CMA Foundation · Fundamentals of Financial and Cost Accounting

Cash Book, Petty Cash Book and Bank Reconciliation Statement

A cash book records all cash and bank receipts and payments in one book. A petty cash book records small expenses under the imprest system. A bank reconciliation statement (BRS) explains why the cash book bank balance differs from the passbook balance, and brings both to one agreed figure.

What this chapter covers

This chapter covers the books where you record money coming in and going out. You start with the cash book in its single, double and triple column forms. Then you move to the petty cash book, which handles small day-to-day expenses through the imprest system. Next comes the bank side: bank transactions, and why your bank balance in the books rarely matches the bank's own statement.

The last part is the Bank Reconciliation Statement. It lists the reasons for the difference between the cash book (bank column) and the passbook (bank statement), and it ties the two balances together. The questions are mostly numerical, but each one rests on a few clear rules about which items change which balance.

This chapter links to the rest of FFCA. The cash book is a ledger account as well as a book of original entry, so it connects to journal, ledger and trial balance. The BRS also feeds into the balance sheet figure for cash at bank. Clean practice here makes the later chapters on rectification and final accounts easier.

Every paper is 50 MCQs with no negative marking, and this chapter gives you questions that are quick to score once the method is fixed. A typical BRS question gives a few items and asks for the adjusted balance or the passbook balance. BRS questions are commonly practised and numerical. If you know the direction of each item, you can finish one in under two minutes. Cash book contra entries, discount columns and the imprest amount are also easy concept questions.

Cash Book, Bank Book, Petty Cash Book, Bank Reconciliation Statement: topics in the order to study them

1Cash Book: Single, Double and Triple ColumnIt is the base of the chapter. You must know debit and credit sides, discount columns and contra entries before anything else.
2Petty Cash Book and Imprest SystemIt is a small, self-contained extension of the cash book. Learn it early while the format is fresh, and it is easy to score.
3Bank Book and Bank TransactionsYou need to know how cheques, deposits, direct debits and bank charges are recorded before you can see why balances differ.
4Causes of Differences between Cash Book and PassbookThe BRS is built on these causes. You must know which side each item sits on in both records.
5Preparation of Bank Reconciliation StatementIt uses everything before it. Study it last, and practise it the most.

How to prepare Cash Book, Bank Book, Petty Cash Book, Bank Reconciliation Statement

Spend more time on practice than reading. The concepts are few, but speed and accuracy come only from solving.

Learn the three cash book formats. Remember that receipts go on the debit side, payments on the credit side, and a contra entry appears on both sides of the same book.
Learn the discount rule: discount allowed is a debit-side column and discount received is a credit-side column. Their totals are not balanced into the cash or bank columns.
Write the imprest system in your own words: a fixed float is given, expenses are paid from it, and the same amount spent is reimbursed at the end of the period.
List every cause of difference between cash book and passbook in a two-column table in your notes: items that change the cash book first, and items that change the passbook first.
Choose one starting point for BRS questions, usually the cash book balance, and use one rule: add what the bank will increase, subtract what the bank will decrease. Check the sign of the starting balance (favourable or overdraft) before you begin.
Solve at least 15 to 20 BRS-style MCQs on a timer. Aim for under two minutes each.
On the last day, redo only the questions you got wrong and read your cause-of-difference table once.

Common mistakes in Cash Book, Bank Book, Petty Cash Book, Bank Reconciliation Statement

Adding an item when it should be subtracted in the BRS, or the other way round.
Fix: Ask two things first: which balance am I starting from, and is it a favourable balance or an overdraft? Then decide whether the item raises or lowers the bank's balance.
Ignoring the overdraft position.
Fix: Circle the words overdraft and credit balance. For an overdraft, the effect of each item on the balance reverses.
Confusing the passbook with the cash book bank column.
Fix: Remember that a favourable balance is a debit in your cash book but a credit in the passbook. That is why the two records look opposite. The bank calls your deposit a credit in its books. In your cash book, a deposit is a debit.
Treating a contra entry as a normal receipt or payment.
Fix: Record both columns. Cash deposited into bank is one transaction affecting two columns, not two separate transactions.
Balancing the discount columns into the cash balance.
Fix: Do not balance the discount columns. They are not part of the cash or bank balance. Only total them, and post the totals to the Discount Allowed and Discount Received accounts.
Reimbursing the wrong amount under the imprest system.
Fix: Reimbursement equals the total spent in the period. The float stays constant, so opening cash plus reimbursement returns to the imprest amount.

Last-day revision: Cash Book, Bank Book, Petty Cash Book, Bank Reconciliation Statement

Cash book is both a book of original entry and a ledger account.
Double column cash book has cash and bank columns. Triple column adds a discount column.
A contra entry affects both cash and bank, so it appears on the debit and credit sides of the cash book.
Cash deposited into bank: debit bank column, credit cash column.
Discount columns are only totalled and posted to the discount accounts. They are not balanced.
Imprest system: a fixed amount is advanced and the exact amount spent is reimbursed.
Petty cashier's analytical columns help in posting expenses in totals.
Cheque issued but not yet presented lowers the cash book balance first, and the passbook later.
Cheque deposited but not yet collected raises the cash book balance first, and the passbook later.
Bank charges, interest and direct debits appear in the passbook first, so adjust the cash book.
A debit balance in the cash book bank column means money at bank. A credit balance means overdraft.
The BRS is a memorandum statement. It is not part of the double entry and does not change the books by itself. The cash book is corrected by journal or cash book entries for items such as bank charges, interest and direct debits.

Cash Book, Bank Book, Petty Cash Book, Bank Reconciliation Statement practice questions

Cash Book, Bank Book, Petty Cash Book, Bank Reconciliation Statement in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Cash Book, Bank Book, Petty Cash Book, Bank Reconciliation Statement: frequently asked questions

What is the difference between a cash book and a bank book?

A cash book records cash transactions, and in a double or triple column form it also records bank transactions. A bank book records only bank transactions. In both, the bank balance should be reconciled to the passbook.

Why does a bank reconciliation statement have to be prepared?

The bank balance in your books and in the bank's statement often differ because of timing, charges or errors. The BRS explains each difference. It helps you find mistakes and confirm the correct bank balance.

Do I need to prepare the BRS from the cash book balance or the passbook balance?

Either works if you apply the rules correctly. Most MCQs are easier from the cash book balance, so use that unless the question clearly asks for the other one. Always check whether the opening figure is a favourable balance or an overdraft.

How is the imprest system useful in petty cash?

The petty cashier gets a fixed amount and reports expenses. The main cashier reimburses only what was spent. This gives control over small expenses and makes the cash easy to check.