PRC-1 · Chapter 9
Bank Reconciliations MCQs with Answers
100 multiple-choice questions on Bank Reconciliations for PRC-1 Fundamentals of Accounting. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
What is the primary purpose of preparing a Bank Reconciliation Statement (BRS)?
- A) To calculate the net profit or loss of the business.
- B) To reconcile the difference between the cash book's bank column balance and the bank statement balance.
- C) To identify all the cash sales made during the accounting period.
- D) To calculate the total bank charges incurred during the year.
Show answer & explanation
Answer: B) To reconcile the difference between the cash book's bank column balance and the bank statement balance.
The purpose of a bank reconciliation statement is to reconcile the timing differences and errors that cause a mismatch between the business's record of its bank account (cash book) and the bank's record (bank statement).
Question 2
If a bank statement shows a 'Debit' balance, what does this signify for the business?
- A) A favorable cash balance at the bank.
- B) An overdrawn balance (bank overdraft).
- C) That the bank owes money to the business.
- D) An error made by the bank.
Show answer & explanation
Answer: B) An overdrawn balance (bank overdraft).
From the bank's perspective, a customer's positive deposit is a liability (credit). Therefore, a debit balance on a bank statement indicates that the bank is owed money, meaning the business has an overdraft.
Question 3
Which of the following describes a credit balance in the bank column of the cash book?
- A) A favorable bank balance.
- B) A bank overdraft.
- C) Cash kept in the office safe.
- D) Total bank deposits made during the year.
Show answer & explanation
Answer: B) A bank overdraft.
In a business's cash book, the bank account is an asset, which has a normal debit balance. A credit balance means that withdrawals have exceeded deposits, resulting in a bank overdraft liability.
Question 4
Which of the following items is NOT required to be adjusted in the revised/adjusted cash book?
- A) Bank charges shown in the bank statement.
- B) Dishonoured cheques returned by the bank.
- C) Unpresented cheques.
- D) Direct credits received from customers.
Show answer & explanation
Answer: C) Unpresented cheques.
Unpresented cheques are a timing difference. They have already been correctly recorded as payments in the cash book, so no cash book adjustment is needed. They only appear in the Bank Reconciliation Statement.
Question 5
Cheques issued by the business to suppliers but not yet presented to the bank for payment are known as:
- A) Uncredited cheques
- B) Dishonoured cheques
- C) Unpresented cheques
- D) Post-dated cheques
Show answer & explanation
Answer: C) Unpresented cheques
Unpresented cheques are cheques that the business has issued and recorded as payments, but the payees have not yet deposited them or the bank has not yet cleared them.
Question 6
Cheques received and deposited into the bank but not yet cleared or credited by the bank on the statement date are known as:
- A) Unpresented cheques
- B) Uncredited lodgments / Uncleared cheques
- C) Standing orders
- D) Direct debits
Show answer & explanation
Answer: B) Uncredited lodgments / Uncleared cheques
Uncredited cheques (or outstanding lodgments) are deposits recorded in the cash book but not yet processed and credited to the account by the bank due to clearing time.
Question 7
A customer directly transferred funds into the business bank account. The business was unaware until they received the bank statement. How should this be treated to reconcile the balances?
- A) Added directly in the Bank Reconciliation Statement.
- B) Deducted in the Bank Reconciliation Statement.
- C) Debited in the adjusted cash book.
- D) Credited in the adjusted cash book.
Show answer & explanation
Answer: C) Debited in the adjusted cash book.
A direct credit increases the bank balance. Because it is a valid receipt that the business previously missed, the cash book must be updated by debiting it.
Question 8
A cheque received from a customer was deposited but later returned by the bank as 'dishonoured'. What is the correct adjustment in the cash book?
- A) Debit the cash book.
- B) Credit the cash book.
- C) Add it to the BRS.
- D) Deduct it from the BRS.
Show answer & explanation
Answer: B) Credit the cash book.
When a cheque is initially deposited, it is debited to the cash book. If it is dishonoured (bounces), the receipt is invalid, and the cash book must be credited to reverse the entry and reduce the bank balance.
Question 9
Bank charges of Rs. 150 appeared in the bank statement but had not been recorded in the cash book. To update the records, the accountant should:
- A) Debit the cash book with Rs. 150.
- B) Credit the cash book with Rs. 150.
- C) Add Rs. 150 to the BRS.
- D) Deduct Rs. 150 from the BRS.
Show answer & explanation
Answer: B) Credit the cash book with Rs. 150.
Bank charges represent an expense and a reduction in the bank balance. Therefore, they must be recorded by crediting the cash book.
Question 10
An error made by the bank by incorrectly debiting the business account with Rs. 5,000 for another company's cheque should be corrected by:
- A) Crediting the cash book with Rs. 5,000.
- B) Debiting the cash book with Rs. 5,000.
- C) Adding Rs. 5,000 to the bank statement balance when preparing the BRS.
- D) No adjustment is required anywhere.
Show answer & explanation
Answer: C) Adding Rs. 5,000 to the bank statement balance when preparing the BRS.
Bank errors cannot be corrected in the business's cash book. Instead, they are listed as reconciling items in the BRS. Since the bank wrongly deducted 5k, it is added back to the bank statement balance to reconcile with the cash book.
Question 11
A Bank Reconciliation Statement (BRS) is typically prepared by:
- A) The bank manager.
- B) The accountant of the business.
- C) The external auditor.
- D) The tax authorities.
Show answer & explanation
Answer: B) The accountant of the business.
The BRS is an internal control document prepared by the business's own accountant to ensure their internal cash book matches the external bank records.
Question 12
If it is found that the receipt side of the cash book has been under-casted by Rs. 1,000, how is this error corrected?
- A) Debit the cash book with Rs. 1,000.
- B) Credit the cash book with Rs. 1,000.
- C) Add Rs. 1,000 in the BRS.
- D) Deduct Rs. 1,000 in the BRS.
Show answer & explanation
Answer: A) Debit the cash book with Rs. 1,000.
An under-casted receipt side means the total debits are short by Rs. 1,000. To correct this internal cash book error, an additional debit of Rs. 1,000 is made to the cash book.
Question 13
A cheque of Rs. 1,678 was issued to a supplier but mistakenly recorded in the cash book as Rs. 1,890. What is the correction required in the cash book?
- A) Debit cash book by Rs. 212.
- B) Credit cash book by Rs. 212.
- C) Add Rs. 212 in the BRS.
- D) Deduct Rs. 212 from the BRS.
Show answer & explanation
Answer: A) Debit cash book by Rs. 212.
