December 25, butonly the Ist cheque was presented for payment.
(iii) One cheque issued by Mr. Mohit of Rs. 500 on December 25, but it wasnot presented for payment whereas it was recorded twice in the cashbook.
(Ans: Balance as per cash book Rs. 18,900).
Unfavourable balance of cash book
10. On Ist January 2005, Rakesh had an overdraft of Rs. 8,000 as showed byhis cash book. Cheques amounting to Rs. 2,000 had been paid in by himbut were not collected by the bank by January 01, 2005. He issued chequesof Rs. 800 which were not presented to the bank for payment up to thatday. There was a debit in his passbook of Rs. 60 for interest and Rs. 100for bank charges. Prepare bank reconciliation statement for comparingboth the balance.
(Ans : Overdraft as per passbook Rs. 9,360)
11. Prepare bank reconciliation statement.
(i) Overdraft shown as per cash book on December 31, 2005 Rs. 10,000.
(ii) Bank charges for the above period also debited in the passbookRs. 100.
(iii) Interest on overdraft for six months ending December 31, 2005Rs. 380 debited in the passbook.
(iv) Cheques issued but not incashed prior to December 31, 2005amounted to Rs. 2,150.
(v) Interest on Investment collected by the bank and credited in thepassbook Rs. 600.
(vi) Cheques paid into bank but not cleared before December, 31 2005were Rs. 1,100.
(Ans: overdraft as per passbook Rs. 8,830).
12. Kumar find that the bank balance shown by his cash book on December 31, 2005 is Rs. 90,600 (Credit) but the passbook shows a difference due to the following reason:
A cheque (post dated) for Rs. 1,000 has been debited in the bank columnof the cash book but not presented for payment. Also, a cheque forRs. 8,000 drawn in favour of Manohar has not yet been presented forpayment. Cheques totaling Rs. 1,500 deposited in the bank have not yetbeen collected and cheque for Rs. 5,000 has been dishonoured.
(Ans: overdraft as per passbook Rs. 1,03,600).
13. On December 31, 2005, the cash book of Mittal Bros. Showed an overdraftof Rs. 6,920. From the following particulars prepare a Bank ReconciliationStatement and ascertain the balance as per passbook.
(1) Debited by bank for Rs. 200 on account of Interest on overdraft andRs. 50 on account of charges for collecting bills.
(2) Cheques drawn but not encashed before December, 31 2005 forRs. 4,000.
(3) The bank has collected interest and has credited Rs. 600 in passbook.
(4) A bill receivable for Rs. 700 previously discounted with the bankhad been dishonoured and debited in the passbook.
(5) Cheques paid into bank but not collected and credited beforeDecember 31, 2005 amounted Rs. 6,000.
(Ans : Overdraft as per passbook Rs. 9,270).Unfavourable balance of the passbook
14. Prepare bank reconciliation statement of Shri Bhandari as on December31, 2005
(i) The Payment of a cheque for Rs. 550 was recorded twice in thepassbook.
(ii) Withdrawal column of the passbook under cast by Rs. 200
(iii) A Cheque of Rs. 200 has been debited in the bank column of theCash Book but it was not sent to bank at all.
(iv) A Cheque of Rs. 300 debited to Bank column of the passbook wasnot sent to the bank.
(v) Rs. 500 in respect of dishonoured cheque were entered in thepassbook but not in the cash book.
Overdraft as per passbook is Rs. 20,000.
(Ans: Overdraft as per cash book Rs. 20,350).
15. Overdraft shown by the passbook of Mr. Murli is Rs. 20,000. Preparebank reconciliation statement on dated December 31, 2005.
(i) Bank charges debited as per passbook Rs. 500.
(ii) Cheques recorded in the cash book but not sent to the bank forcollection Rs. 2,500.
(iii) Received a payment directly from customer Rs. 4,600.
(iv) Cheque issued but not presented for payment Rs. 6,980.
(v) Interest credited by the bank Rs. 100.
(vi) LIC paid by bank Rs. 2,500.
(vii) Cheques deposited with the bank but not collected Rs. 3,500.
(Ans: Overdraft as per cash book Rs. 22,680).
