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Chapter Analysis
Intermediate19 pages • EnglishQuick Summary
The chapter on Bank Reconciliation Statement delves into the purpose and method of reconciling the bank balance shown in the firm's cash book with the balance in the bank statement. It outlines the need for reconciliation due to discrepancies arising from timing differences and errors in recording transactions. The chapter also provides detailed steps for preparing a bank reconciliation statement and emphasizes the importance of maintaining an accurate cash balance.
Key Topics
- •Definition and purpose of bank reconciliation statement
- •Causes of difference between cash book and bank passbook balances
- •Steps in preparing a bank reconciliation statement
- •Impact of timing differences on bank reconciliation
- •Error rectification in bank reconciliation process
Learning Objectives
- ✓Understand the importance of preparing a bank reconciliation statement.
- ✓Identify causes of discrepancies between the cash book and bank statement.
- ✓Obtain the skills to prepare a bank reconciliation statement.
- ✓Determine the correct cash balance as per the cash book.
Questions in Chapter
State the need for the preparation of bank reconciliation statement?
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What is a bank overdraft?
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Briefly explain the statement ‘wrongly debited by the bank’ with the help of an example.
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State the causes of difference occurred due to time lag.
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Briefly explain the term ‘favourable balance as per cash book’.
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Enumerate the steps to ascertain the correct cash book balance.
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What is a bank reconciliation statement. Why is it prepared?
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Explain the reasons where the balance shown by the bank passbook does not agree with the balance as shown by the bank column of the cash book.
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Explain the process of preparing bank reconciliation statement with amended cash balance.
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From the following particulars, prepare a bank reconciliation statement as at March 31, 2017.
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Additional Practice Questions
What are the common causes for a discrepancy between the cash book and passbook balances?
easyAnswer: Common causes include timing differences in cheque deposits and clearances, bank charges not recorded in the cash book, and errors in recording transactions in either book.
How does an overdraft affect the bank reconciliation statement?
mediumAnswer: An overdraft represents a negative balance and must be accounted for as a debit balance in the cash book and a credit balance in the passbook when preparing the reconciliation statement.
Explain the significance of uncollected cheques in bank reconciliation.
mediumAnswer: Uncollected cheques need to be deducted from the cash book balance because they have not yet been credited by the bank, leading to discrepancies in the bank reconciliation process.
What role do direct deposits by debtors play in reconciling bank statements?
mediumAnswer: Direct deposits increase the passbook balance but are not recorded in the cash book until the firm receives the bank statement, causing a discrepancy until reconciled.
Describe the approach to rectify errors found during the preparation of a bank reconciliation statement.
hardAnswer: Errors located either in the cash book or passbook need adjustments in the respective book, after which the corrected balances can be matched to ensure accuracy in record-keeping.