Bank Reconciliation and Banking Bookkeeping - Class XI

The basic aim of Lead Bank Scheme is that there should be stiff competition among the various nationalized banks and big banks should try to open offices in each district.

True. A bank's advice is like a notice that the bank gives to the customer when any transaction takes place. Hence, bank always issues an advice while money gets deducted from customers account and also when money is deposited in the customer account.

For opening a Joint bank account, in case of separate sets of books are joint bank account debited and ventures capital account is credited. A joint bank account is like any other bank account. 

A Bank statement is a copy of bank column of the cash book. The businesses maintain cashbook with two column which has one cash column and other bank column. The bank column records all the transactions that take place in the bank account.  

A Pass Book is a copy of customer's account issued by the bank. The bank maintains the customer accounts in its books of accounts which are further shown in the pass book. Thus passbook is a record of all the transactions that take place in a customers account.

The difference between the balances of cash book and pass book is because of the timing difference, errors in cash book committed by account holder, error is book committed by bank. Some of the reasons can be cheques issues and not presented in the bank, interest allowed by the bank, direct payment through bank, cheques dishonoured, etc. 

A Bank Reconciliation Statement is prepared to identify and explain the differences between the bank balance shown in the cash book and the balance shown in the bank passbook.

When a direct payment is made to the third party it is automatically deducted/debited from the bank account. It is entered in the cash book when a cash receipt is received or when the passbook is updated.

A credit balance in cash book is a overdraft as per pass book. The bank maintains the customer account which is further printed in the passbook. The passbook is made from the view point of the bank hence customer depositing money is a liability to the bank and is credited. Therefore when the balance is unfavourable it shows a debit balance because they will receive money from the customer. The debits and credit of pass book and cash book are opposite.

When a direct payment is received from the third party it is automatically added/credited to the bank account. It is entered in the cash book when the passbook is updated or when it is due.

Payment received by the account holder through a cheque is entered in the passbook only when its cleared by the bank. The passbook will get credited only after the cheque is cleared by the bank. Uncollected cheques are the cheques which are deposited in the bank but not cleared by the bank or not credited in the bank account. Hence the cheque will appear in the passbook only after its been collected or cleared.

An amended cash book is where all the adjustments are done, the starting point being the balance as per cash book. All the errors in the cash book are adjusted in the same. Hence, an entry not appearing in the cash book is to adjusted in an amended cash book.

True. A bank book may also be known as a passbook which is maintained only for recording transactions of a bank account. A Bank Book is a statement that shows the transactions that occur is a customer's bank account.  

A Bank Pass Book is a statement that shows the transactions that occur is a customer's account. The bank maintains customer's account which are further copied/transferred to the Bank Pass Book. Pass Book is maintained so that the customer can refer the transactions that have occurred over a period of time.

True. Interest on overdraft is charged by the bank and paid by the customer. So, it reduces the balance in the pass book which is prepared by the bank as a copy of customer's account in the books of the bank.

The journal entry in case of interest on bank overdraft in the books of account holder is as follows :

False. Bank charges debited by the bank in the pass book reduces the balance in the pass book as compared to cash book. This is because the business has not yet recorded this transaction. This difference arises only because of the difference in recording of the transaction.

True. Interest credited in the pass book is an income for the customer as credited amount shows favourable balance and debited balance shows unfavourable balance in the pass book for the customer.

True. Cheque deposited into bank for collection are first received by business, and then sent to bank for collection. So the business records the transaction by debiting the bank column in the cash book as the amount is going to get added in the bank account and not as cash balance in the form of currency.

True. Interest and dividend are incomes of the customer which are collected by the bank on behalf of the customer. So, when money is received by the bank, the bank increase the balance in the cash book and credits the customer's account.

The journal entry in case of direct deposit by a customer in the books of account holder is as follows :

The journal entry in case of interest on bank balance in the books of account holder is as follows :

A cheque may be returned by the ban due to many reasons,one of them being there are no sufficient funds in the account.

A cheque returned by the bank marked NSF means that there are not sufficient funds in your account. This happens when the cheque presented to the bank is of an amount which is more than what is available with you in your bank at that point of time.

If a cheque written by a firm is not cancelled by the bank and returned with the month's bank statement, the firm should consider the cheque as outstanding while preparing the bank reconciliation statement. This means that the cheque has been issued but not presented for payment. So, the firm can consider such cheque as issued ( i.e. credited in cash book) but outstanding for payment when preparing bank reconciliation statement.

Outstanding cheques or unpresented cheques are those cheques which have been issued by the company but not yet presented for payment by the other party. The amount of such cheques have already been deducted from the cash book by the company accountant. The bank , on the other hand, will credit the bank account only when such cheque has been cleared from the bank. So, while reconciling the balances as per cash book and pass book, the account of outstanding cheques is added to book adjusted balance of cash.

In case of outstanding cheques the entry for the same would have been entered in the cash book and so the bank statement would be lower than the cash book balance.

The reconciliation is as follows :

A Pass Book is a copy of customer's account issued by the bank. The bank maintains the customer accounts in its books of accounts which are further shown in the pass book. Thus passbook is a record of all the transactions that take place in a customers account.

In case of interest allowed by bank, the entry for the same would have been entered in the pass book due to which the pass book balance would be higher than the cash book balance.

In case of uncollected cheques  the entry for the same is already made in the cash book due to which the cash book balance becomes higher. 

A bank statement is a printed record of all the transactions that take place in a customer's account. The bank maintains customers account in its books of account and the same is presented to the customer in the form of a statement to the customer to check balances, additions and subtractions in the bank account .   

In case of direct payments by bank the entry for the same is already made in the pass book due to which the pass book balance becomes higher. So, when the balance as per pass book is the starting point, direct payments by bank are added in the bank reconciliation statement.

The reconciliation is as follows :

An amended cash book is where all the adjustments are done, the starting point being the balance as per cash book. All the errors in the cash book are adjusted in the same. Hence, a wrong entry in a pass book won't appear in a cash book as it is not an error or omission in the cash book.

An amended cash book is where all the adjustments are done, the starting point being the balance as per cash book. All the errors in the cash book are adjusted in the same. In the given question all the errors are cash book errors or omission except a wrong entry in the pass book. This error has to be adjusted in the passbook and not the cash book.

 Unpresented cheques must be deducted from the balance as per Bank Statement when reconciling it with Cash Book. Therefore, unpresented cheques must be added to the balance as per Cash Book when reconciling it with the Bank Statement.