Question

State whether the following Statements are True or False.

1) Bank Reconciliation Statement is prepared by Bank.
2) Bank Reconciliation Statement is prepared at the end of stipulated period.
3) Overdraft facility is allowed to proprietors personal account
4) Debit balance of Pass Book represents overdraft
5) Credit balance of Bank column of Cash Book represents the balance as per Cash book.
6) Bank charges debited by Bank increases bank balance in the Pass Book.
7) Interest credited in Pass Book is an income to the Customer.
8) Bank Reconciliation Statement is prepared to detect the errors the takes place in accounting

Answer 1

(1) False

Explanation:
A Bank Reconciliation Statement is prepared by a trader to reconcile the differences between the bank balance as per the Cash Book and the Pass Book. The Cash Book is prepared by the trader and in order to reconcile the differences between both the books, a Bank Reconciliation Statement is prepared. Thus, a Bank Reconciliation Statement is prepared by the trader and not by a bank.

(2) True

Explanation:
A Bank Reconciliation Statement is prepared at the end of a stipulated time period and not at the end of a particular accounting period. It is prepared at a particular period of time that may be monthly, quarterly or annually to reconcile the balances of both the books.

(3) False

Explanation:
Overdraft facility is provided to a business for meeting its various business needs and not to the proprietor’s personal account. A business opens a current account with a bank and overdraft facility is provided on the current account of the business.

(4) True

Explanation:
The debit balance as per the Pass Book means overdraft balance. Amounts withdrawn are recorded on the debit side of the Pass Book, whereas, all the deposits are recorded on the credit side of the Pass Book. Thus, the debit balance of Pass Book represents the overdraft balance, as the debit side exceeds the credit side.

(5) False

Explanation:
The above statement is false, since the credit balance of the bank column of the Cash Book does not represent the balance as per Cash Book (i.e. favourable balance). Instead, it represents the overdraft or unfavourable balance as per the Cash Book. It indicates the amount that has been withdrawn in excess of deposits.

(6) False

Explanation:
A bank renders many services to its clients and charges a certain amount for these services. Bank charges are debited in the Pass Book and, thus, it will lead to a decrease and not an increase in the balance as per the Pass Book.

(7) True

Explanation:
Credit side of the Pass Book records all the deposits or incomes of the business. Cheques received, interest given or allowed, dividend received will be recorded on the credit side of the Pass Book. Therefore, interest credited in the Pass Book represents the income of the business or the customer.

(8) False

Explanation:
A Bank Reconciliation Statement is prepared to reconcile the differences between the bank balances as per the Cash Book and the Pass Book and not to detect the errors that takes place in accounting. Bank Reconciliation Statement shows the causes of differences that lead to a mismatch in the balances of both the books, such as direct deposits made by a customer, recording at different points of time etc., and not the accounting errors.