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 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

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

Entry on credit side of bank pass book implies ___________.

  1. cash withdrawn

  2. cash/cheque deposited in bank

  3. business expenses

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

Any entry on the credit side of the pass book implies that the asset of the account holder( the amount reflecting as his bank balance) has increased and the liability of the bank has increased simultaneously. Now, cash/cheque deposited in bank leads to increase in the bank balance of the account holder and hence would be shown on the credit side of the 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

On a bank reconciliation which of the following would be added to the balance as per bank statement?

  1. Outstanding unpaid cheques.

  2. Deposits in transit.

  3. Cheques not collected.

  4. Both (B) and (C).
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In case of deposits in transit and cheques not collected , when these items get cleared they lead to increase in the bank balance and at the present moment the pass book balance would be less than the cash book balance.

So, when preparing a bank reconciliation if balance as per bank statement is the starting point then, deposits in transit and cheques not collected would have to be added.

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 pass book is copy of ________.

  1. a customers account in the banks books

  2. cash book relating to bank column

  3. cash book relating to cash column

  4. receipts and payments
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A bank pass book is 'copy' of a customer's account in bank books.

Several accounts are kept with the bank which are recorded in the bank ledgers.
All the transactions between the customer and bank are recorded in bank ledgers , the extract of which is then availed to customers in form of passbook.

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 balances of ________.

  1. cash book

  2. pass book

  3. either cash book or pass book

  4. both cash book and pass book
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Bank Reconciliation statement is prepared in order to reconcile the balance as per the bank pass book and balance as per the cash account maintained by the business in the form of cash book after taking into consideration other aspects like cheques issued but not presented for payment, cash in transit, cheque in transit, etc.