Tag: meaning of petty cash book

Questions Related to meaning of petty cash book

A bank reconciliation statement is prepared with the balance of __________.

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

  1. Pass book

  2. Cash book

  3. Both pass book and cash book

  4. None of the above

Show answer
Correct Option: C
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 maintained by the bank and
  • 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.

A bank reconciliation statement is prepared by_________.

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

  1. Creditors

  2. Bank

  3. Account holder in a bank

  4. Debtors

Show answer
Correct Option: C
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Whenever money is deposited in bank  or withdrawn from bank it is recorded in two places.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.

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

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

  1. lower

  2. profit

  3. higher

  4. None of the Above

Show answer
Correct Option: A
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.

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

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

  1. True

  2. False

Show answer
Correct Option: A
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.

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

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

  1. True

  2. False

Show answer
Correct Option: A
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.

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

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

  1. True

  2. False

Show answer
Correct Option: A
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.

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.

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

  1. True

  2. False

Show answer
Correct Option: A
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.

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. 

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

  1. True

  2. False

Show answer
Correct Option: B
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.

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. 

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

  1. True

  2. False

Show answer
Correct Option: A
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.

Differences caused by errors are ___________.

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

  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

Show answer
Correct Option: B,D
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.