Bank overdraft is a liability to an account holder. When the account holder withdraws excess amount over his/her available bank balance, he/she runs a negative bank balance. The negative bank balance is an obligation to the account holder and is called bank overdraft. In other words, bank overdraft is the excess of withdrawal over deposits.

Question - 3 : -
Briefly explain the statement ‘wrongly debited by the bank’ with the help of an example.

Answer - 3 : -

Amount wrongly debited by the bank implies a situation when the bank wrongly debits a Pass Book. The following are the common mistakes that occur in the Pass Book when bank wrongly debits the Pass Book.

Mistake occurs when any two account holders’ names are identical. For example, a cheque of Rs 2,000 issued by Mr. Prem Singh was wrongly paid through Mr. Prem Kumar’s account.
Mistake occurs in case a person has more than one account in a bank. For example, a cheque of Rs 1,000 issued from his Current Account was wrongly paid through his Savings Account.
Sometimes amounts of cheques are wrongly recorded. For example, payment of Rs 2,000 through cheque was wrongly debited in the Pass Book as Rs 20,000.

Question - 4 : -
State the causes of difference occurred due to time lag.

Answer - 4 : -

The following are the causes of difference occurred due to time lag

Cheque issued by the firm is not yet presented for payment.
Cheque deposited into the bank but yet to be realized.
Direct debits done by the bank on behalf of the customer.
Amount deposited directly into the bank account.
Interest and dividends that are not collected by the bank.
Direct payments made by the bank on behalf of the customers
Cheques that are deposited or bills discounted which is dishonoured

Question - 5 : -
Briefly explain the term favourable balance as per cash book

Answer - 5 : -

Favourable balance (Debit Balance), as per the Cash Book, is an asset to an account holder. It is also known as debit balance as per the Cash Book. Favourable balance is the excess of total of debit side over total of credit side of a bank column of a Cash Book. In other words, favourable balance means excess of deposits over withdrawals.

Question - 6 : -
Enumerate the steps to ascertain the correct cash book balance.

Answer - 6 : -

Generally, differences between the Cash Book and the Pass Book arise due to the reason that items have not been recorded in the Cash Book. In order to ascertain the correct Cash Book balance, we need to prepare Corrected (Adjusted) Cash Book. The below given steps are involved in the preparation of Corrected (Adjusted) Cash Book.

Step 1: Note down the bank balance as per the Cash Book.

Step 2: Rectify all the errors committed in the Cash Book.

Step 3: Enter those transactions in the debit of the Cash Book, which are only in the credit of the Pass Book.

Step 4: Enter those transactions in the credit of the Cash Book that are only in the debit of the Pass Book.

Step 5: The Cash Book is totalled and balancing figure is calculated. This balancing figure is use for preparing BRS.

Question - 7 : -
What is a bank reconciliation statement? Why is it prepared?

Answer - 7 : -

Bank Reconciliation Statement is a statement prepared for determining causes of differences and reconciling bank balance (as per the Cash Book) with the balance as per the Pass Book or vice versa.

In day to day affairs, an individual or organisation makes numerous transactions through bank. Along with the copy of bank statement (i.e., the Pass Book), an individual or organisation needs to maintain a separate book (Cash Book) for recording the banking transactions. When large number of transactions is made through bank, the balance of the Cash Book may differ from the balance of the Pass Book.

There can be many reasons of differences between the Cash Book and the Pass Book, such as below given ones.

1. Deposit of cheque was recorded in the Cash Book at the time of deposit; however, was collected later or not collected by the bank.

2. Cheque issued was recorded in the Cash Book; however, was not recorded in the Pass Book in the month of issue. It was entered in the Pass Book in the next month when it was presented for payment in the bank.

3. Interest allowed by the bank is added in the pass book but not in the Cash Book.

Bank Reconciliation Statement (BRS) is prepared when the bank balance of the Cash Book is not equal to the balance shown by the Pass Book on the same date (when BRS is being prepared). In order to match the two respective balances, errors and omissions are to be located and rectified, which is the main rationale behind preparing the Bank Reconciliation Statement.

Specimen of BankReconciliation Statement

Particulars	Amount Rs (Add)	Amount Rs (Less)
Balance as per the Cash Book	−
Cheque issued but not presented	−
Cheque deposited but not collected		−
Balance as per the Pass Book

The need for preparation of Bank Reconciliation Statement is explained below.

1. It helps in finding out the errors and omissions committed in the Cash Book and in the Pass Book.

2. It shows uncleared cheques that have already been debited in the Cash Book but have not yet been recorded in the Pass Book.

