Get summaries, questions, answers, solutions, notes, extras, theories, practicles, PDF, and guide of Chapter 3 Bank Reconciliation Statement, NBSE Class 10 Book Keeping (BK) textbook, which is part of the syllabus of students studying under Nagaland Board. These solutions, however, should only be treated as references and can be modified/changed.
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Summary
The chapter explains bank reconciliation statements. It begins by introducing bank accounts. People deposit cash and cheques in banks. They also make payments through banks. There are different types of bank accounts. Business firms often use current accounts. They record their banking transactions in a cash book. Banks keep records in ledger accounts. These records should match. But they often do not. A bank reconciliation statement helps find the reasons for differences.
The chapter then lists why bank reconciliation is needed. It helps spot mistakes in cash books and passbooks. It shows delays in cheque clearance. It checks if someone is stealing money. It confirms the accuracy of cash books. It acts as a control technique to prevent fraud.
Next, it explains reasons for differences between cash books and passbooks. Cheques issued but not yet paid cause differences. Deposited cheques not yet cleared by the bank create gaps. Sometimes, debtors directly deposit money into the firm’s account. Interest earned or charged by the bank also causes mismatches. Payments made by the bank on behalf of the customer lead to differences. Dishonored cheques and bills create discrepancies. Bank charges and errors in recording transactions also play a role.
The chapter describes steps to prepare a bank reconciliation statement. First, identify the starting balance. This can be from the cash book or passbook. Then, classify balances as plus or minus. Plus means more deposits than withdrawals. Minus means more withdrawals than deposits. Next, determine the effect of each transaction. Add items that increase the balance. Deduct those that decrease it. Consider the date of preparation. Only include transactions up to that date. Finally, balance the statement.
Examples show how to prepare a bank reconciliation statement. Each example highlights different scenarios. Some involve cheques not yet cleared or presented. Others deal with interest earned or bank charges. Mistakes like under-crediting deposits or omitting entries are also shown. The examples explain calculations step-by-step.
Lastly, the chapter discusses important notes and explanations. It clarifies terms like debit, credit, plus balance, and minus balance. It explains how transactions affect cash books and passbooks. It also mentions that banks now send statements instead of passbooks. These statements serve the same purpose.
The chapter ends with questions and assignments. These help test understanding of the topic.
Textbook solutions
Multiple Choice Questions (MCQs)
1. A bank reconciliation statement is
a. A part of the cash book
b. A part of the passbook
c. A part of the ledger
d. None of these
Answer : d. None of these
2. The debit balance of passbook is
a. Plus balance
b. Minus balance
c. Both plus or minus
d. Neither plus or minus
Answer : b. Minus balance
3. A bank reconciliation statement reconciles the
a. Ledger with the journal
b. Petty cash book with the bank account
c. Day books with the bank statement
d. Bank statement with the cash book
Answer : d. Bank statement with the cash book
4. A passbook is
a. A copy of the banking transactions entered into the cash book
b. A copy of the customer’s ledger account maintained by the bank
c. A record of all the cash transactions
d. A copy of the firm’s receipts and payments
Answer : b. A copy of the customer’s ledger account maintained by the bank
Very Short Answer Type Questions
1. What is bank reconciliation statement?
Answer: A bank reconciliation statement is prepared for finding out the causes for the difference between the balances of a cash book and passbook, and to reconcile their balance.
2. What is overdraft?
Answer: Overdraft means the amount overdrawn from the bank. ln such cases, the bank makes more payments on our account than the deposits received from us.
3. What is minus balance?
Answer: Minus balance indicates a financially unsound position of the firm, where the bank has paid more on our account than what we have deposited into the bank.
4. Will the preparation of Bank Reconciliation Statement rectify the errors that have crept into the Passbook or Cash Book?
Answer: Yes, the preparation of Bank Reconciliation Statement rectify the errors that have crept into the Passbook or Cash Book.
5. What will be the effect of the interest charged by the bank if there is an overdraft balance?
Answer: The bank will debit the amount of interest to our account, and thus our bank balance will decrease as per the passbook or the amount of loan or overdraft will increase.
