Bank Reconciliation Statement - Notes & MCQs | PAPER III – ACCOUNTING & FINANCIAL MANAGEMENT FOR BANKERS | MODULE A: ACCOUNTING PRINCIPLES AND PROCESSES

Bank Reconciliation Statement

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Brief Notes

• Recording Transactions in Cash Book: All cash and bank-related transactions of a business are recorded in the Cash Book maintained by the business itself.
• Transactions in the Pass Book: The Pass Book or Bank Statement is maintained by the bank and contains records of all customer-related transactions.
• Is Passbook a Mirror Image of Cash Book? Ideally, yes. The credit balance in the Pass Book should match the debit balance in the Cash Book for bank transactions, but differences often arise.
• Causes for Differences: Cheques issued but not presented, cheques deposited but not cleared, bank charges, direct deposits, dishonoured cheques, and errors.
• Understanding Reconciliation: It is the process of matching the balances of Cash Book and Pass Book and identifying reasons for the differences.
• Need for Bank Reconciliation: Ensures accuracy, detects errors and fraud, and helps maintain reliable financial records.
• Preparing Reconciliation Statement: Start with the balance from either book, adjust for unrecorded transactions and timing differences to arrive at the other book’s balance.
• Adjusting the Cash Book: Errors and omissions in the Cash Book are corrected before preparing the Bank Reconciliation Statement.
• When extracts of both books are given: Identify common and differing items, adjust accordingly, and reconcile the balances.
• Advantages of Bank Reconciliation: Ensures accuracy of records, detects fraud, prevents overdraft, helps maintain liquidity control, and improves financial planning.

MCQs (Multiple Choice Questions)

1. Which book is maintained by the bank?
   a) Cash Book
   b) Purchase Book
   c) Pass Book
   d) Ledger Book
   Answer: c) Pass Book
2. Which of the following is not a cause for differences in Cash Book and Pass Book?
   a) Bank charges
   b) Errors in Cash Book
   c) Telephone bills
   d) Cheques not cleared
   Answer: c) Telephone bills
3. Bank Reconciliation Statement is usually prepared:
   a) Weekly
   b) Monthly
   c) Yearly
   d) Never
   Answer: b) Monthly
4. Which side of the Cash Book records deposits into the bank?
   a) Debit
   b) Credit
   c) Left
   d) Right
   Answer: a) Debit
5. Cheques issued but not presented are:
   a) Added to Cash Book balance
   b) Subtracted from Pass Book
   c) Added to Pass Book balance
   d) Subtracted from Cash Book balance
   Answer: a) Added to Cash Book balance
6. What does a debit balance in the Cash Book indicate?
   a) Overdraft
   b) Bank balance
   c) No transaction
   d) Expense
   Answer: b) Bank balance
7. What should be adjusted first before preparing a BRS?
   a) Pass Book
   b) Ledger
   c) Trial Balance
   d) Cash Book
   Answer: d) Cash Book
8. A dishonoured cheque is:
   a) Ignored
   b) Subtracted from Cash Book
   c) Added to Pass Book
   d) Added to Cash Book
   Answer: b) Subtracted from Cash Book
9. Direct deposit by customer is:
   a) Ignored
   b) Added to Pass Book
   c) Subtracted from Cash Book
   d) Added to Cash Book
   Answer: d) Added to Cash Book
10. One major advantage of BRS is:
    a) More paperwork
    b) Reduces profits
    c) Ensures record accuracy
    d) Increases tax
    Answer: c) Ensures record accuracy