The payment (credit) was overstated by Rs. 212 (1890 - 1678). To reduce the excess credit and restore the balance, the cash book must be debited by Rs. 212.
Question 14
The bank correctly recorded the payment of a cheque as Rs. 236, while in the cash book it was written as Rs. 263. What should be done to correct it?
- A) Add Rs. 27 in the BRS.
- B) Deduct Rs. 27 from the BRS.
- C) Debit (Add) Rs. 27 in the cash book.
- D) Credit (Deduct) Rs. 27 in the cash book.
Show answer & explanation
Answer: C) Debit (Add) Rs. 27 in the cash book.
The cash book payment was overstated by Rs. 27 (263 - 236). To reverse the excess payment recorded, the cash book must be debited (added back) by Rs. 27.
Question 15
A standing order payment for rent was executed by the bank and appears on the bank statement. How is this recorded by the business upon receiving the statement?
- A) It is added to the BRS.
- B) It is deducted from the BRS.
- C) It is debited in the adjusted cash book.
- D) It is credited in the adjusted cash book.
Show answer & explanation
Answer: D) It is credited in the adjusted cash book.
A standing order is an automatic payment out of the bank account. Since it hasn't been recorded in the cash book yet, the cash book must be updated by crediting it.
Question 16
Which of the following represents a pure 'timing difference' in bank reconciliation?
- A) Bank charges not yet entered in the cash book.
- B) A cheque recorded as Rs. 540 instead of Rs. 450 in the cash book.
- C) Unpresented cheques.
- D) A dishonoured cheque.
Show answer & explanation
Answer: C) Unpresented cheques.
Timing differences occur when an item is correctly recorded in one set of books but has simply not yet reached the other due to delays (like clearing time). Unpresented and uncredited cheques are the primary examples.
Question 17
A favorable balance as per the cash book means:
- A) The business has a positive bank balance (an asset).
- B) The business has an overdrawn bank balance (a liability).
- C) The bank statement will definitely show a debit balance.
- D) The bank statement will definitely show an overdraft.
Show answer & explanation
Answer: A) The business has a positive bank balance (an asset).
A favorable cash book balance is a debit balance, indicating the business has cash deposited in the bank (an asset). This normally translates to a favorable credit balance on the bank statement.
Question 18
If a BRS starts with a favorable (debit) balance as per the Cash Book, how are unpresented cheques treated to arrive at the bank statement balance?
- A) They are added.
- B) They are deducted.
- C) They are ignored.
- D) They are adjusted in the cash book.
Show answer & explanation
Answer: A) They are added.
Unpresented cheques have already been deducted in the cash book, lowering its balance. Since the bank has not yet deducted them, the bank's balance is higher. Therefore, they must be added to the cash book balance to reconcile to the bank statement.
Question 19
If a BRS starts with a favorable (debit) balance as per the Cash Book, how are uncredited lodgments treated to arrive at the bank statement balance?
- A) They are added.
- B) They are deducted.
- C) They are ignored.
- D) They are adjusted in the cash book.
Show answer & explanation
Answer: B) They are deducted.
Uncredited lodgments have been added to the cash book, raising its balance. Because the bank has not yet cleared them, the bank's balance is lower. Thus, they must be deducted from the cash book balance.
Question 20
When preparing an adjusted cash book, which of the following will decrease the cash book balance?
- A) A direct credit by a customer.
- B) Bank interest income.
- C) Dishonour of a cheque previously received from a customer.
- D) Reversal of an over-recorded payment.
Show answer & explanation
Answer: C) Dishonour of a cheque previously received from a customer.
A dishonoured cheque means the funds previously assumed to be received and debited are invalid. The entry must be reversed by crediting the cash book, which decreases the balance.
Question 21
A cheque of Rs. 45,000 received from a customer was deposited but returned unpaid by the bank due to insufficient funds. What is the correct double entry?
- A) Debit Bank Rs. 45,000, Credit Receivables Rs. 45,000
- B) Debit Receivables Rs. 45,000, Credit Bank Rs. 45,000
- C) Debit Bad Debts Rs. 45,000, Credit Bank Rs. 45,000
- D) Debit Bank Rs. 45,000, Credit Sales Rs. 45,000
Show answer & explanation
Answer: B) Debit Receivables Rs. 45,000, Credit Bank Rs. 45,000
The bank balance must be reduced (Credit Bank), and the customer's liability to the business is reinstated (Debit Receivables).
Question 22
Which of the following is NOT a cause for a difference between the cash book and bank statement balances?
- A) Timing differences in clearing cheques.
- B) Errors made by the business in the cash book.
- C) Errors made by the bank in the bank statement.
- D) Cash sales deposited and cleared on the same day.
Show answer & explanation
Answer: D) Cash sales deposited and cleared on the same day.
If a deposit is made and cleared on the same day, it appears in both the cash book and the bank statement simultaneously, causing no discrepancy.
Question 23
A cheque issued to a supplier for Rs. 5,000 was recorded in the cash book but completely omitted from the bank statement up to the period end. What is this called?
- A) Uncredited cheque
- B) Unpresented cheque
- C) Dishonoured cheque
- D) Standing order
Show answer & explanation
Answer: B) Unpresented cheque
A cheque issued (payment) that has not yet hit the bank statement is termed an unpresented cheque.
Question 24
The payment side of the cash book was under-casted by Rs. 2,000. To correct this error, the accountant must:
- A) Debit the cash book by Rs. 2,000.
- B) Credit the cash book by Rs. 2,000.
- C) Add Rs. 2,000 in the BRS.
- D) Deduct Rs. 2,000 in the BRS.
Show answer & explanation
Answer: B) Credit the cash book by Rs. 2,000.
An under-casted payment side means the credits are too low by Rs. 2,000. The cash book must be credited by Rs. 2,000 to fix the internal error.
Question 25
The receipt side of the cash book was over-casted by Rs. 1,500. To correct this error, the accountant must:
- A) Debit the cash book by Rs. 1,500.
- B) Credit the cash book by Rs. 1,500.
- C) Add Rs. 1,500 in the BRS.
- D) Deduct Rs. 1,500 in the BRS.
Show answer & explanation
Answer: B) Credit the cash book by Rs. 1,500.
An over-casted receipt side means the debits are artificially inflated. To reduce the balance to its correct level, the cash book must be credited.
Question 26
If bank charges were mistakenly recorded twice in the cash book, the unadjusted cash book balance would be:
- A) Overstated.
- B) Understated.
- C) Unaffected.
- D) Equal to the bank statement.
Show answer & explanation
Answer: B) Understated.
Bank charges are deductions. Recording them twice deducts too much money, leaving the cash book balance artificially low (understated).
