Q1. A Bank Reconciliation Statement is prepared to:
(a) Ascertain the exact cash balance in hand
(b) Reconcile the bank balance as per cash book with the balance as per pass book
(c) Calculate interest on bank loans
(d) Prepare the trial balance
Answer: (b)
Explanation: The purpose of a Bank Reconciliation Statement is to identify and explain the differences between the bank balance shown in the cash book and the balance shown in the bank pass book (or statement) on a particular date.
Q2. Which of the following items causes the cash book balance to be higher than the pass book balance?
(a) Cheques issued but not yet presented for payment
(b) Cheques deposited but not yet cleared
(c) Bank charges debited by the bank
(d) Interest credited by the bank
Answer: (a)
Explanation: When cheques are issued but not yet presented, the cash book records a payment (reducing its balance) while the bank has not yet deducted the amount, so the cash book shows a lower balance; however, relative to the pass book, the cash book balance appears higher because the pass book still includes the amount. Actually, the correct logic: Unpresented cheques reduce cash book balance but not pass book → cash book balance < pass book balance. So the item that makes cash book balance higher is cheques deposited but not yet credited (i.e., deposited but not cleared). Let's correct:
Cheques deposited but not yet cleared increase cash book balance (debit) but not yet in pass book → cash book > pass book.
Thus answer should be (b).
Let’s rewrite Q2 correctly.
Q2. Which of the following items causes the cash book balance to be higher than the pass book balance?
(a) Cheques issued but not yet presented for payment
(b) Cheques deposited but not yet cleared
(c) Bank charges debited by the bank
(d) Interest credited by the bank
Answer: (b)
Explanation: When a cheque is deposited, the cash book is debited immediately, increasing its balance, while the bank credits the account only after the cheque is cleared. Until then, the pass book balance remains lower, making the cash book balance higher.
Q3. Which of the following will cause the pass book balance to be higher than the cash book balance?
(a) Bank charges not yet recorded in the cash book
(b) Interest credited by the bank not yet recorded in the cash book
(c) Cheques issued but not yet presented for payment
(d) Both (a) and (b)
Answer: (d)
Explanation: Bank charges and interest credited by the bank increase the pass book balance but are not yet entered in the cash book, making the pass book balance higher. Similarly, unpresented cheques reduce the cash book balance but not the pass book, also making the pass book higher.
Q4. A favorable balance as per cash book means:
(a) Debit balance in the cash book
(b) Credit balance in the cash book
(c) Overdraft as per pass book
(d) Zero balance in both books
Answer: (a)
Explanation: In the cash book, bank column shows a debit balance when there is a favorable (positive) bank balance, i.e., deposits exceed withdrawals.
Q5. An overdraft as per cash book is shown as:
(a) Debit balance
(b) Credit balance
(c) Nil balance
(d) Not shown
Answer: (b)
Explanation: An overdraft means the account is negative; in the cash book bank column, this appears as a credit balance (since withdrawals exceed deposits).
Q6. Which of the following is NOT a reason for difference between cash book and pass book balances?
(a) Timing differences in cheque clearance
(b) Errors in recording transactions in either book
(c) Depreciation of fixed assets
(d) Bank charges not yet entered in cash book
Answer: (c)
Explanation: Depreciation of fixed assets is an accounting adjustment unrelated to bank transactions; it does not affect the bank column of cash book or pass book.
Q7. If a cheque of Rs. 5,000 deposited by the firm is dishonored, the bank will:
(a) Credit the customer’s account
(b) Debit the customer’s account
(c) No entry
(d) Reverse the earlier credit
Answer: (d)
Explanation: When a deposited cheque is dishonored, the bank reverses the earlier credit it had given to the customer’s account, thereby debiting the account (or reducing the credit).
Q8. Interest allowed by the bank on the balance is:
(a) Debited in the pass book
(b) Credited in the pass book
(c) Debited in the cash book
(d) Credited in the cash book
Answer: (b)
Explanation: Interest allowed by the bank increases the customer’s balance, so it is credited in the pass book. The same amount must be recorded (credited) in the cash book to reconcile.
