Commerce Accountancy · General Awareness

Banking and Cash Transactions

1,011 Questions

This collection covers essential concepts related to banking and cash transactions. It includes questions on outstanding cheques, petty cash, bank reconciliations, and negotiable instruments. These topics are highly relevant for accounting exams and test practical financial knowledge.

Bank reconciliation statementsCheques and noting chargesPetty cash usageNegotiable Instruments ActCash book entriesStamp Duty Act

Banking and Cash Transactions Questions

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

The difference in the balances of both the cash-book and the pass-book can be because of :

  1. Timing difference of recording of the transaction.

  2. Errors in cash book committed by account holder.

  3. Error in pass book committed by Bank

  4. All of the above.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

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. 

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

A bank reconciliation statements is prepared to reconcile the difference in -

  1. Cash balance and bank balance

  2. Cash balance and pass book balance.

  3. Bank balance as per bank column of cash book and pass book.

  4. None of above.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

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.

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

Direct payment to the third party on behalf of the account holder is entered in-

  1. The cash-book when the amount is paid by the bank

  2. The cash-book when the entry is posted in the pass-book

  3. The pass-book when the amount is paid by the bank

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

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.

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

Credit Balance in the Cash Book means:

  1. Overdraft as per Pass Book

  2. Favourable balance as per Pass Book

  3. Favourable balance as per Cash Book

  4. Neither of the three.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

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.

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

Direct payment received from third party on behalf of account holder is entered in-

  1. The Cash Book when the amount is received by the Bank

  2. The Pass Book when the amount is received by the Bank

  3. The cash Book when entry is posted in the Pass Book

  4. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

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.

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

Payment received by the account holder through a cheque is entered in-

  1. The Pass Book at the time of receipt of cheque

  2. The Cash Book at the time of collection of cheque

  3. The Pass Book at the time of collection of cheque

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

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.

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

Which of the following item is to be adjusted in the Amended Cash Book:

  1. Uncollected cheques

  2. Unpresented cheques

  3. A wrong entry in the Pass Book

  4. A correct entry in the Pass Book but not appearing in Cash Book
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

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.

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

A Bank Pass Book is a small booklet in which the details of all ledger entries in respect of banking transactions appearing in the books of bank are entered for the knowledge of account holder.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

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.

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

State whether the following statement is True or False.
Interest on overdraft is debited in pass book.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

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.

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

Interest on bank overdraft is recorded on ___________ side of pass-book.

  1. debit

  2. credit

  3. both side

  4. any side
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

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

Interest on bank overdraft A/c. ...................Dr.
To Bank A/c
In the cash book the above entry  would be recorded on the credit side and as we know that pass book is an exact opposite record of the cash book so, interest on bank overdraft would be recorded on the debit side of the pass book.

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

State whether the following statement is True or False.
Bank charges debited by Bank increase bank balance in the Pass Book.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

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.

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

State whether the following statement is True or False.
Cheque deposited into the bank increases the bank balance in the cash book.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

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.

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

State whether the following statement is True or False.
Interest and dividend collected by the bank increases the bank balance in the pass book.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

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.

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

Direct deposit by a customer will be recorded on ___________ side of the pass book.

  1. debit

  2. credit

  3. left hand

  4. both side
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

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

Bank A/c. ...................Dr.
To Sundry debtor A/c
In the cash book the above entry  would be recorded on the debit side and as we know that pass book is an exact opposite record of the cash book so, direct deposit by the customer  would be recorded on the credit side of the pass book.

Multiple choice book keeping and accountancy banking transactions and accounts relating to cheque functions and services of modern banking meaning of passbook and cashbook journal entries for transactions through bank and for loans

Interest on bank balance is recorded on __________ side of pass book.

  1. debit

  2. credit

  3. both side

  4. any side
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

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

Bank A/c. ...................Dr.
To Interest on bank balance A/c
In the cash book the above entry  would be recorded on the debit side and as we know that pass book is an exact opposite record of the cash book so, direct deposit by the customer  would be recorded on the credit side of the pass book.