Question 27
To correct the error of recording bank charges twice in the cash book, the entity should:
- A) Credit the cash book.
- B) Debit the cash book.
- C) Deduct the amount from the BRS.
- D) Add the amount to the BRS.
Show answer & explanation
Answer: B) Debit the cash book.
To reverse the erroneous second credit (deduction) made in the cash book, the accountant must debit the cash book, thereby adding the funds back.
Question 28
A cheque from a customer for Rs. 10,000 was returned dishonoured by the bank. The bank also charged Rs. 200 as a dishonour fee. What total amount should be credited to the cash book to adjust for this?
- A) Rs. 10,000
- B) Rs. 200
- C) Rs. 10,200
- D) Rs. 9,800
Show answer & explanation
Answer: C) Rs. 10,200
The cash book balance must be reduced by both the reversal of the original Rs. 10,000 receipt and the new Rs. 200 bank fee, requiring a total credit of Rs. 10,200.
Question 29
A post-dated cheque received from a customer and kept in the safe should be:
- A) Debited in the cash book immediately.
- B) Sent to the bank immediately.
- C) Not entered in the cash book until the date on the cheque arrives.
- D) Added as a reconciling item in the BRS.
Show answer & explanation
Answer: C) Not entered in the cash book until the date on the cheque arrives.
A post-dated cheque cannot be cashed until its date. It should be held and not recorded in the cash book until it becomes a valid, current-dated cheque.
Question 30
A cheque becomes 'stale' or out-of-date generally if it is not presented to the bank within:
- A) 1 month of its date.
- B) 3 months of its date.
- C) 6 months of its date.
- D) 12 months of its date.
Show answer & explanation
Answer: C) 6 months of its date.
In normal banking practice (including in Pakistan), a cheque is valid for 6 months from the date written on it. After that, it becomes stale and will be dishonoured.
Question 31
If a cheque issued by the business becomes stale and is returned by the supplier, what is the correcting entry in the cash book?
- A) Debit Bank, Credit Payables/Supplier
- B) Debit Payables/Supplier, Credit Bank
- C) Debit Bank, Credit Sales
- D) Debit Bank, Credit Suspense
Show answer & explanation
Answer: A) Debit Bank, Credit Payables/Supplier
The original payment entry (which credited Bank and debited Payables) must be reversed since the payment failed. The bank balance is reinstated (Debit Bank), and the liability is restored (Credit Payables).
Question 32
The balance as per Cash Book is Rs. 10,000 (Favorable). Unpresented cheques are Rs. 3,000. Uncredited cheques are Rs. 1,000. What is the balance as per Bank Statement?
- A) Rs. 12,000 (Favorable)
- B) Rs. 8,000 (Favorable)
- C) Rs. 14,000 (Favorable)
- D) Rs. 6,000 (Favorable)
Show answer & explanation
Answer: A) Rs. 12,000 (Favorable)
Formula: CB Balance + Unpresented - Uncredited = Bank Balance. 10,000 + 3,000 - 1,000 = Rs. 12,000 (Favorable).
Question 33
The balance as per Bank Statement is Rs. 5,000 (Overdraft). Unpresented cheques are Rs. 2,000. Uncredited lodgments are Rs. 4,000. What is the balance as per Cash Book?
- A) Rs. 7,000 (Overdraft)
- B) Rs. 3,000 (Overdraft)
- C) Rs. 1,000 (Favorable)
- D) Rs. 1,000 (Overdraft)
Show answer & explanation
Answer: B) Rs. 3,000 (Overdraft)
Bank balance is -5,000. Formula to find CB: Bank - Unpresented + Uncredited = CB. -5,000 - 2,000 + 4,000 = -3,000. Thus, the Cash Book has a Rs. 3,000 Overdraft.
Question 34
The adjusted Cash Book balance is Rs. 15,000 (Debit). The bank incorrectly credited the business account with Rs. 2,000. Unpresented cheques are Rs. 4,000. What is the Bank Statement balance?
- A) Rs. 17,000 (Credit/Favorable)
- B) Rs. 13,000 (Credit/Favorable)
- C) Rs. 21,000 (Credit/Favorable)
- D) Rs. 19,000 (Credit/Favorable)
Show answer & explanation
Answer: C) Rs. 21,000 (Credit/Favorable)
CB (Favorable) + Unpresented + Bank Error (wrongly credited/added by bank) = Bank Statement Balance. 15,000 + 4,000 + 2,000 = Rs. 21,000. Since it's positive, it is a Credit (Favorable) balance on the bank statement.
Question 35
The bank statement shows a direct debit of Rs. 1,200 for electricity. To update the records, the accountant should:
- A) Add Rs. 1,200 to the BRS.
- B) Deduct Rs. 1,200 from the BRS.
- C) Debit the cash book by Rs. 1,200.
- D) Credit the cash book by Rs. 1,200.
Show answer & explanation
Answer: D) Credit the cash book by Rs. 1,200.
A direct debit is an automated withdrawal from the bank account. To reflect this payment, the cash book must be credited.
Question 36
A customer deposited Rs. 5,000 directly into the bank account. The bank statement shows this, but the cash book does not. What is the correcting journal entry?
- A) Debit Bank Rs. 5,000, Credit Receivables Rs. 5,000
- B) Debit Receivables Rs. 5,000, Credit Bank Rs. 5,000
- C) Debit Bank Rs. 5,000, Credit Suspense Rs. 5,000
- D) Debit Sales Rs. 5,000, Credit Bank Rs. 5,000
Show answer & explanation
Answer: A) Debit Bank Rs. 5,000, Credit Receivables Rs. 5,000
The direct deposit increases the bank balance (Debit Bank) and reduces the amount owed by the customer (Credit Receivables).
Question 37
Bank interest charged on an overdraft is recorded in the cash book by:
- A) Debiting the cash book.
- B) Crediting the cash book.
- C) Adding it to the BRS.
- D) Deducting it from the BRS.
Show answer & explanation
Answer: B) Crediting the cash book.
Interest charged on an overdraft is an expense that increases the overdraft (removes funds from the account). Thus, it must be credited in the cash book.
Question 38
A cheque for Rs. 8,500 was deposited into the bank but was recorded in the cash book as Rs. 5,800. What is the entry to correct the cash book?
- A) Debit cash book by Rs. 2,700
- B) Credit cash book by Rs. 2,700
- C) Debit cash book by Rs. 8,500
- D) Credit cash book by Rs. 8,500
Show answer & explanation
Answer: A) Debit cash book by Rs. 2,700
The deposit (debit) was under-recorded by Rs. 2,700 (8500 - 5800). To correct it, the cash book needs an additional debit of Rs. 2,700.
