Commerce Accountancy · General Awareness

Banking and Cash Transactions

990 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 commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

A bank reconciliation statement is prepared by_________.

  1. Creditors

  2. Bank

  3. Account holder in a bank

  4. Debtors
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Whenever money is deposited in bank  or withdrawn from bank it is recorded in two places.

  • The pass book maintained by the bank
  • The cash book (bank column ) maintained by the account holder.
These two books are opposites of each other which means if one shows credit balance then the other would reflect a debit balance of the exact same amount. But due to reasons like timing differences the balances of both these books do not match. Now, it is not practical and feasible for the bank to reconcile the account balances of each and every account holder so, the account holder prepares a bank reconciliation statement for his account maintained in the bank.

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

When a banker collects the bills and credits the amount, pass book overdraft shows ______ balance than before.

  1. lower

  2. profit

  3. higher

  4. None of the Above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Pass book overdraft can be simply stated as debit/negative balance in the pass book. Which means the account holder has overdrawn from his account . So when a banker collects bills and credits the amount what happens is that the amount of bill is being received into the account and as a result the liability of the account holder is being reduced. Therefore, after the credit of the bill into the account the pass book overdraft would get reduced and show a lower debit balance than before.

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

Passbook is the statement of account of the customer maintained by the bank. 

  1. True

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

True. Pass book is a copy of customer's account in the books of the bank. It shows all the transactions of a customer with the bank from the point of view of the bank as it is prepared by the bank.

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

Favourable bank balance as per the cash book will be less than the bank pass book balance when there are unpresented cheques for payment. 

  1. True

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

True. 

Unpresented cheques are cheques issued by the business, but not yet presented for payment at the bank. This reduces the balance in cash book as compared to balance as per pass book. Balance in pass book is effected by the bank only when such cheques are cleared by the bank. 

So, favourable bank balance as per cash book will be less than the bank pass book balance when there are in unpresented cheques for payment.

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

Cheques deposited but not collected will result in increasing the balance of the cash book when compared to pass book. 

  1. True

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

True. Cheques deposited but not collected are those cheques which are received by the business from its customers or debtors. The business records such cheques in its books by debiting the cash book, which increases the cash book balance and then deposits them into the bank for collection. However, the bank credits the pass book only when such cheques are cleared.

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

A business firm periodically prepares a bank reconciliation statement to reconcile the bank balance as per the cash book with the pass book as these two show different balances for various reasons.

  1. True

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

True. A business firm periodically prepares bank reconciliation statement to reconcile the balances as per cash book and pass book as it is the responsibility of the business to present a true and fair picture of its books of accounts to various stakeholders.

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

When payments made by the bank as per the standing instructions of the customer, the balance in the pass book will be more when compared to the cash book. 

  1. True

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

False. When payments are made by the bank on behalf of the customer, the bank will reduce the balance in the pass book. However, the customer will be able to reduce the balance in the cash book only when he receives information about the same. Thus the balance in cash book will be more than the pass book. This difference arises only because of time difference in recording of the transaction.

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

Direct collections received by the bank on behalf of the customers would increase the balance as per the bank pass book when compared to the balance as per the cash book. 

  1. True

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

True. 

Direct collections received by the bank on behalf of the customer would increase the balance as per the bank pass book as compared to cash book balance as the bank would have credited the amount to the bank account of the customer. 

However, the customer will increase the balance in the cash book only when he will receive the information about such transaction. Thus, here difference arise due to time difference in the recording of the transaction.

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

Differences caused by errors are ___________.

  1. interest and dividends collected by the bank

  2. errors committed in recording transaction by the firm

  3. direct payments made by the bank on behalf of the customers

  4. errors committed in recording transactions by the bank
Reveal answer Fill a bubble to check yourself
B,D Correct answer
Explanation

A bank reconciliation statement compares the balances of cash book which is prepared by the firm and the pass book which is prepared by the bank. It is prepared to identify the errors and differences between the two balances. Thus differences caused by errors are either errors committed in recording transactions by the firm or errors committed in recording transactions by the bank.

