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

What is a bill of exchange?

  1. It is an instrument written or oral, containing an unconditional undertaking signed by the maker to pay certain sum of money to the bearer

  2. It is an instrument in writing containing an conditional undertaking signed by the maker to pay certain sum of money to the bearer

  3. It is an instrument in writing containing an unconditional undertaking signed by the maker to pay certain sum of money to the bearer

  4. It is an instrument in writing containing an unconditional order signed by the maker to pay certain sum of money to the bearer
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

 A bill of excange is a               written document               containg a conditional undertaking               to pay a certain amount to the bearer

 

Multiple choice

A draws a bill on B for Rs. 1, 00, 000. A endorsed the bill to C. The bill return dishonored. Noting charges Rs. 1,000. B requests A to accept the amount at 2% discount by a single cheque. The cheque amount will be

  1. Rs. 98, 000

  2. Rs. 98, 980

  3. Rs. 99, 980

  4. Rs. 99, 000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

 Noting charges are to be borne by B Total Amount payable by B after dishonor = Rs 1,01,000 Discount Amount                                            = Rs (2% of 1,01,000)                                                                            = Rs 2020 Net amount payable by B                             = Rs (101000-2020)                                                                            = Rs 98,980

Multiple choice

Credit balance in the cash book means

  1. overdraft as per pass book.

  2. favourable balance as per pass book.

  3. both (1) and (2).

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

When the cash book shows a credit balance, it means the business has spent more than it has deposited - resulting in a bank overdraft. From the customer's perspective, this is a negative bank balance. The pass book (bank statement) would show this as an overdraft. A favourable balance would mean the cash book has a debit balance (money deposited exceeds withdrawals).

Multiple choice

There was difference in the bank column of cash book and pass book by Rs. 2,500. On scrutiny it was found that interest of Rs. 500 charged directly by the bank was not entered in the cash book. The same was adjusted in the cashbook before reconciliation statement. Now, in the bank reconciliation statement, this interest of Rs. 500 is to be

  1. added to the cash book balance.

  2. subtracted from the cash book balance.

  3. ignored while preparing bank reconciliation statement.

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

When bank interest charged by the bank has already been adjusted in the cash book before preparing the bank reconciliation statement, it should be ignored in the BRS. This is because the adjustment has already been made to bring the cash book balance to the correct level, and the BRS is prepared to explain the remaining differences. Options A and B would double-count the adjustment.

Multiple choice

'MICR' technology used for clearance of cheques by banks refers to

  1. Magnetic Ink Character Recognition

  2. Magnetic Intelligence Character Recognition

  3. Magnetic Information Cable Recognition

  4. Magnetic Insurance Cases Recognition
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

MICR (Magnetic Ink Character Recognition) uses special magnetically charged ink printed characters, primarily on cheques, that banks can read electronically for fast and accurate cheque clearing and processing.

Multiple choice

'Surprise Checks' is a part of which of the following?

  1. An auditor's report

  2. An auditor's standard

  3. An auditor's program

  4. An auditor's working papers

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

Audit program includes set of polices and procedures for the implementation of auditing. Surprise check is the part of auditor's programme.

Multiple choice

The outgoing cheque of Rs. 3,000 is recorded twice in the credit side of bank column of Two-Columnar Cash Book. How will you make amendments in the cash book for this error?

  1. Rs. 3,000 is to be entered in the debit side of bank column.

  2. Rs. 3,000 is to be entered in the credit side of bank column.

  3. Rs. 3,000 is to be entered in the debit side of Cash Column.

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

It is correct that Rs. 3,000 is to be entered in the debit side of bank column. The outgoing cheque is recorded two times or twice in the credit side of bank column of Rs. 3,000. Hence, in the credit side of bank column, double of Rs. 3,000, i.e. Rs. 6,000 are entered. Therefore, to rectify this error, Rs. 3,000 will be entered in the debit side of the bank column. The net effect of this will be that Rs. 3,000 will be in the credit side of bank column (Rs. 6,000 in credit side -  Rs. 3,000 in debit side = Rs. 3,000 ).