Question 39
A cheque for Rs. 4,000 was issued to a supplier and recorded in the cash book, but it was not signed by the authorized signatory and was returned by the bank. What should the accountant do?
- A) Add Rs. 4,000 to the BRS as an unpresented cheque.
- B) Debit the cash book by Rs. 4,000 to reverse the payment.
- C) Credit the cash book by Rs. 4,000.
- D) Deduct Rs. 4,000 from the BRS.
Show answer & explanation
Answer: B) Debit the cash book by Rs. 4,000 to reverse the payment.
Since the cheque is invalid, the payment was not processed. The original credit in the cash book must be reversed by debiting the cash book to restore the funds.
Question 40
Which of the following scenarios does NOT describe an 'unpresented cheque'?
- A) A cheque issued to a supplier but not yet deposited by them.
- B) A cheque issued to a supplier, deposited by them, but not yet cleared by the bank.
- C) A cheque received from a customer but not yet deposited into the bank.
- D) A cheque issued yesterday and currently in the mail to the supplier.
Show answer & explanation
Answer: C) A cheque received from a customer but not yet deposited into the bank.
A cheque received but not deposited is cash in hand, not an unpresented cheque. Unpresented cheques strictly refer to outgoing payments issued by the business that have not hit the bank statement.
Question 41
The unadjusted cash book shows a favorable balance of Rs. 25,000. Bank charges are Rs. 1,000. A direct deposit from a customer is Rs. 4,000. A dishonoured cheque is Rs. 2,000. What is the adjusted cash book balance?
- A) Rs. 26,000
- B) Rs. 28,000
- C) Rs. 22,000
- D) Rs. 32,000
Show answer & explanation
Answer: A) Rs. 26,000
Adjusted balance = 25,000 (Unadjusted) - 1,000 (Bank charges) + 4,000 (Direct deposit) - 2,000 (Dishonoured cheque) = Rs. 26,000.
Question 42
If the bank statement shows a favorable balance of Rs. 30,000, unpresented cheques are Rs. 5,000, and uncredited cheques are Rs. 8,000, what is the adjusted cash book balance?
- A) Rs. 33,000
- B) Rs. 27,000
- C) Rs. 43,000
- D) Rs. 17,000
Show answer & explanation
Answer: A) Rs. 33,000
Using the BRS formula: Adjusted CB Balance + Unpresented - Uncredited = Bank Balance. Thus, Adjusted CB + 5,000 - 8,000 = 30,000. Adjusted CB = 30,000 + 8,000 - 5,000 = Rs. 33,000.
Question 43
A business mistakenly recorded a deposit of Rs. 3,500 on the payment (credit) side of the cash book. To correct this, the accountant should:
- A) Debit the cash book with Rs. 3,500.
- B) Debit the cash book with Rs. 7,000.
- C) Credit the cash book with Rs. 3,500.
- D) Credit the cash book with Rs. 7,000.
Show answer & explanation
Answer: B) Debit the cash book with Rs. 7,000.
To fix the error, the cash book requires a debit of Rs. 3,500 to cancel the wrong credit, and another debit of Rs. 3,500 to record the actual deposit, making a total debit of Rs. 7,000.
Question 44
A bank statement shows an overdraft of Rs. 15,000. Unpresented cheques amount to Rs. 6,000. There are no other reconciling items. What is the cash book balance?
- A) Rs. 21,000 (Overdraft)
- B) Rs. 9,000 (Overdraft)
- C) Rs. 9,000 (Favorable)
- D) Rs. 21,000 (Favorable)
Show answer & explanation
Answer: A) Rs. 21,000 (Overdraft)
Bank Balance (-15,000) - Unpresented cheques (-6,000) = Cash Book Balance (-21,000). The cash book shows a larger overdraft because the payments have been deducted internally but not yet by the bank.
Question 45
When the bank statement contains an error whereby a cheque of Rs. 1,000 issued by another company was mistakenly debited to your account, the correction in the BRS (starting with the cash book balance) would be to:
- A) Add Rs. 1,000.
- B) Deduct Rs. 1,000.
- C) Ignore it until the bank fixes it.
- D) Adjust the cash book by crediting Rs. 1,000.
Show answer & explanation
Answer: B) Deduct Rs. 1,000.
To reconcile from the accurate cash book to the erroneous bank statement, you must mimic the bank's error in the BRS. Since the bank wrongly deducted 1,000, you deduct 1,000 in the BRS.
Question 46
Which of the following best describes 'uncleared lodgments'?
- A) Cheques issued by the business but not yet presented to the bank.
- B) Cheques received and recorded in the cash book, deposited, but not yet credited by the bank.
- C) Cheques returned by the bank due to insufficient funds.
- D) Direct deposits made by customers directly to the bank.
Show answer & explanation
Answer: B) Cheques received and recorded in the cash book, deposited, but not yet credited by the bank.
Uncleared lodgments (or uncredited cheques) are deposits made by the business that have not yet cleared the banking system and thus do not appear on the bank statement.
Question 47
If a business decides to adjust its cash book before preparing the BRS, which of the following items will ONLY appear in the BRS?
- A) Bank charges
- B) Direct debits
- C) Unpresented cheques
- D) Dishonoured cheques
Show answer & explanation
Answer: C) Unpresented cheques
Items like bank charges, direct debits, and dishonoured cheques are updated in the cash book. Only timing differences (like unpresented cheques) and bank errors remain exclusively in the BRS.
Question 48
The bank reconciliation statement is best described as:
- A) A part of the double-entry bookkeeping system.
- B) A ledger account.
- C) An internal control document prepared to reconcile cash book and bank statement balances.
- D) A document submitted to the tax authorities annually.
Show answer & explanation
Answer: C) An internal control document prepared to reconcile cash book and bank statement balances.
The BRS is not part of the double entry system itself; it is a memorandum working paper used as an internal control to ensure cash records are accurate.
Question 49
What is the correct journal entry for a bank charge of Rs. 500 recorded in the bank statement but missed in the cash book?
- A) Debit Bank Charges Rs. 500, Credit Bank Rs. 500
- B) Debit Bank Rs. 500, Credit Bank Charges Rs. 500
- C) Debit Suspense Rs. 500, Credit Bank Rs. 500
- D) Debit Bank Charges Rs. 500, Credit Cash Rs. 500
Show answer & explanation
Answer: A) Debit Bank Charges Rs. 500, Credit Bank Rs. 500
To record the expense and the reduction in the bank balance, you debit the Bank Charges expense account and credit the Bank account.
Question 50
A payment of Rs. 1,200 was recorded in the cash book as Rs. 2,100. What is the correcting entry in the cash book?