6. How does a bank reconciliation statement differ from a bank statement?
Answer: A passbook or a bank statement is the copy of the customer’s ledger account maintained by the bank. Whereas, a bank reconciliation statement is a process of explaining the difference between the bank balance and the corresponding amount shown in the organization’s own accounting records.
7. Name four items that are written in the minus column while starting with debit balance of cash book.
Answer: Four items that are written in the minus column while starting with debit balance of cash book are:a. Cheques deposited but not credited by the bank.
b. Bank charges debited by the bank.
c. Interest charged by bank.
d. Standing order paid by the bank.
Short Answer Type Questions
1. Why is a Bank Reconciliation Statement necessary?
Answer: Bank Reconciliation Statement is necessary because of the following reasons:
a. Pointing out mistakes in the Cash Book and Passbook.
b. Identifying delay in the clearance of cheques.
c. Checking on embezzlement.
d. Checking accuracy of the Cash Book
2. Mention the causes of disagreement between bank balance as per Cash Book and as per Passbook.
Answer: Some of the causes of disagreement between bank balance as per Cash Book and as per Passbook are:
a. Cheque issued or drawn but not yet presented for payment or cashed by customers or debited in the passbook.
b. Cheques debited or deposited or paid into the bank but not yet collected or cleared or credited by the bank.
c. Cheques directly deposited by debtors into one’s bank account.
d. Interest paid or allowed or credited or collected by the bank.
e. Interest on overdraft or interest charged or debited by the bank.
f. Payment made by the bank on our behalf.
g. Dishonour of cheques and bills.
h. Bank charges or collection charges.
3. How does a Bank Reconciliation Statement differ from a Bank Statement?
Answer: A bank reconciliation statement is prepared for finding out the causes for the difference between the balances of a cash book and passbook, and to reconcile their balance. Bank reconciliation statements are prepared by the firm regularly after a certain interval. On the other hand, a bank statement is the copy of the customer’s ledger account maintained by the bank and is required to prepare the bank reconciliation statement.
4. Explain the following terms:
i. Passbook
ii. Overdraft
iii. Cheques debited in cash book
iv. Plus balance
v. Minus balance
Answer: i. Passbook : A passbook or a statement of account is the copy of the customer’s ledger account maintained by the bank. It facilitates in comparing entries with the bank column of the cash book as well as to verify banking records and the bank balance.
ii. Overdraft : Overdraft means the amount overdrawn from the bank. In such cases, the bank makes more payments on our account than the deposits received from us. The word ‘overdraft’ indicates a minus balance, whether it is as per the cash book or the passbook.
iii. Cheques debited in cash book : Cheques are debited in cash book when a business firm cheques from outside parties and deposit them in the bank for collection because according to the firm cash at the bank as an asset has increased. It doesn’t necessarily mean that the transaction has impacted the passbook.
iv. Plus balance : A ‘plus’balance with the bank means that the firm enjoys a financially sound position and has deposited more in the bank than what it has withdrawn.
v. Minus balance : This indicates a financially unsound position of the firm, where the bank has paid more on our account than what we have deposited into the bank.
Long Answer Type Questions
1. What is a Bank Reconciliation Statement? What are the advantages of preparing a Bank Reconciliation Statement?
Answer: A bank reconciliation statement is prepared for finding out the causes for the difference between the balances of a cash book and passbook, and to reconcile their balance.
The advantages of preparing Bank Reconciliation Statement are:
i. Pointing out mistakes in the Cash Book and Passbook: A bank reconciliation statement is prepared by comparing the cash book and the passbook. The comparison points out the mistakes made in either or both of the books.
ii. Identifying delay in the clearance of cheques: The comparison reveals the date of depositing the cheque and the date of clearance. In case of delay, causes for same may be investigated and remedial measures can be taken.
iii. Checking on embezzlement: The continuous comparison of the cash book with the passbook keeps a check on employees trying to embezzle or misappropriate a firm’s funds.
iv. Checking accuracy of the Cash Book: If there is any inaccuracy in transaction postings, the mistake can be readily identified and rectified.
v. Technique of Control. The preparation of a bank reconciliation statement is an important technique of control. It prevents misappropriation in cheques, bank drafts and other transactions with the bank.