Multiple choice

The salary of Rs. 10,000 paid by cheque is entered in credit side of Cash Column of Two-Columnar Cash Book. How will you rectify it in the cash book?

  1. Rs. 10,000 is to be entered in the credit side of bank column only.

  2. Rs. 10,000 is to be entered in the credit side of the bank column, and Rs. 10,000 is to be entered in the debit side of cash column.

  3. Rs. 10, 000 is to be entered in the credit side of bank column only.

  4. Rs. 10,000 is to be entered in the credit side of cash column, and Rs.10, 000 is to be entered in the debit side of bank column.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

It is correct. Rs. 10,000 is credited to the bank column because it is not credited earlier. Rs. 10, 000, which was entered by mistake in the credit side of cash column, will be debited to cash column to rectify it.

Multiple choice

A cheque of Rs. 5,000 is issued to our customer Mohit, but Mohit has not presented for payment till the date of preparation of Bank Reconciliation Statement. When the balance as per cash book is given and we have to calculate balance as per pass book, the cheque issued of Rs. 5,000 would be

  1. added in the balance as cash book

  2. subtracted from balance as per cash book

  3. added in the balance as per pass book

  4. subtracted from balance as per pass book
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

This is correct. When we had issued the cheque to Mohit, we would have decreased our balance in bank thinking that Mohit would present it for payment. But it is not presented for payment till the date of preparation of Bank Reconciliation Statement and the balance at bank is not decreased. Hence, the balance, which was decreased before is not decreased actually and we have to increase it and by which the balance at bank is increased, is to be added in the balance as per cash book.

Multiple choice

The commission of Rs. 1,000 was charged by bank, but it was entered in debit side of Bank Column of Two-Columnar Cash Book. How will you rectify this mistake in the Two-Columnar Cash Book?

  1. No rectification is required.

  2. Rs. 2,000 is to be entered in credit side of cash column.

  3. Rs. 2,000 is to be entered in the credit side of bank column.

  4. Rs. 1,000 is to be entered in the debit side of bank column.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

It is correct. We have to enter Rs. 1,000 in the credit side of bank column as it decreases the balance in the bank. But we have entered Rs. 1,000 in the debit side of bank column. Hence, double of Rs. 1,000, i.e. Rs. 2,000 will be entered in the credit side of bank column.

Multiple choice

A cheque of Rs. 2,000 received from our customer was dishonoured when it was presented for payment, but it was entered in credit side of Bank Column of Two-Columnar Cash Book. How will it be rectified in the Two-Columnar Cash Book?

  1. No rectification is required.

  2. Rs. 2,000 is to be entered in the debit side of bank column.

  3. Rs. 2,000 is to be entered in the credit side of cash column.

  4. Rs. 2,000 is to be entered in the debit side of cash column.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

This is correct that no rectification is required. The cheque received from our customer is dishonoured when presented for payment. Hence, customer's account will be debited while journalising it. Therefore, while entering it in the Bank Column of Cash Book, it will be entered in its credit side as by customer's account. So, no rectification is required.

Multiple choice

A cheque of Rs. 5,000 received from our customer M/s Ram and Sons was recorded twice in the debit side of Bank Column of Two-Columnar Cash Book. How will you rectify it in the cash book?

  1. Rs. 5,000 is to be entered in the credit side of bank column.

  2. Rs. 5,000 is to be entered in the debit side of bank column.

  3. Rs. 5,000 is to be entered in the credit side of cash column.

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

This is correct. Rs. 5,000 is to be entered in the credit side of bank column. Since we have entered two times or twice the cheque received from our customer M/s Ram and Sons, then we have entered Rs. 10,000 ( 2 x 5,000 (double of 5000)) in the debit side of bank column. Hence, Rs. 5,000 would be entered in the credit side of bank column to nullify the mistake made.