- A) Credit the cash book by Rs. 900.
- B) Debit the cash book by Rs. 900.
- C) Debit the cash book by Rs. 1,200.
- D) Credit the cash book by Rs. 2,100.
Show answer & explanation
Answer: B) Debit the cash book by Rs. 900.
The payment was recorded Rs. 900 too high (2100 - 1200). To reduce the payment side (credits), a debit of Rs. 900 must be entered in the cash book.
Question 51
Which of the following correctly describes an unfavorable (overdraft) balance in the cash book?
- A) A debit balance
- B) A credit balance
- C) A favorable balance
- D) A zero balance
Show answer & explanation
Answer: B) A credit balance
In a business's cash book, the bank account is an asset. A credit balance means that withdrawals exceed deposits, indicating a liability or an unfavorable bank overdraft.
Question 52
Which of the following correctly describes a favorable balance on a bank statement?
- A) A debit balance
- B) A credit balance
- C) An overdraft
- D) A shortage
Show answer & explanation
Answer: B) A credit balance
From the bank's perspective, a customer's deposited funds are a liability owed to the customer. Therefore, a favorable positive balance is represented as a credit balance on the bank statement.
Question 53
An unfavorable (overdraft) balance on a bank statement is represented by a:
- A) Debit balance
- B) Credit balance
- C) Asset for the business
- D) Profit
Show answer & explanation
Answer: A) Debit balance
A debit balance on a bank statement indicates that the customer has overdrawn their account and owes money to the bank, which is an unfavorable overdraft.
Question 54
If bank charges of Rs. 500 were accidentally recorded twice in the cash book, how should this be corrected in the adjusted cash book?
- A) Add to the BRS
- B) Debit the cash book by Rs. 500
- C) Credit the cash book by Rs. 500
- D) Deduct from the BRS
Show answer & explanation
Answer: B) Debit the cash book by Rs. 500
Bank charges are recorded as payments (credits). Recording them twice means the credit side is overstated by Rs. 500. To correct this internal error, a debit of Rs. 500 is required in the cash book.
Question 55
A payment to a supplier of Rs. 1,200 was overstated as Rs. 2,100 in the cash book. Which of the following entries is required to correct this?
- A) Debit the cash book by Rs. 900
- B) Credit the cash book by Rs. 900
- C) Add Rs. 900 to the BRS
- D) Deduct Rs. 900 from the BRS
Show answer & explanation
Answer: A) Debit the cash book by Rs. 900
The payment (credit) was overstated by Rs. 900. To reduce the excess payments and restore the balance, a debit entry of Rs. 900 is required in the cash book.
Question 56
A receipt of Rs. 7,500 was overstated as Rs. 8,500 in the cash book. Which of the following entries is required to correct this?
- A) Debit the cash book by Rs. 1,000
- B) Credit the cash book by Rs. 1,000
- C) Add Rs. 1,000 to the BRS
- D) Deduct Rs. 1,000 from the BRS
Show answer & explanation
Answer: B) Credit the cash book by Rs. 1,000
The receipt (debit) was overstated by Rs. 1,000, making the balance artificially high. To correct this, a credit entry of Rs. 1,000 is required in the cash book.
Question 57
Bank charges of Rs. 150 were omitted entirely from the cash book. Which of the following actions is required?
- A) Debit the cash book by Rs. 150
- B) Credit the cash book by Rs. 150
- C) Add Rs. 150 to the BRS
- D) Deduct Rs. 150 from the BRS
Show answer & explanation
Answer: B) Credit the cash book by Rs. 150
Unrecorded expenses like bank charges decrease the true bank balance. Thus, a credit entry of Rs. 150 is required in the cash book to update it.
Question 58
A payment of Rs. 1,200 was understated as Rs. 200 in the cash book. Which of the following actions is required?
- A) Debit the cash book by Rs. 1,000
- B) Credit the cash book by Rs. 1,000
- C) Add Rs. 1,000 to the BRS
- D) Deduct Rs. 1,000 from the BRS
Show answer & explanation
Answer: B) Credit the cash book by Rs. 1,000
If a payment is understated, the cash book hasn't been reduced enough. An additional credit entry of Rs. 1,000 is required to reflect the full payment.
Question 59
A bank statement shows a credit (favorable) balance of Rs. 45,200. Outstanding (unpresented) cheques are Rs. 11,500, and uncleared lodgements are Rs. 13,100. Assuming no other errors, what is the correct balance as per the cash book?
- A) Rs. 43,600 (Debit)
- B) Rs. 46,800 (Debit)
- C) Rs. 45,200 (Debit)
- D) Rs. 70,800 (Debit)
Show answer & explanation
Answer: B) Rs. 46,800 (Debit)
Formula: CB + Unpresented - Uncredited = Bank. CB + 11,500 - 13,100 = 45,200. Therefore, CB = 45,200 - 11,500 + 13,100 = Rs. 46,800 (Debit/Favorable).
Question 60
If the receipt side of the cash book is found to be under-casted, what is the correcting entry in the cash book?
- A) Debit the cash book
- B) Credit the cash book
- C) Add to the BRS
- D) Deduct from the BRS
Show answer & explanation
Answer: A) Debit the cash book
The receipt side (debit side) is short due to a casting error. It requires an additional debit entry in the cash book to correct the total.
Question 61
If the payment side of the cash book is found to be under-casted, what is the correcting entry in the cash book?
- A) Debit the cash book
- B) Credit the cash book
- C) Add to the BRS
- D) Deduct from the BRS
Show answer & explanation
Answer: B) Credit the cash book
The payment side (credit side) is short. It requires an additional credit entry in the cash book to correct the total and accurately reflect the balance.
Question 62
A time-barred (stale) cheque of Rs. 145,540, previously issued to a supplier 8 months ago, is discovered. How should it be treated?
- A) Include as an unpresented cheque in the BRS
- B) Add to uncleared lodgements in the BRS
- C) Reverse the payment by debiting the cash book
- D) Reverse the payment by crediting the cash book
Show answer & explanation
Answer: C) Reverse the payment by debiting the cash book
A stale cheque is no longer valid for payment. The original credit (payment) must be reversed by debiting the cash book. It is no longer treated as an unpresented cheque in the BRS.
Question 63
A cheque of Rs. 50,000 issued to a supplier was mistakenly recorded twice on the payment side of the cash book. What is the correcting entry?
- A) Debit the cash book by Rs. 50,000
- B) Credit the cash book by Rs. 50,000
- C) Add Rs. 50,000 to unpresented cheques
- D) Deduct Rs. 50,000 from unpresented cheques
Show answer & explanation
Answer: A) Debit the cash book by Rs. 50,000
The payment was recorded twice, meaning the cash book was credited an extra 50,000. To correct this and restore the funds, debit the cash book by 50,000.