2. How is a Bank Reconciliation Statement prepared? Prepare a Bank Reconciliation Statement.
Answer: While preparing bank reconciliation statement, the following steps should be adopted:
i. Identification of the balance with which bank reconciliation statement has to be prepared: Bank reconciliation statement can be prepared either from the balance of cash book or passbook.
ii. Identification of the plus and minus balance: While preparing a bank reconciliation statement, the amount column is divided into ‘plus’ and ‘minus’ columns.
iii. Determining the effect of the transaction: The statement can be prepared either from the balance of the cash book or the passbook. If it is prepared from the balance of the cash book, the effect of the transaction will be studied on the passbook as compared to the cash book and vice versa.
iv. Considering the date of preparing the statement: Only those transactions, which are entered in one of the books, i.e., cash book or passbook, but not in either of the two by the date of preparing the statement, then they are identified as transactions for the bank reconciliation statement.
v. Balancing the statement: The final step will be to balance the plus and minus columns. Iwe started preparing the statement with the balance of the cash book, we will find out the balance of the passbook. Similarly, if we started preparing the statement from the balance of the passbook, we will find out the balance of the cash book.
3. What are the possible causes of disagreement of Cash Book and Passbook? Discuss three in details.
Answer: Causes responsible for the difference between the Balances of cash book and passbook are:
i. Bank charges or collection charges: The bank may charge certain amount for services rendered. The notable charge is a collection charge, which is charged for the collection of outstation cheques. These charges are debited by the bank in the customer’s account, so they reduce the bank balance as per the passbook. These bank charges will not be entered into the cash book by the customer, because the account holder would be unaware of the transaction.
ii. Cheques entered into cash book but omitted from being banked: Cheques received from outside parties, once entered into the cash book will increase our bank balance as per our record. However, any increase in the bank balance as per the records of the bank will not take place, because the cheque was yet to be sent to the bank for collection.
iii. Interest paid or allowed or credited or collected by the bank: The bank may allow or pay interest on our deposits. It is possible that we may instruct the bank to collect interest on our investment or loan advanced by us. After collecting the interest, the bank will credit the same into our account. As we do not have any knowledge of the interest credited by the bank into our account, there will be no entry of interest in the cash book.
4. What is plus balance? What is minus balance?
Answer: A ‘plus’ balance with the bank means that the firm enjoys a financially sound position and has deposited more in the bank than what it has withdrawn.
The bank balance will be treated as plus balance in the following cases:
i. If the cash book shows a debit balance.
ii. If the passbook shows a credit balance.
iii. The balance of cash book or passbook, if not specified
A ‘minus’ balance means an overdraft balance, i.e., the amount drawn from the bank is more than the deposits. The balance will be treated as a minus in the following cases:
i. If the cash book shows credit balance.
ii. If the passbook shows debit balance.
iii. Overdraft balance as per cash book or passbook.
5. What is an Overdraft balance?
Answer: Overdraft means the amount overdrawn from the bank. In such cases, the bank makes more payments on our account than the deposits received from us. The word ‘overdraft’ indicates a minus balance, whether it is as per the cash book or the passbook. The credit balance of the cash book or the debit balance of the passbook shows the same overdraft balance. The amount overdrawn from the bank is always a minus balance.
Practical Questions
Questions
Question 1
Rim Zim Ltd. maintains a current account with the State Bank of India. On March 31, 2010, the bank column of its cash book showed a debit balance of ₹ 1,54,300. However, the bank statement showed a different balance as on that date. The following were the reasons for the difference:
i. Cheques deposited but not credited to bank – ₹ 75,450
ii. Cheques issued but not yet presented for payment – ₹ 80,760
iii. Bank charges not yet recorded in the cash book – ₹ 1,135
iv. Cheques received by the bank directly from trade debtors – ₹ 1,35,200
v. Insurance premium paid by the bank as per standing instructions but not yet recorded in the Cash Book – ₹ 15,400
vi. Dividend collected from the bank but not yet recorded in the cash book – ₹ 1,000
Find out the balance as per the bank statement.
Solution: Check below
Question 2
The balance of cash at the bank as shown by the Cash Book of Tuli Woodworks on March 31, 2010, was ₹ 7,500. On checking the Cash Book and the Passbook it was ascertained that cheques of ₹ 500 and ₹ 700, respectively, paid on December 30 were not paid till January 2, and three cheques of ₹ 600, ₹ 800 and ₹ 1,200, issued on December 28, were not paid till January 3. There was a credit of ₹ 125 in the Passbook in respect of interest under December 31, which was not entered in the Cash Book. There were also Bank Charges debited in the Passbook amounting in all to ₹ 10, which were not entered in the Cash Book.