16. Raghav & Co. have two bank accounts. Account No. I and Account No. II.From the following particulars relating to Account No. I, find out the balanceon that account of December 31, 2005 according to the cash book ofthe firm.
(i) Cheques paid into bank prior to December 31, 2005, but not creditedfor Rs. 10,000.
(ii) Transfer of funds from account No. II to account no. I recorded bythe bank on December 31, 2005 but entered in the cash book afterthat date for Rs. 8,000.
(iii) Cheques issued prior to December 31, 2005 but not presented untilafter that date for Rs. 7,429.
(iv) Bank charges debited by bank not entered in the cash book forRs. 200.
(v) Interest Debited by the bank not entered in the cash book Rs. 580.
(vi) Overdraft as per Passbook Rs. 18,990.
(Ans: Overdraft as per cash book Rs. 23,639).17. Prepare a bank reconciliation statement from the following particularsand show the balance as per cash book.
(i) Balance as per passbook on December 31, 2005 overdrawnRs. 20,000.
(ii) Interest on bank overdraft not entered in the cash book Rs. 2,000.
(iii) Rs. 200 insurance premium paid by bank has not been entered inthe cash book.
(iv) Cheques drawn in the last week of December, 2005, but not clearedtill date for Rs. 3,000 and Rs. 3,500.
(v) Cheques deposited into bank on November, 2005, but yet to becredited on dated December 31, 2005 Rs. 6,000.
(vii) Wrongly debited by bank Rs. 500.
(Ans: Overdraft as per cash book Rs. 17,800).
18. The passbook of Mr. Randhir showed an overdraft of Rs. 40,950 on March31, 2005.
Prepare bank reconciliation statement on March 31, 2005.
(i) Out of cheques amounting to Rs. 8,000 drawn by Mr. Randhir onMarch 27 a cheque for Rs. 3,000 was encashed on April 03.
(ii) Credited by bank with Rs. 3,800 for interest collected by them, butthe amount is not entered in the cash book.
(iii) Rs. 10,900 paid in by Mr. Randhir in cash and by cheques on March,31 cheques amounting to Rs. 3,800 were collected on April, 07.
(iv) A Cheque of Rs. 780 credited in the passbook on March 28 beingdishonoured is debited again in the passbook on April 01, 2005. Therewas no entry in the cash book about the dishonour of the cheque untilApril 15.
(Ans: Overdraft as per cash book Rs. 36,350)
1. You are employed by Silk and Carpets as their cashier. Your mainresponsibility is to maintain the company’s cash book and prepare a bankreconciliation statement at the end of each month.
The cash book (showing the bank money columns only) is set out belowtogether with a copy of the bank statement for February 2005.You are required to :
- Reconcile the cash book with the bank statement.
- Make the entries necessary to update the cash book..
- Start with the balance as per the cash book, list any unpresented chequesand sub-total on the reconciliation statement.
- Enter details of bank lodgements.
- Calculate the balance as per the bank statement and check your total againstthe bank statement for accuracy.
2. As accounts assistant for Chinnar Limited your main task is to entertransactions into the company’s cash book, check the entries against thebank statement and prepare a monthly bank reconciliation statement.
The cash book (showing the bank money columns only) and bank statementfor October 2005 are set out below.You are required to :
- Reconcile the cash book with the bank statement.
- Make the entries necessary to update the cash book.
- Balance the bank columns of the cash book and calculate the revised bankbalance.
- Start with the balance as per the cash book, list any unpresented cheques and sub-total on the reconciliation statement.
- Enter details of bank lodgements.
- Calculate the balance as per the bank statement and check your total againstthe bank statement for accuracy.
Checklist to Test Your Understanding
Test Your Understanding – I
(I) 1. Time Gap 2. Error 3. Time gap 4. Time gap 5. Time gap
(II) (i) Customer account (ii) Debit (iii) Credit (iv) Debit (v) Added (vi) Deducted (vii) loss (viii) Loss (ix) Added (x) Higher
Test Your Understanding – II
1. (b) 2. (c) 3. (a) 4. (a) 5. (c) 6.(b)
Test Your Understanding – III
1. (T) 2. (T) 3. (F) 4. (T) 5. (F) 6.(T), 7.(T) 8.(T) 9.(F)
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