Question 64
Which of the following correctly defines an 'unpresented cheque'?
- A) A cheque deposited by the business but not yet cleared by the bank.
- B) A cheque issued by the business but not yet presented to the bank for payment.
- C) A cheque dishonoured by the bank.
- D) A cheque that has expired due to the passage of time.
Show answer & explanation
Answer: B) A cheque issued by the business but not yet presented to the bank for payment.
Unpresented cheques are outgoing payments issued by the business that have not yet been deducted from the bank statement by the payee.
Question 65
Which of the following correctly defines 'uncleared lodgements'?
- A) Cheques issued by the business but not yet cleared.
- B) Cheques received and deposited into the bank but not yet credited to the account by the bank.
- C) Cheques returned by the bank due to a lack of funds.
- D) Cheques that have been cancelled by the issuer.
Show answer & explanation
Answer: B) Cheques received and deposited into the bank but not yet credited to the account by the bank.
Uncleared lodgements (or uncredited cheques) are receipts that have been banked but haven't hit the bank statement yet due to banking clearing delays.
Question 66
A direct transfer of Rs. 209,000 (net of a 5% settlement discount) from a customer appeared in the bank statement but not the cash book. The revenue was originally recognized at gross. What is the correcting double entry in the books?
- A) Debit Bank Rs. 209,000, Credit Receivables Rs. 209,000
- B) Debit Bank Rs. 209,000, Debit Discount Allowed Rs. 11,000, Credit Receivables Rs. 220,000
- C) Debit Bank Rs. 209,000, Debit Suspense Rs. 11,000, Credit Receivables Rs. 220,000
- D) Debit Receivables Rs. 220,000, Credit Bank Rs. 209,000, Credit Discount Allowed Rs. 11,000
Show answer & explanation
Answer: B) Debit Bank Rs. 209,000, Debit Discount Allowed Rs. 11,000, Credit Receivables Rs. 220,000
The gross amount is 209,000 / 0.95 = 220,000. The discount allowed is 11,000. To record this, debit the Bank with 209,000, debit Discount Allowed with 11,000, and credit Receivables to clear the 220,000 balance.
Question 67
A cheque of Rs. 450,000 issued by a customer as an advance was deposited but later returned by the bank as dishonoured. What is the correcting journal entry?
- A) Debit Receivables Rs. 450,000, Credit Bank Rs. 450,000
- B) Debit Advance from Customer Rs. 450,000, Credit Bank Rs. 450,000
- C) Debit Bank Rs. 450,000, Credit Advance from Customer Rs. 450,000
- D) Debit Bank Rs. 450,000, Credit Receivables Rs. 450,000
Show answer & explanation
Answer: B) Debit Advance from Customer Rs. 450,000, Credit Bank Rs. 450,000
Since the advance cheque bounced, the cash book must be credited to reverse the receipt, and the liability (Advance from Customer) must be removed by debiting it.
Question 68
Which of the following causes a difference between the cash book and bank statement balances but does NOT require an adjusting entry in the cash book?
- A) Bank charges
- B) Direct deposits by customers
- C) Dishonoured cheques
- D) Errors made by the bank
Show answer & explanation
Answer: D) Errors made by the bank
Bank errors are outside the entity's control and cannot be 'corrected' by changing the entity's own cash book. They are held as reconciling items in the BRS until the bank rectifies them.
Question 69
The bank incorrectly debited the business's account by Rs. 5,000 for a cheque drawn by another company. How should this be handled when preparing a Bank Reconciliation Statement starting with the cash book balance?
- A) Debit the cash book by Rs. 5,000
- B) Credit the cash book by Rs. 5,000
- C) Deduct Rs. 5,000 in the BRS
- D) Add Rs. 5,000 in the BRS
Show answer & explanation
Answer: C) Deduct Rs. 5,000 in the BRS
The bank erroneously reduced its balance. To reconcile from the correct cash book balance to the erroneous bank statement balance, you must mimic the bank's error by deducting Rs. 5,000 in the BRS.
Question 70
A standing order payment for insurance was executed by the bank but not recorded in the cash book. How should this be addressed?
- A) Add to the BRS
- B) Deduct from the BRS
- C) Debit the cash book
- D) Credit the cash book
Show answer & explanation
Answer: D) Credit the cash book
A standing order is a valid automated payment that was omitted from the cash book. It must be updated in the business's records by crediting the cash book.
Question 71
Which of the following is the standard formula to reconcile a favorable cash book balance to the bank statement balance?
- A) CB Balance + Unpresented Cheques + Uncleared Lodgements = Bank Statement Balance
- B) CB Balance - Unpresented Cheques + Uncleared Lodgements = Bank Statement Balance
- C) CB Balance + Unpresented Cheques - Uncleared Lodgements = Bank Statement Balance
- D) CB Balance - Unpresented Cheques - Uncleared Lodgements = Bank Statement Balance
Show answer & explanation
Answer: C) CB Balance + Unpresented Cheques - Uncleared Lodgements = Bank Statement Balance
Unpresented cheques are added back because they haven't been deducted by the bank yet. Uncleared lodgements are deducted because they haven't been added by the bank yet.
Question 72
If the cash book shows an overdraft of Rs. 15,000, unpresented cheques are Rs. 8,000, and uncredited cheques are Rs. 5,000. What is the bank statement balance?
- A) Rs. 12,000 (Overdraft)
- B) Rs. 18,000 (Overdraft)
- C) Rs. 12,000 (Favorable)
- D) Rs. 18,000 (Favorable)
Show answer & explanation
Answer: A) Rs. 12,000 (Overdraft)
Using negative values for overdrafts: CB (-15,000) + Unpresented (8,000) - Uncredited (5,000) = -12,000. This translates to a bank overdraft of Rs. 12,000.
Question 73
If the bank statement shows a favorable balance of Rs. 30,000, unpresented cheques are Rs. 10,000, and uncredited cheques are Rs. 6,000. What is the adjusted cash book balance?
- A) Rs. 34,000 (Favorable)
- B) Rs. 26,000 (Favorable)
- C) Rs. 14,000 (Favorable)
- D) Rs. 46,000 (Favorable)
Show answer & explanation
Answer: B) Rs. 26,000 (Favorable)
Formula: CB + Unpresented - Uncredited = Bank. CB + 10,000 - 6,000 = 30,000. CB + 4,000 = 30,000. Therefore, CB = Rs. 26,000 (Favorable).