Prepare a bank reconciliation statement as on December 31, 2010..
Solution: Check below
Question 3
3. On June 30, 2014, the bank balance of Nise Humptsoe’s Cash Book was ₹ 1,500. On comparing it with the Passbook, the following information was received:
i. Cheques amounting to ₹ 7,290 was issued on June 28, of which one cheque of ₹ 1,300 was presented in the bank for payment on July 4.
ii. Cheques were deposited in banks for ₹ 10,000. However, cheques for ₹ 4,000 were cleared and credited in July.
iii. Interest and dividends on investments of ₹ 580 collected by the bank and credited to his account, although he did not have any information for this.
iv. Life insurance premium of ₹ 750 was paid by the bank according to his standing instructions
v. Bank charges of ₹ 25 were not recorded in the Cash Book
Prepare a bank reconciliation statement.
Solution: Check below
Question 4
Zhokhoi had an account in United India Bank. According to his Cash Book, his bank balance as on December 31, 2011 was ₹ 1,750. However, the passbook made on the same date showed that cheques of ₹ 180, ₹ 1,150 and ₹ 125 were not presented for payment. All cheques of the amount ₹ 1,220 paid into his account were not cleared by December 31, 2001.
Prepare a bank reconciliation statement.
Solution: Check below
Question 5
On June 30, 2014, the bank column of Ketholeno Rio’s cash book showed a debit balance of ₹ 12,000. On checking the cash book with the bank statement she found that:
i. Cheques of ₹ 8,000 paid into bank. Of these, only cheques of ₹ 6,500 were cleared and credited by bankers up to June 30
ii. Cheques of ₹ 9,200 were issued, but out of these, only cheques of ₹ 7,000 were presented for payment up to June 30
iii. The receipt column of the Cash Book was undercast by ₹ 200
iv. The Passbook showed a credit of ₹ 330 as interest on investments collected by bankers and debit of ₹ 60 for bank charges
v. On June 29, a customer deposited ₹ 3,000 directly in the bank account but it was only entered in the Passbook.
Prepare a bank reconciliation statement.
Solution: Check below
Question 6
Prepare a bank reconciliation statement from the following information:
i. Bank overdraft as per cash book on August 30, 2014 was ₹ 2,000
ii. Cheques issued but not presented for payment ₹ 1,250
iii. The bank charged ₹ 25 on account of bank charges not yet entered in the Cash Book
iv. Interest charged by the bank but not entered into the Cash Book – ₹ 25
v. Interest on investment collected by the bank and credited in the passbook – ₹ 1,000
Solution: Check below
Question 7
Pele and Sons found that the bank balance shown in their Cash Book on December 31, 2016 was ₹ 40,500 (credit) but the Passbook showed a difference due to the following reasons:
i. A cheque of ₹ 5,000 drawn in favour of Zizira has not yet been presented for payment
ii. A post-dated cheque of ₹ 900 had been debited in the bank column of the Cash Book but it could not be presented in the Cash Book
iii. Cheques totalling ₹ 10,200 deposited with the bank had not yet been collected and another cheque of ₹ 4,000 deposited in the account had been dishonoured
iv. A bill payable of ₹ 10,000 was retired by the bank under a rebate of ₹ 150, but the full amount of the bill was credited in the bank column of the Cash Book
Prepare a bank reconciliation statement and find out the balance as per passbook.
Solution: Check below
Question 8
Using the details given below, prepare a bank reconciliation statement for December 31, 2014:
i. Balance as per passbook – ₹ 1,14,400
ii. Cheques of ₹ 11,250, ₹ 1,870 and ₹ 1,350 were issued in the month and were presented for payment in January
iii. Cheques of ₹ 11,500 and ₹ 1,850 were sent for collection. However, no cheques were collected in the year.
iv. Bank charge of ₹ 180 for commission. An amount of ₹ 1,170 was allowed by the bank as interest.