3. It helps in checking embezzlement of money from the bank account.

4. It helps in measuring the accuracy of transactions recorded in the Cash Book.

5. It facilitates in preparing revised cash book that reflects a true bank balance.

Question - 8 : -
Explain the reasons where the balance shown by the bank passbook does not agree with the balance as shown by the bank column of the cash book.

Answer - 8 : -

Below given are the reasons on account of which the balance shown by the bank Pass Book does not agree with the balance shown by the bank column of the Cash Book.

1. Differences due to time lag: In the following situations, differences may arise, if the date of recording transactions in the bank column of the Cash Book is not same to that of in the Pass Book.

2. Cheques issued by the firm but presented after the date that is mentioned on the cheque or still not presented in the bank: Usually, issue of a cheque is recorded in the bank column of the Cash Book on the date that is mentioned (mentioned date) on the cheque. Sometimes, the holder of the cheque does not present the cheque on the date which is mentioned on it. This may lead to differences in the balance between the Pass Book and the bank balance of the Cash Book.

3. Deposit of cheque recorded in the Cash Book at the time of deposit but collected later or not collected by the bank: Deposit of a cheque is recorded in the bank column of the Cash Book on the date when it is deposited in the bank for payment but bank records it in the Pass Book on the date of clearance. Usually, date of deposit and date of clearance are not the same. This difference in the two respective dates leads to a mismatch between the Pass Book and the bank balance of the Cash Book.

4. Transactions recorded only in the Pass Book: Transactions, like interest allowed by bank on the deposits, bank charges, etc., are recorded first in the Pass Book. After getting intimation from the bank, these are recorded in the bank column of the Cash Book. However, sometimes, due to delay in intimation of these transactions to the customers, the Cash Book remains not updated, which leads to the difference between the Pass Book and the bank balance of the Cash Book.

Below given are the examples that lead to such differences.

1. The transactions that reduce balance of the Pass Book and are recorded only in the Pass Book and not in the Cash Book are given below.

i. Bank charges, charged by the bank but not recorded in the Cash Book

ii. Dishonour of a bill discounted by the bank

iii. Interest charged by the bank on overdraft

iv. Direct payment made by the bank as per the instructions of the accountholder

2. The transactions that increase the balance of the Pass Book and are recorded only in the Pass Book and not in the Cash Book are given below.

i. When intimation regarding interests and dividend collected by the bank is not given to the accountholder

ii. Amount deposited by any customer directly into the bank

iii. Interest credited (allowed) by the bank

3. Errors and omissions

Any error or omission committed in the Pass Book, such as double recording of a deposited cheque, wrong posting of amounts, current account cheque wrongly paid through saving account, etc., result in the difference of the balance between the Pass Book and the bank balance of the Cash Book.

Question - 9 : -
Explain the process of preparing bank reconciliation statement with amended cash balance.

Answer - 9 : -

Bank ReconciliationStatement can be prepared with the adjusted/amended bank column of the CashBook by the below given steps.

Step 1: Note down the bank balance as per the CashBook.

Step 2: Rectify all the errors committed in theCash Book.

Step 3: Enter those transactions in the debitcolumn of the Cash Book that are only in the credit column of the Pass Book.

Step 4: Enter those transactions in the creditcolumn of the Cash Book that are only in the debit column of the Pass Book.

Step 5: After completing the above steps, thebalance or the overdraft, as per amended Cash Book, arrives, with which BankReconciliation Statement can be prepared.

The performa of BankReconciliation Statement through amended balance is given below.

Bank Reconciliation Statement, as on ______
Particulars		Amount Rs (Add)	Amount Rs (Less)
Adjusted balance as per the amended the Cash Book		−
	Add: Cheque issued but not presented.	−
	Less: Cheque deposited but not credit	−	−
Balance as per the Pass Book

Question - 10 : -
From the following particulars, prepare a, bank reconciliation statement as at March 31, 2017.
(i) Balance as per cash book Rs 3,200
(ii) Cheque issued but not presented for payment Rs 1,800
(iii) Cheque deposited but not collected upto March 31, 2017 Rs 2,000
(iv) Bank charges debited by bank Rs 150

Answer - 10 : -

Bank Reconciliation Statement, as on March 31, 2017
S. No.	Particulars	(+) Amount Rs	(–) Amount Rs
	Balance as per the Cash Book	3,200
(i)	Cheque issued but not presented for payment	1,800
(ii)	Cheque deposited but not cleared		2,000
(iii)	Bank charges		150

	Balance as per the Pass Book		2,850
		5,000	5,000

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