Question 74
The unadjusted cash book shows a debit balance of Rs. 50,000. Bank charges are Rs. 1,500. A cheque from a customer for Rs. 5,000 is dishonoured. A direct credit from a customer is Rs. 10,000. What is the adjusted cash book balance?
- A) Rs. 53,500
- B) Rs. 63,500
- C) Rs. 43,500
- D) Rs. 56,500
Show answer & explanation
Answer: A) Rs. 53,500
Adjusted balance = 50,000 (Debit) - 1,500 (Bank charges) - 5,000 (Dishonoured cheque) + 10,000 (Direct credit) = Rs. 53,500.
Question 75
A cheque of Rs. 2,500 was issued to a supplier and correctly recorded in the cash book. It was presented to the bank but cleared as Rs. 5,200 due to a bank error. In the BRS (starting from the cash book balance), this should be:
- A) Added as Rs. 2,700
- B) Deducted as Rs. 2,700
- C) Adjusted in the cash book by crediting Rs. 2,700
- D) Adjusted in the cash book by debiting Rs. 2,700
Show answer & explanation
Answer: B) Deducted as Rs. 2,700
The bank mistakenly deducted an extra Rs. 2,700 (5,200 - 2,500). To reconcile from the correct cash book to the incorrect bank statement, you must deduct the excess Rs. 2,700 in the BRS.
Question 76
A dividend of Rs. 8,000 was collected directly by the bank on behalf of the business but not entered in the cash book. To adjust the cash book, the accountant should:
- A) Debit the cash book
- B) Credit the cash book
- C) Add to the BRS
- D) Deduct from the BRS
Show answer & explanation
Answer: A) Debit the cash book
A direct receipt of a dividend increases the bank balance. To update the business records, it must be recorded by debiting the cash book.
Question 77
An unpresented cheque is generally considered valid for how long before it becomes 'stale' and requires reversal in the cash book?
- A) 1 month
- B) 3 months
- C) 6 months
- D) 12 months
Show answer & explanation
Answer: C) 6 months
In standard banking practice, cheques are valid for 6 months. After this period, they become time-barred or stale and must be reversed in the cash book.
Question 78
When reconciling from the bank statement balance to the cash book balance, which of the following items is ADDED?
- A) Unpresented cheques
- B) Uncleared lodgements
- C) Bank charges
- D) Direct debits
Show answer & explanation
Answer: B) Uncleared lodgements
Working backwards from the bank statement: Bank Balance + Uncleared Lodgements - Unpresented Cheques = Cash Book Balance.
Question 79
When reconciling from the bank statement balance to the cash book balance, how are unpresented cheques treated?
- A) They are added
- B) They are deducted
- C) They are ignored
- D) They are recorded in the cash book
Show answer & explanation
Answer: B) They are deducted
Working backwards: Bank Balance + Uncleared Lodgements - Unpresented Cheques = Cash Book Balance. Thus, unpresented cheques are deducted.
Question 80
If a business receives a cheque from a customer but keeps it in the office safe for a week before depositing it, how is it classified in the BRS during that week?
- A) Unpresented cheque
- B) Uncleared lodgement
- C) Dishonoured cheque
- D) It does not appear in the BRS
Show answer & explanation
Answer: D) It does not appear in the BRS
A cheque not yet deposited is treated internally as cash/cheques in hand. It does not affect the bank balance and is not yet part of the bank reconciliation process.
Question 81
The bank column of a cash book showed a debit balance of Rs. 12,000. Unpresented cheques were Rs. 4,000. Uncleared lodgements were Rs. 3,000. A bank error wrongly credited the account by Rs. 1,000. What is the bank statement balance?
- A) Rs. 14,000 (Favorable)
- B) Rs. 12,000 (Favorable)
- C) Rs. 16,000 (Favorable)
- D) Rs. 10,000 (Favorable)
Show answer & explanation
Answer: A) Rs. 14,000 (Favorable)
CB (12,000) + Unpresented (4,000) - Uncleared (3,000) + Bank Error Credit (1,000) = Rs. 14,000.
Question 82
A cheque for Rs. 600 deposited into the bank was incorrectly recorded as Rs. 60 in the cash book. What is the correct adjusting entry?
- A) Credit the cash book by Rs. 540
- B) Debit the cash book by Rs. 540
- C) Credit the cash book by Rs. 600
- D) Debit the cash book by Rs. 660
Show answer & explanation
Answer: B) Debit the cash book by Rs. 540
The deposit (debit) was under-recorded by Rs. 540 (600 - 60). To correct it, an additional debit of Rs. 540 is required in the cash book.
Question 83
A cheque for Rs. 600 deposited into the bank was incorrectly recorded as Rs. 6,000 in the cash book. What is the correct adjusting entry?
- A) Debit the cash book by Rs. 5,400
- B) Credit the cash book by Rs. 5,400
- C) Credit the cash book by Rs. 6,000
- D) Debit the cash book by Rs. 600
Show answer & explanation
Answer: B) Credit the cash book by Rs. 5,400
The deposit (debit) was overstated by Rs. 5,400 (6,000 - 600). To remove the excess balance, the cash book must be credited by Rs. 5,400.
Question 84
A payment of Rs. 800 was incorrectly recorded as Rs. 80 in the cash book. What is the correct adjusting entry?
- A) Debit the cash book by Rs. 720
- B) Credit the cash book by Rs. 720
- C) Credit the cash book by Rs. 800
- D) Debit the cash book by Rs. 880
Show answer & explanation
Answer: B) Credit the cash book by Rs. 720
The payment (credit) was under-recorded by Rs. 720 (800 - 80). To correctly reduce the bank balance by the full amount, an additional credit of Rs. 720 is required.
Question 85
A payment of Rs. 800 was incorrectly recorded as Rs. 8,000 in the cash book. What is the correct adjusting entry?
- A) Debit the cash book by Rs. 7,200
- B) Credit the cash book by Rs. 7,200
- C) Debit the cash book by Rs. 8,800
- D) Credit the cash book by Rs. 800
Show answer & explanation
Answer: A) Debit the cash book by Rs. 7,200
The payment (credit) was overstated by Rs. 7,200 (8,000 - 800). To restore the excess funds incorrectly deducted, the cash book must be debited by Rs. 7,200.
Question 86
A Bank Reconciliation Statement is normally prepared:
- A) Daily
- B) Periodically, usually at the end of each month
- C) Only at the end of the financial year
- D) When requested by the tax authorities
Show answer & explanation
Answer: B) Periodically, usually at the end of each month
To maintain strong internal controls and ensure accuracy, bank reconciliations are typically prepared on a regular, periodic basis, most commonly monthly upon receipt of the bank statement.
