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

A bank reconciliation is a ____________________.

  1. formal financial statement that lists all of the a firm's bank account balances.

  2. merger of two banks that previously were competitors.

  3. statement sent monthly by a bank to a depositor that lists all deposits, cheques paid and other credits and charges to the depositor's account for the month.

  4. schedule that accounts for differences between a firm's cash balance as shown on bank statement and the balance shown in its personal ledger cash account.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Whenever money is deposited in bank  or withdrawn from bank it is recorded in two places.

  • The passbook 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

Debit balance as per cash book means _________.

  1. cash balance

  2. overdraft

  3. excess of expenditure

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

When we say that cash book has a debit balance it means that the debit side of the cash book is more than the credit side. On the debit side we record cash receipts and on the debit side we record cash payments. So if there is a debit balance as per cash book then it means there is cash balance with us.

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. bank statement and bank column of the cash book

  2. bank statement and cash column of the cash book

  3. bank column and cash column of the cash book

  4. none of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

To reconcile means to find out the differences if any between two or more things and eliminate it. Now, in case of any banking transactions for each deposit or withdrawal the entry is recorded at two places.

  • The pass book / bank statement maintained by the bank and
  • The bank column of the cash book 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. 

So, to reconcile the same a bank reconciliation statement is prepared. The aim while preparing a bank reconciliation statement is to take either pass book or cash book  balance as the starting point, to add or deduct certain entries and reach the balance of the other book ie, if cash book balance is the starting point then after reconciling we should reach at pass book 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

Bank Reconciliation Statement is prepared to ascertain the causes of the difference between ________________ and ______________.

  1. the balance as per the bank column of the cash book, the balance as per pass book

  2. the balance as per the cash column of cash book, the balance as per the pass book

  3. cash, bank column in the cash book

  4. none of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Bank reconciliation statement is an exercise to ascertain the difference between the bank statements and cash book maintained by the business.

However, any discrepancies in cash column as per the cash book shall not be reflected since only bank column of the cash book is considered vis-a-vis the pass book in preparing Bank reconciliation statement.

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

While preparing a Bank Reconciliation Statement, if you start with a debit balance as per the cash book, then cheques issued but not presented within the period are _____________.

  1. to be added

  2. to be deducted

  3. not required to be adjusted

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

Cheques issued represent payments made. So when cheques are issued and presented for payment it would lead to decrease in the bank balance as per both  pass book and cash book. But, if cheques are not presented within the period then the bank would not consider those cheques and the bank balance as per pass book would be higher than bank balance as per cash book. 

So, while preparing a bank reconciliation statement, starting with debit balance as per the cash book  if cheques are issued but not presented within the period then they are to be added to reach 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

Which of the following items appearing on a bank reconciliation would require an adjusting entry?

  1. Outstanding cheques

  2. Deposits in transit

  3. Interest on balance

  4. Adjusted cash balance
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Interest on balance would require an adjusting entry if appearing on a bank reconciliation, because outstanding cheques and deposits in transit are merely time differences which would get cleared automatically and adjusted cash balance is already taken care for the errors. Whereas interest on balance would be cleared only when an entry for the same is passed in the cash 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

The difference in the balances of the cash book and the pass book can be because of _______________.

  1. error in recording the entries either in the cash book or pass book.

  2. same entry recorded in either of the book earlier and in the other book later

  3. debit balance of cash book is the credit balance of pass book.

  4. both (a) and (b)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

If an entry is recorded in either the cash book or the pass book first and not updated in either of them on a later date, it may lead to a difference between them both.

Also, if there is no consistency or an erroneous recording of transactions  in recording entries in either of the books, it may lead to  a difference between the two.
A debit position as per bank pass book means credit position as per cash book and vice versa.

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

Interest charged by the bank will be deducted when the overdraft as per pass book is the starting point for preparing the bank reconciliation statement to arrive at the balance as per cash book at the end.

  1. True

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

True. Interest charged by bank is an expense for the business. It is credited in the cash book when it is paid by the business, thereby reducing the balance in the cash book (bank column). So, when overdraft as per pass book is the starting point for preparing bank reconciliation statement, interest charged by bank will be deducted to arrive at the balance as per cash book at the end.

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 debit balance in the depositor's cash book will be shown as ___________.

  1. a debit balance in the bank statement

  2. a credit balance in the bank statement

  3. an overdrawn balance in the bank statement

  4. none of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A bank statement is an extract from bank ledger and hence it is to be read from bank's view point which shows a credit balance in the pass book.

It is the position of customer in bank records. So if a debit balance is shown in depositor's cash book an opposite position will be shown in the bank books i.e credit 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 pass book is a copy of _________________ .

  1. a customers account in the banks books

  2. cash book relating to discount column

  3. cash book relating to cash column

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

A passbook is a copy of customer's account in the bank's books. it is prepared by the bank and shows all the transactions of a customer like deposits, withdrawals, interest payment / receipt etc. with the bank from the point of view of 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

________ is a copy of the clients account in the bank's ledger.

  1. Cash book

  2. Pass book

  3. Cheque book

  4. Pay-in-slip book
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The pass book is just a copy of the account statement as maintained by the bank. So if the pass book reflects a debit balance it means that the account is in the nature of a debtor/receivable for the bank and  it would be the opposite for the account holder. From his point of view he would be having a negative balance in his account and hence a liability/payable.

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 of the following is/are cause of difference of balance between cash book & the pass book?

  1. Errors committed in recording transactions by the firm.

  2. Errors committed in recording transactions by the bank.

  3. Natural calamities.

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

Banks do commit errors that can cause a difference in balance as per the cash book and the pass book.

Only to reconcile these balances does the businessmen prepare Bank reconciliation.
Majority of the time, there are chances that the fraud and error may be committed by the firm but not always.
Banks may commit errors like printing errors or charging an incorrect bank expense, etc.

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

Interest charged by the bank will be deducted, when the overdraft as per the cash book is made the starting point for making, the bank reconciliation statement.

  1. True

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

False. Interest charged by bank will be added when the overdraft as per cash book is taken as starting point for preparing the bank reconciliation statement. Interest charged by bank is an expense for the business which reduces the balance as per pass book. The business has not recorded this transaction in the cash book yet as it  has not received any information about it. So, to arrive at the balance as per pass book, it is added to the overdraft balance as per cash 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

Direct collection received by the bank on behalf of its customers will increase the balance as per the Bank Pass-book as 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 collection received by the bank will increase the balance as per pass book as the bank will credit the passbook as the funds are transferred into the customers bank account. This increases the bank passbook balance as compared to cash book balance as the customer has no information about such transaction and has not recorded it in the cash book. This difference in balance arises due to 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

Collection charges and incidental charges are first reflected in __________.

  1. pass book

  2. cash book

  3. bank statement

  4. none of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Collection charges and incidental charges are the charges levied by the bank for collecting debt for the customer. These expenses are first levied by the bank and then intimated to the customer. Thus, they are first reflected in the pass book.

It is an example of such items which are  often the causes of differences in the balance as per cash book (bank column) and the balance as per pass book (bank statement) as it is reflected at different times at both the places.