Solution: Check below
Question 9
On December 31, 2014, the Cash Book of Nungshi showed an overdraft of ₹ 18,000 with the Bank of India. The balance did not agree with the balance shown in the bank passbook and it was found that Nungshi had paid four cheques of ₹ 10,000, ₹ 12,000, ₹ 8,000 and ₹ 6,000 into the bank on December 26. Of these, the cheque of ₹ 6,000 was credited by the bank in January 2015. On December 24, Nungshi had issued three cheques of ₹ 15,000, ₹ 1,200 and ₹ 7,000. The first two cheques were presented to the bank for payment in December and the third cheque in January 2015. It was also found that on December 31, 2014, the bank had debited Nungshi’s account for ₹ 500 for interest and ₹ 20 for charges. However, Nungshi had not recorded these amounts in his books. Prepare a bank reconciliation statement as on
December 31, 2014, and find out the balance as per the passbook.
Solution: Check below
Question 10
Soso’s passbook shows a credit balance of ₹ 33,570 as on December 31, 2010. The cheques and drafts that were sent to the bank but not collected and credited amounted to ₹ 1,790. In addition, cheques from Gloria, Abu and Hilio – drawn for ₹ 1,300, ₹ 1,150 and ₹ 1,200 – were not presented for payment till January 31, 2011. Upon checking further, Soso found that the bank had paid bills payable of ₹ 4,000. However, the amount was not entered into the cash book. Bills receivable of ₹ 1,500, which was discounted by the bank, was dishonoured by the drawee on the due date. As the commission for collecting the outstation cheques, the bank charged ₹ 113. It allowed ₹ 110 as interest on Soso’s balance.
Prepare a bank reconciliation statement and show the balance as shown on the cash book.
Solution: Check below
Question 11
Prepare the bank reconciliation statement as on December 31, 2010, from the following information:
i. Bank balance as per cash book – ₹ 8,960
ii. Cheques issued up to December 31, 2010 but not presented to bank – ₹ 2,630
iii. Cheques deposited with the bank for collection on December 31, 2010, amounted to ₹ 12,870, out of which cheques of ₹ 7,890 had been realised and credited by the bank.
iv. Cheques for collection deposited on December 31, 2010, but cleared subsequently in January 2011 – ₹ 8,660
v. Incidental charges debited by bank on December 31, 2010 not advised – ₹ 15
Solution: Check below
Question 12
Use the information below to prepare the bank reconciliation statement as on December 31, 2012:
i. Balance as per cash book – ₹ 71,730
ii. Cheques issued up to December 31, 2012, but not presented to bank – ₹ 1,520
iii. Cheques deposited with the bank for collection on December 31, 2012, amounted to ₹ 24,560, out of which cheques of ₹ 5,490 were realised and credited by the bank
iv. Cheques for collection deposited on December 31, 2012, but cleared subsequently in January 2013 – ₹ 9,540
v. Incidental charges debited by bank on December 31, 2012 not advised – ₹ 10
Solution: Check below
Solutions
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Extras
Additional questions and answers
1. What is a bank reconciliation statement?
Answer : A bank reconciliation statement is prepared for finding out the causes for the difference between the balances of a cash book and passbook, and to reconcile their balance. It is a basic document of accounting needed by every business enterprise for exercising control on its dealings with the bank.
31. Explain the different types of payments made by banks on behalf of their customers, which may cause differences in the cash book and passbook balances?
Answer : The different types of payments made by banks on behalf of their customers, which may cause differences in the cash book and passbook balances, include:
(a) Payment of insurance premium.
(b) Payment of loan instalment.
(c) Payment of office or godown rent.
(d) Issue of bank drafts in favor of certain outside parties.
(e) Making any transfer of money.
These payments are debited by the bank in the customer’s account, reducing the bank balance as per the passbook. However, since the customer may be unaware of these payments, they are not recorded in the cash book, leading to differences between the balances of the cash book and passbook.
Additional MCQs
1. What is a bank reconciliation statement?
A. Cash-Passbook comparison
B. Bank ledger summary
C. Profit report
D. Cash flow record
Answer: A. Cash-Passbook comparison
37. Which factor is considered while preparing a bank reconciliation statement?
A. Timing differences
B. Employee bonuses
C. Sales figures
D. Inventory counts
Answer: A. Timing differences
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