Question 87
In the context of bank reconciliations, a bank overdraft means:
- A) The bank owes money to the business
- B) The business has a positive cash balance
- C) The business owes money to the bank
- D) The bank made an error
Show answer & explanation
Answer: C) The business owes money to the bank
An overdraft occurs when a business withdraws more money than it has deposited, resulting in a liability where the business owes money to the bank.
Question 88
Which side of the cash book is used to record bank deposits and receipts?
- A) The debit side
- B) The credit side
- C) Both sides
- D) Neither side
Show answer & explanation
Answer: A) The debit side
The bank account in the cash book is an asset account. Increases in assets (receipts and deposits) are recorded on the debit side.
Question 89
Which side of the cash book is used to record cheques issued to suppliers?
- A) The debit side
- B) The credit side
- C) Both sides
- D) Neither side
Show answer & explanation
Answer: B) The credit side
Issuing a cheque reduces the bank balance (an asset). Decreases in assets are recorded on the credit side of the cash book.
Question 90
If the bank statement shows an overdraft of Rs. 5,000, and unpresented cheques amount to Rs. 2,000, what is the cash book balance (assuming no other items)?
- A) Rs. 3,000 (Overdraft)
- B) Rs. 7,000 (Overdraft)
- C) Rs. 3,000 (Favorable)
- D) Rs. 7,000 (Favorable)
Show answer & explanation
Answer: B) Rs. 7,000 (Overdraft)
Formula: CB + Unpresented = Bank. CB + 2,000 = -5,000. Therefore, CB = -7,000, indicating an overdraft of Rs. 7,000.
Question 91
If the bank statement shows an overdraft of Rs. 5,000, and uncredited cheques amount to Rs. 2,000, what is the cash book balance (assuming no other items)?
- A) Rs. 3,000 (Overdraft)
- B) Rs. 7,000 (Overdraft)
- C) Rs. 3,000 (Favorable)
- D) Rs. 7,000 (Favorable)
Show answer & explanation
Answer: A) Rs. 3,000 (Overdraft)
Formula: CB - Uncredited = Bank. CB - 2,000 = -5,000. Therefore, CB = -3,000, indicating an overdraft of Rs. 3,000.
Question 92
If the adjusted cash book shows an overdraft of Rs. 4,000, and unpresented cheques amount to Rs. 3,000, what is the bank statement balance?
- A) Rs. 7,000 (Overdraft)
- B) Rs. 1,000 (Overdraft)
- C) Rs. 7,000 (Favorable)
- D) Rs. 1,000 (Favorable)
Show answer & explanation
Answer: B) Rs. 1,000 (Overdraft)
Formula: CB + Unpresented = Bank. -4,000 + 3,000 = -1,000. This translates to a bank overdraft of Rs. 1,000.
Question 93
If the adjusted cash book shows an overdraft of Rs. 4,000, and uncredited cheques amount to Rs. 3,000, what is the bank statement balance?
- A) Rs. 7,000 (Overdraft)
- B) Rs. 1,000 (Overdraft)
- C) Rs. 7,000 (Favorable)
- D) Rs. 1,000 (Favorable)
Show answer & explanation
Answer: A) Rs. 7,000 (Overdraft)
Formula: CB - Uncredited = Bank. -4,000 - 3,000 = -7,000. This translates to a bank overdraft of Rs. 7,000.
Question 94
The bank statement shows a debit balance (overdraft) of Rs. 10,000. The cash book shows a credit balance (overdraft) of Rs. 12,000. Unpresented cheques are Rs. 4,000. What is the value of the uncleared lodgements?
- A) Rs. 2,000
- B) Rs. 6,000
- C) Rs. 10,000
- D) Rs. 8,000
Show answer & explanation
Answer: A) Rs. 2,000
Formula: CB + Unpresented - Uncleared = Bank. -12,000 + 4,000 - Uncleared = -10,000. -8,000 - Uncleared = -10,000. Uncleared = Rs. 2,000.
Question 95
In the context of a multiple-column cash book, a 'contra entry' represents:
- A) A transaction involving both a customer and a supplier
- B) A transaction involving both the cash and bank accounts
- C) A transaction that is cancelled out by another
- D) A cheque that is dishonoured
Show answer & explanation
Answer: B) A transaction involving both the cash and bank accounts
A contra entry occurs when cash is deposited into the bank or withdrawn from the bank for office use, affecting both the cash and bank columns of the same cash book simultaneously.
Question 96
Which of the following is the correct double entry for recording cash deposited into the bank?
- A) Debit Cash, Credit Bank
- B) Debit Bank, Credit Receivables
- C) Debit Bank, Credit Cash
- D) Debit Drawings, Credit Cash
Show answer & explanation
Answer: C) Debit Bank, Credit Cash
Depositing cash into the bank increases the bank asset (Debit Bank) and decreases the cash asset (Credit Cash). This is a contra entry in the cash book.
Question 97
If a cheque received from a customer is deposited into the bank on the same day, what is the initial double entry?
- A) Debit Cash, Credit Receivables
- B) Debit Bank, Credit Receivables
- C) Debit Receivables, Credit Bank
- D) Debit Bank, Credit Sales
Show answer & explanation
Answer: B) Debit Bank, Credit Receivables
A same-day deposit directly increases the bank balance (Debit Bank) and reduces the amount the customer owes (Credit Receivables).
Question 98
To adjust for a cheque that was returned marked 'NSF' (Not Sufficient Funds) by the bank, the accountant must:
- A) Debit the cash book
- B) Credit the cash book
- C) Add to the BRS
- D) Deduct from the BRS
Show answer & explanation
Answer: B) Credit the cash book
An NSF cheque is a dishonoured cheque. The initial receipt (debit) was invalid, so the cash book must be credited to reverse the transaction and reduce the bank balance.
Question 99
What does the letter 'C' in the folio column of a cash book indicate?
- A) Credit sale
- B) Cancelled cheque
- C) Contra entry
- D) Carried forward
Show answer & explanation
Answer: C) Contra entry
The letter 'C' denotes a contra entry, showing that the double entry for the transaction (e.g., cash deposited to bank) is completed within the cash book itself.
Question 100
Reconciling items like unpresented cheques and uncleared lodgements in a Bank Reconciliation Statement are naturally cleared when:
- A) The accountant reverses them in the cash book.
- B) The bank processes the pending transactions in a subsequent period.
- C) The financial year ends.
- D) An auditor signs off on them.
Show answer & explanation
Answer: B) The bank processes the pending transactions in a subsequent period.
These are mere timing differences. They clear naturally without any adjustment in the cash book once the bank eventually processes the transactions and they appear on a future bank statement.