Very Short Question Answer

Write about Not Sufficient Fund (NSF) cheque.

A cheque that a bank refuses to honor because there is not enough money in the payer’s checking account to cover the amount of the check is written as not sufficient fund (NSF) cheque. A NSF cheque is an overdraft. It is also called as bad cheque or written cheque.

Write about Electronic Fund Transfer (EFT).

EFT is a way of transferring fund electronically. It reduces the burden of using paper documents for transferring fund. It is economical as well as time saving. The bank statement lists EFT receipts and payments along with other transactions.

What do you mean by deposit in transit or outstanding deposit?

A deposit in transit in cash currency, coins, cheque electronic transfers that a company has received and is rightfully reported as cash on, its balance sheet but does not appears on the bank statement until a later date.

Write short note on petty cash funds.

There are many payments of quite low value in business, which nevertheless must be recorded. All such items are called petty cash items. Petty cash fund is a small amount of cash kept on hand to pay for minor expenses, such as office supplies, or reimbursing employees for expenses too small for which issuing a cheque becomes unreasonable or unacceptable. The amount of petty cash fund varies by organization.

Long Question Answer

The following information is available for Pravash Company on Jan 31st, 2020.
  1. Balance of bank statement Rs.20,500.
  2. Cheques deposited in the bank Rs.5,000.
  3. Outstanding cheques, Rs.8,000.
  4. A customer’s cheques for Rs.1,000 was returned with the bank statement marked ‘NSF.
  5. Bank service charged Rs.200.
  6. Bill receivables collected by bank but not recorded in cash book Rs.2,000.
  7. Interest on the preceding bill recorded by bank Rs.200.

Required: Bank reconciliation statement of Pravash Company as on Jan 31, 2020.

SOLUTION

Unadjusted balance as per cash book = Adjusted balance + Total amount of item deducted – total amount of item added.

= 17,500 + 1,200 – 2,200

= Rs.16,500

Bank statement of A Company Ltd. disclosed a balance of Rs. 16,000 on June 30, 2019. On the same day the cash account in the company’s ledger disclosed Rs. 14,800. Your review reveals:
  1. Cheques under collection Rs.1,900
  2. Outstanding cheques, Rs.1000
  3. The cash deposit of Rs.7,450 recorded by the bank as Rs.7,350.
  4. A bills receivable of Rs.4,000 and interest of Rs.200 were collected by bank but have not been recorded in company’s account.
  5. A cheque for Rs.1,500 received from a customer was returned by the bank owing to lack of funds with the bank.
  6. Bank service charges, Rs.300
  7. A cheque for Rs.7,800 paid by the bank was recorded as Rs.7,600 by the company.

Required:

  1. Bank reconciliation statement
  2. Correct cash balance that A Company would report on the June 30 balance sheet.

SOLUTION

 

  1. The cash balance that should be reported in the balance sheet of A Company on June 30, is the adjusted balance i.e. Rs.17,000.
The following particulars are extracted from the records of a Trader.
  1. 1.Balance as per bank statement on 31st Ashwin is Rs.100,000.
  2. Cheques issued of Rs.18,000 before 31st Ashwin but not cleared till 4th Kartik.
  3. Cheques of Rs.56,000 deposited in the bank on 25th Ashwin but collected and credited in Kartik.
  4. Debit side of cash book was overcast by Rs.5,000.
  5. A bill receivable for Rs.12,000 due on 31 Ashwin was sent to the bank for collection and the proceeds were credited on Kartik 1st in the bank statement.
  6. Rs.13,000 as insurance premium paid by the bank as per standing instruction on 30 Ashwin had not been entered in the cash book.

Required: Bank reconciliation statement showing the balance as per cash book on 31 Ashwin.

SOLUTION

* Unadjusted balance as per cash book = 150,000 + 5,000 + 13,000 = Rs.168,000 Cash balance reported to the balance sheet as on 31st Ashwin = Rs.150,000

Note: The adjusted balance of both bank statement and cash book should be equal and that it should be reported in the balance sheet as cash at bank.

Following information are available for A Company on December 31, 2019.
  1. Bank overdraft as per cash book Rs.12,900. 
  2. A cheque issued by the firm on December 20th in favour of Anupama Electricals for Rs.4,200 was not presented for payment.
  3. Cheque for Rs.3,250 deposited on December 21st, but not yet collected and credited by the bankers.
  4. Interest on investment collected by the banker and credited in the pass book of Rs.2,700 but not recorded in cash book.
  5. Three cheques totaling Rs.6,800 were sent for the deposit on December 25th, out of which a cheque of Rs.2,300 has been found, dishonored but no record is made in the cash book.
  6. There was a debit of Rs.80 for bank charge in the pass book.
  7. Cheque for Rs.1,350 issued but omitted to be recorded in cash book.

   Required: Bank reconciliation statement

SOLUTION

Bank Reconciliation Statement

As on December 31st, 2019

Unadjusted balance of bank statement = Adjusted balance + Total amount to be deducted – Total amount to be added

= -13,930 +4,200 – 3,250

= Rs.12,980

                   

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