Q9. Bank charges charged by the bank are:
(a) Debited in the pass book
(b) Credited in the pass book
(c) Debited in the cash book
(d) Credited in the cash book
Answer: (a) and (c) – but single choice:
Answer: (a)
Explanation: Bank charges reduce the customer’s balance, so they are debited in the pass book. To reflect the same in the cash book, they are also debited (or recorded as a payment) in the cash book bank column.
Q10. When preparing a Bank Reconciliation Statement starting with the cash book balance, unpresented cheques are:
(a) Added
(b) Subtracted
(c) Ignored
(d) Multiplied by 2
Answer: (b)
Explanation: Unpresented cheques have already been credited (reduced) in the cash book but not yet deducted by the bank; to arrive at the pass book balance, we subtract them from the cash book balance.
Q11. When preparing a Bank Reconciliation Statement starting with the pass book balance, dishonored cheques are:
(a) Added
(b) Subtracted
(c) Ignored
(d) Multiplied
Answer: (a)
Explanation: A dishonored cheque had previously been credited in the pass book (increasing balance) but the bank later debits it. Starting from pass book balance, we need to add back the amount to reverse the bank’s debit and match the cash book (which never recorded the credit).
Q12. Which of the following is treated as a favorable balance in the pass book?
(a) Credit balance
(b) Debit balance
(c) Zero balance
(d) Overdraft
Answer: (a)
Explanation: A credit balance in the pass book indicates the bank owes money to the customer (deposits exceed withdrawals), which is a favorable balance.
Q13. If the cash book shows a bank overdraft of Rs. 2,000 and the pass book shows a bank overdraft of Rs. 3,500, the difference of Rs. 1,500 is due to:
(a) Cheques deposited but not cleared
(b) Cheques issued but not presented
(c) Bank charges not entered in cash book
(d) Interest credited not entered in cash book
Answer: (b)
Explanation: The pass book shows a higher overdraft (more negative) than the cash book, meaning the bank has recorded more withdrawals (or fewer deposits) than the cash book. This occurs when cheques issued are not yet presented (cash book already credited them, reducing its overdraft, while pass book still includes them, increasing overdraft).
Q14. Which of the following items will require subtraction from the cash book balance when arriving at the pass book balance?
(a) Cheques deposited but not yet cleared
(b) Cheques issued but not yet presented
(c) Interest credited by the bank not yet recorded in cash book
(d) Bank charges not yet recorded in cash book
Answer: (b)
Explanation: Unpresented cheques reduce the cash book balance but not the pass book; to get the pass book balance we subtract them from the cash book balance.
Q15. Which of the following items will require addition to the cash book balance when arriving at the pass book balance?
(a) Cheques deposited but not yet cleared
(b) Cheques issued but not yet presented
(c) Bank charges debited by the bank not yet recorded in cash book
(d) Interest credited by the bank not yet recorded in cash book
Answer: (a) and (d) – single best:
Answer: (a)
Explanation: Cheques deposited increase the cash book balance (debit) but are not yet in pass book; to match pass book we add them. Similarly, interest credited increases pass book but not cash book; to match pass book we add it to cash book. Since only one option allowed, (a) is a classic example.
Q16. A Bank Reconciliation Statement is normally prepared:
(a) At the end of the financial year only
(b) Monthly or as and when required
(c) Only when there is an audit
(d) Never, if books are balanced
Answer: (b)
Explanation: To ensure accuracy and detect errors or fraud, a BRS is prepared periodically, usually monthly, or whenever needed.
Q17. Which of the following is a timing difference?
(a) Bank charges entered twice in cash book
(b) Cheque deposited but not yet cleared
(c) Error in casting the cash book
(d) Wrong amount entered in pass book
Answer: (b)
Explanation: Timing differences arise due to the lag between recording a transaction in one book and its appearance in the other, such as cheques deposited but not yet cleared.