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance bank overdraft meaning and bank reconciliation statement

When the balance as per Cash Book is the starting point, direct deposit by customer is_______________.

  1. Added

  2. Subtracted

  3. Not required to be adjusted

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

A direct deposit is a deposit which is directly made into the bank account without recording it in the cash book. So the balance as per pass book increases as compared to the balance as per cash book. Thus, when balance as per cash book is the starting point, a direct deposit is added to arrive at the balance as per pass book.

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

How many ways are there to prepare Bank Reconciliation Statement?

  1. Three

  2. Two

  3. One

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

There are three(3) ways to prepare the bank reconciliation namely:

  1. Take the book balance and reconcile it to the bank balance
  2. Take the bank balance and reconcile it to the book balance
  3. Take the book balance and reconcile it to an adjusted cash balance, then take the bank balance and reconcile it to the adjusted cash balance

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance bank overdraft meaning and bank reconciliation statement

A Bank Reconciliation Statement is prepared with the help of _____________.

  1. Cash Book

  2. Pass Book

  3. Either Cash Book or Pass Book

  4. Neither Cash Book or Pass Book
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A bank reconciliation statement is prepared to reconcile the differences between the balances as per cash book (bank balance) and pass book (bank statement). It is prepared by taking any of the two balances as the base, accommodating all the causes of differences and finally arriving at the other balance. Thus it is prepared with the help of either cash book or pass book depending on whose balance we take as the base.

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

Pass Book is ___________ of account holder's transaction with the Bank.

  1. An extract

  2. A Balance Sheet

  3. A balance

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

Balance Sheet of a bank is a collation of any accounts maintained by the customers, hence pass book can never be a balance sheet neither can it be a balance. 'Mode' can be online banking or offline banking and has nothing to do with the pass book.

Pass book is only an extract of all the transactions undertaken by the customers during the period.

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

Which one of these is true about a bank reconciliation statement?

  1. It is a part of memorandum statement

  2. It is a part of cash book

  3. If is a part of ledger

  4. It is a part of bank decumentation
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Bank reconciliation statement is a report which compares the bank balance as per company's accounting records with the balance stated in the bank statement. It is normal for a company's bank balance as per the accounting records to differ from the balance as per bank statement due to timing differences. Certain transactions are recorded by the entity that are updated in the bank's system after a certain time lag. Bank reconciliation statement is a part of cash book. The cash book and pass book/bank statement are prepared separately. The businessman prepares the cash book and the pass book is prepared by the bank.

Multiple choice commercial studies cash book and bank related transactions objectives and importance of bank reconciliation statement meaning of petty cash book bank balance, bank overdraft, meaning, and bank reconciliation statement

Difference in balance as per pass book and balance as per cash book due to ________ is termed as difference arising due to errors in recording the transaction.

  1. cheque issued but not presented for payment

  2. dishonour of a discounted bill

  3. direct payment by the bank/ customers

  4. none of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

It is generally experienced that when a comparison is made between the bank balance as shown in the firm's cash book, the two balances do not tally. Hence, to first ascertain the causes of difference thereof and then reflect them in a statement called Bank Reconciliation Statement to reconcile (tally) the two balances. Reconciliation of the cash book and the bank passbook balances amounts to an explanation of differences between them. The differences between the cash book and bank passbook is caused by:

a. timing differences on recording of the transactions.
b. errors made by the business or by the bank.
Sometimes the difference between the two balances may be accounted for by an error on the part of the bank or an error in the cash book of the business. This causes the difference between the bank balance shown by the cash book and he balance shown by the bank statement. Difference in balance as per pass book and balance as per cash book due to errors committed in recording transaction by the firm and errors committed in recording transactions by the bank are termed as difference arising due to errors in recording the transaction