From Pass Book to Cash Book

  • A bank reconciliation statement can be prepared starting with the cash book balance or pass book balance.
  • Debit balance as per cash book and credit balance as per pass book means favourable balance.
  • Credit balance as per cash book and debit balance as per pass book means unfavourable balance.
  • When Bank Reconciliation Statement starts with positive pass book balance, each transaction is thoroughly analysed.
  • Transactions that increase cash book balance (Cheques deposited but not yet collected by the bank) or decrease pass book balance (Direct payments by bank on behalf of the customer and cheques deposited dishonoured) are added.
  • Transactions that decrease cash book balance (Cheques issued but not presented for payment) or increase pass book balance (Direct collections on behalf of the customers and direct deposit by a customer) are deducted.
  • Finally, we reach at balance as per cash book.
  • When Bank Reconciliation Statement starts with negative pass book balance i.e. debit balance as per pass book: Treat the overdraft as negative figure in Bank Reconciliation Statement.
  • Then same treatment is to be done as in case when pass book starts with a positive balance.
  • Corrected cash book is prepared to record unrecorded entries that have been debited and credited by the bank and passing rectifying entries in the cash book.

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  • Q1

    How can a business have an overdraft in the bank?

    Marks:1
    Answer:

    Banks allow a facility to businesses holding Current accounts with the bank, to withdraw in excess of the balance in the account at any point of time. This excess withdrawal is called Overdraft.

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  • Q2

    Is it correct to say that the Pass Book of the account holder is a copy of the bank column of the cash book of the account holder. Why?

    Marks:1
    Answer:

    No it is incorrect, the Pass Book is the copy of the relevant account in the books of a bank.

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  • Q3

    How will cheque deposited but not credited by bank increase the balance as per the Cash Book?

    Marks:1
    Answer:

    Cheque deposited but not credited by bank will increase the balance in the Cash Book, since it has been accounted in books but not cleared by bank.

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  • Q4

    When is a Bank Reconciliation Statement (BRS) prepared by businesses?

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    Answer:

    BRS can be prepared by businesses at any time of the year, say every month or every quarter or half yearly or yearly.

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  • Q5

    Why does a business need to prepare a Bank Reconciliation Statement?

    Marks:1
    Answer:

    Bank Reconciliation Statement is prepared to determine the reasons for differences between balance as per Cash Book and balance as per Pass Book.

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