Q18. If a cheque of Rs. 4,000 issued by the firm is recorded in the cash book as Rs. 400, the error will cause:
(a) Cash book balance higher than pass book
(b) Cash book balance lower than pass book
(c) No effect on reconciliation
(d) Pass book balance higher than cash book
Answer: (a)
Explanation: The cash book recorded a lesser payment (credit) than actual, so its balance is higher (less reduced) than it should be; the pass book will reflect the full Rs. 4,000 debit, making the cash book balance higher relative to pass book.
Q19. Interest on overdraft charged by the bank is:
(a) Debited in the pass book
(b) Credited in the pass book
(c) Debited in the cash book
(d) Credited in the cash book
Answer: (a) and (c) – single:
Answer: (a)
Explanation: Interest on overdraft increases the amount owed to the bank, so it is debited in the pass book (reducing the balance or increasing overdraft). The same amount must be debited in the cash book to reflect the expense.
Q20. When preparing a BRS with overdraft as per cash book as the starting point, uncollected cheques (deposited but not cleared) are:
(a) Added
(b) Subtracted
(c) Ignored
(d) Multiplied by 2
Answer: (a)
Explanation: Starting from cash book overdraft (credit balance), uncollected cheques have increased the cash book debit side (making overdraft less); to arrive at pass book overdraft we add them back.
Q21. Which of the following is NOT shown in the Bank Reconciliation Statement?
(a) Cheques issued but not presented
(b) Bank charges not entered in cash book
(c) Outstanding expenses
(d) Interest credited by the bank not entered in cash book
Answer: (c)
Explanation: Outstanding expenses relate to accruals and are not bank transactions; they do not appear in a BRS.
Q22. If the cash book shows a debit balance of Rs. 10,000 and the pass book shows a credit balance of Rs. 8,000, the difference of Rs. 2,000 is due to:
(a) Cheques issued but not presented
(b) Cheques deposited but not cleared
(c) Bank charges not entered in cash book
(d) Interest credited not entered in cash book
Answer: (b)
Explanation: Cash book debit balance (favorable) is higher than pass book credit balance (unfavorable or lower). The excess in cash book arises from cheques deposited but not yet cleared, which increased cash book debit but not yet credited in pass book.
Q23. Bank Reconciliation Statement helps in:
(a) Detecting errors and frauds in bank transactions
(b) Calculating depreciation
(c) Valuing inventory
(d) Determining tax liability
Answer: (a)
Explanation: By comparing the two records, a BRS reveals discrepancies that may be due to errors, omissions, or fraudulent entries.
Q24. Which of the following will cause the cash book balance to be lower than the pass book balance?
(a) Cheques deposited but not yet cleared
(b) Cheques issued but not yet presented
(c) Interest credited by the bank not yet recorded in cash book
(d) Bank charges debited by the bank not yet recorded in cash book
Answer: (b) and (d) – single best:
Answer: (b)
Explanation: Unpresented cheques reduce the cash book balance (credit) but not yet deducted by pass book, making cash book lower. Bank charges not yet recorded also reduce cash book later, but currently cash book is higher; the immediate effect making cash book lower is unpresented cheques.
Q25. When the cash book shows a credit balance (overdraft) of Rs. 5,000 and the pass book shows a debit balance (favorable) of Rs. 2,000, the difference of Rs. 7,000 is due to:
(a) Cheques deposited but not yet cleared
(b) Cheques issued but not yet presented
(c) Bank charges not entered in cash book
(d) Interest credited not entered in cash book
Answer: (b)
Explanation: The cash book overdraft (credit) is less negative than the pass book debit balance, meaning the pass book shows a higher positive balance. This occurs when cheques issued are not yet presented: cash book already credited them (increasing overdraft less), while pass book still includes them as funds available, raising its balance.
—
End of 25 questions.
